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EXHIBIT 10.7
FIRST AMENDMENT TO NOTE AGREEMENT
THIS FIRST AMENDMENT TO NOTE AGREEMENT (this "Amendment") is entered
into by and among ACR Group, Inc., a Texas corporation (the "Parent"), 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"), and The Catalyst Fund, Ltd., a Texas
limited partnership (with its respective successors and assigns as holders of
the Note (as hereinafter defined) herein called the "Lender"), amending that
certain Note Agreement dated effective May 26, 1993 by and among Parent, ACR
Supply, Heating, Total Supply and Lender (the "Agreement"). Except as otherwise
specifically indicated, the term "Agreement" shall include not only the
Agreement but also the Amendment. All capitalized terms contained herein shall
have the same meanings as ascribed to them in the Agreement, except as otherwise
defined herein.
ACR Supply, Total Supply, Heating, and West Coast are sometimes
collectively referred to herein as the "Borrowing Subsidiaries."
W I T N E S S E T H
WHEREAS, West Coast desires to expand its operations and requires
additional capital to undertake such expansion; and
WHEREAS, West Coast intends to purchase all of the operating assets of
A.C.H. Supply, Inc., a California corporation ("ACH") (such acquisition being
referred to as the "ACH Acquisition"), and desires to borrow the amount of
$450,000 from Lender to assist it in consummating the ACH Acquisition; and
WHEREAS, the Lender is willing to make a loan to West Coast to assist
it in making the ACH Acquisition; and
WHEREAS, West Coast has authorized the issue of a Promissory Note in
the original principal amount of $450,000 (the "West Coast Note"; the West Coast
Note and the Notes shall be referred to herein collectively as the "Notes" and
singularly as the "Note").
WHEREAS, the Lender desires to acquire the West Coast Note and to make
a loan to West Coast thereunder; and
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First Amendment to Note Agreement
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WHEREAS, the Parent, the Borrowing Subsidiaries and the Lender desire
to amend certain sections of the Agreement to reflect the foregoing;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties agree as follows:
1. Section 1.1 of the Agreement shall be supplemented and added
thereto is the following:
1.1 Terms Defined. As used in this Agreement, the following
terms have the respective meanings set forth below or set forth in the Section
or paragraph following such term:
Subject Document - any of the Agreement, the
Amendment, the Notes, the West Coast Note, the Security Agreements, the ACR
Supply Confirmation of Security Agreement, the Total Supply Confirmation of
Security Agreement, the Heating Confirmation of Security Agreement, the West
Coast Security Agreement, the Warrant, the Registration Rights Agreement, the
Stock Pledge Agreement, the Parent Guaranty, the Parent Confirmation of
Guaranty, the ACR Supply Guaranty, the ACR Supply Confirmation of Guaranty, the
Total Supply Guaranty, the Total Supply Confirmation of Guaranty, the Heating
Guaranty, the Heating Confirmation of Guaranty, the West Coast Guaranty, 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.
2. Section 2.2(a) of the Agreement is hereby amended by deleting the
first sentence thereof and substituting the following sentence:
(a) As of March 31, 1997, the authorized capital stock of the
Parent consisted solely of 25,000,000 shares of common stock,
$.01 par value, of which 10,371,555 such shares were issued
and outstanding, and 2,000,000 shares of preferred stock, of
which none of such shares were issued and outstanding.
3. Section 2.2(b) of the Agreement shall be supplemented and added
thereto is the following additional sentence at the end of Section 2.2(b):
The authorized capital stock of West Coast consists of 1,000,000 shares
of common stock, $.01 par value, of which 100,000 shares are issued and
outstanding; all of the issued and outstanding capital stock of West Coast is
owned by Parent.
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4. Section 2.11 of the Agreement shall be supplemented and added
thereto is the following additional sentence at the end of Section 2.11:
West Coast shall use the proceeds of the West Coast Note to assist in
funding the ACH Purchase.
5. Section 3.1 of the Agreement is hereby supplemented by adding
thereto the following:
3.1 A. Commitment; Closing Date. On the basis of the representations
and warranties set forth herein, the Lender shall purchase from West Coast, and
West Coast shall issue and sell to the Lender, the West Coast Note at a price
equal to 100% of the principal amount thereof. Delivery of the West Coast Note
will be made at the offices of Xxxxx, Xxxxx & Xxxxxx, Inc., at 0 Xxxxxxxx Xxxxx,
Xxxxx 0000, Xxxxxxx, Xxxxx, against payment therefor by wire or other transfer
of immediately available funds in the amount of $450,000 to an account
designated by West Coast, on execution hereof (the " New Closing Date").
6. Section 3.2 is hereby supplemented by adding thereto the following:
3.2 A. Lender's Conditions. The Lender's obligation to purchase the
West Coast Note on the New Closing Date pursuant to Section 3.1A 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 the Borrowers in this Agreement,
any other Subject Document, or any certificate delivered pursuant
hereto or thereto shall be true and complete on the Closing Date with
the same effect as though made on and as of such date.
(b) Compliance with this Agreement - each of Borrowers 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 New Closing
Date.
(c) No Material Effect - no event shall have occurred and no
condition shall exist that has resulted or, in the Lender's good-faith
judgment, will result in a Material Effect.
(d) Officers' Certificates - the Lender shall have received
Officers' Certificates from each of the Borrowers dated the New Closing
Date certifying that (i)
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the conditions specified in Section 3.2A(a) and A(b) have been
fulfilled, and (ii) no event has occurred and no condition exists that
has resulted or, in such Person's good-faith judgment, will result in a
Material Effect.
(e) Secretary's Certificates - the Secretary of each of the
Borrowers shall have executed and delivered to the Lender (i) certified
copies of such Borrower's Organizational Documents and of resolutions
of such Borrower's board of directors and, if required by such
Borrower's Organizational Documents or otherwise, its Securities'
holders authorizing such Borrower's execution, delivery, and
performance of this Agreement, the Amendment, the West Coast Note, 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 the
Lender unless the Lender is notified subsequent to the Closing Date by
such Borrower to the contrary, and (ii) a certificate of incumbency
dated the New Closing Date with respect to each individual executing
this Agreement, the West Coast Note, or any other Subject Document on
such Borrower's behalf.
(f) West Coast Note - West Coast shall have executed and
delivered to the Lender the West Coast Note dated the New Closing Date
in the principal amount of $450,000.
(g) ACR Supply 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.
(h) Total Supply 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.
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(i) Heating 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.
(j) West Coast Security Agreement and Financing Statements -
(i) West Coast 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) 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.
(k) Opinion of Counsel - Xxxxxx X. Xxxx, counsel for the
Borrowers, shall have delivered to the Lender an opinion in form and
substance reasonably satisfactory to the Lender and the Lender's
counsel.
(l) Proceedings Satisfactory - all proceedings taken in
connection with the issuance and sale of the New Notes and all Subject
Documents shall be reasonably satisfactory to the Lender and the
Lenders' counsel, and the Lender and the Lenders' counsel shall have
received copies of such closing documents as they may reasonably
request in connection therewith, all in form and substance satisfactory
to the Lender and the Lender's counsel.
(m) Capital Contributions - All stockholders of each of the
Borrowers shall have made all capital contributions required to be made
with respect to their interests in such Borrower, pursuant to such
Borrower's Organizational Documents or otherwise.
(n) Insurance - (i) the Borrowers shall have delivered to the
Lender a certificate which summarizes all insurance maintained by the
Borrowers with respect to their respective Properties and businesses,
including, without limitation, liability, worker's compensation, health
and medical, property and casualty insurance, and (ii)
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the Parent shall have delivered to the Lender evidence satisfactory to
the Lender that it has secured the "key man" policies required by
Section 6.15 and caused the Lender to be named a "loss payee"
thereunder as provided in Section 6.15.
(o) 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.
(p) Small Business Administration Documents - the Borrowers
shall have delivered to the Lender such Small Business Administration
compliance documents as the Lender may reasonably request.
(q) Confirmation of Stock Pledge Agreement - the Parent 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.
(r) Confirmation of Parent Guaranty - the Parent shall have
executed and delivered to the Lender a Confirmation of Guaranty
Agreement.
(s) Confirmation of ACR Supply Guaranty - ACR Supply shall
have executed and delivered to the Lender a Confirmation of Guaranty
Agreement.
(t) Confirmation of Total Supply Guaranty - Total Supply shall
have executed and delivered to Lender a Confirmation of Guaranty
Agreement.
(u) Confirmation of Heating Guaranty - Heating shall have
executed and delivered to the Lender a Confirmation of Guaranty
Agreement.
(v) West Coast Guaranty - West Coast shall have executed and
delivered to the Lender a Guaranty Agreement.
7. Section 3.5 is hereby supplemented in its entirety, and added
thereto is the following:
3.5 A. Expenses. The Borrowers promptly shall pay the
following expenses relating to this Agreement and the transactions contemplated
by the Subject Documents:
(a) all reasonable expenses relating to the
negotiation, execution and delivery of, and any amendments,
waivers, or consents with respect to, this
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Amendment, the West Coast Note, and the other Subject
Documents, including, without limitation, the reasonable fees
and expenses of Xxxxx, Xxxxx & Xxxxxx Incorporated, the
Lender's counsel; and
(b) all reasonable expenses relating to the
enforcement of the rights of the Lender (including all Persons
constituting the Lender if there are more than one) under this
Agreement and the Amendment, the Notes, and the other Subject
Documents.
The Lender at its option may apply a portion of the purchase price of the New
Notes to the payment of any such amounts owed and past due as of such time. Each
of the Borrowers shall indemnify and hold harmless the Lender from any and all
such reasonable expenses and any claims, damages, disputes or other losses or
costs (including, without limitation, reasonable attorneys' fees) arising from
such expenses.
8. Section 4.2 of the Agreement is hereby supplemented by adding
a new subsection (g) as follows:
"(g) West Coast. Interest on the West Coast Note at the rate of 12
1/2% per annum shall be due and payable in monthly
installments, the first installment of interest to become due
and payable beginning May 26, 1997, and continuing regularly
and monthly thereafter on the same day of every month through
and including August 26, 1999. Principal is payable in monthly
installments of $18,750 plus accrued interest, with additional
payments of principal in a like amount on the first day of
each month thereafter commencing on September 26, 1999
together through and including August 26, 2001. Interest
computed on the unpaid principal balance is payable monthly as
it accrues on the same dates as and in addition to principal.
Interest will be calculated on the unpaid principal balance to
the date of each payment. Prepayments will be credited first
to the accrued but unpaid interest, and then to installments
of unpaid principal in the inverse order of maturity.
9. Section 4.3 of the Agreement is hereby amended by deleting the first
sentence and substituting therefore the following:
As of any Business Day, but only if a Borrowing Subsidiary
shall have notified Lender specifying the date therefor no earlier than
the 30th day and no later than the 14th day before such date, such
Borrowing Subsidiary may prepay all or part of the principal amount
outstanding under its respective Note; provided, however, that any
partial prepayment shall be an aggregate amount of at least $100,000;
and provided
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further, that in the event of a partial prepayment after a Default or
an Event of Default has occurred and is continuing, Lender shall not be
deemed to have waived such Default or Event of Default or otherwise
limited in any manner its rights or remedies with respect thereto.
10. The Parties hereto acknowledge and agree that the financial
covenants contained in Section 6.9 of the Agreement have been changed pursuant
to that certain Memorandum from Xxx Xxxxx of the Lender to Xxxx Xxxxxxx of the
Borrower dated as of October 7, 1996 which Borrower acknowledges and agrees to
be bound by such Memorandum by its execution of this Amendment (the "New
Covenants"). The Parties agree that: Section 6.9 of the Agreement is hereby
supplemented in its entirety and added is the following (i) the Times Interest
Earned number for May 31, 1999 contained in Section 6.9(a) of the New Covenants
shall also be required for February 28, 2000 and February 28, 2001; (ii) the
NIBT number for May 31, 1999 contained in Section 6.9(b) of the New Covenants
shall also be required for August 31, 1999, November 30, 1999, February 28,
2000, May 31, 2000, August 31, 2000, November 30, 2000, and February 28, 2001;
(iii) the Parent's consolidated net book value of tangible assets number for May
31, 1999 contained in Section 6.9(c) of the New Covenants shall also be required
for August 31, 1999, November 30, 1999, February 28, 2000, May 31, 2000, August
31, 2000, November 30, 2000, and February 28, 2001; and (iv) the Debt to Worth
Ratio number for May 31, 1999 contained in Section 6.9(d) of the New Covenants
shall also be required for August 31, 1999, November 30, 1999, February 28,
2000, May 31, 2000, August 31, 2000, November 30, 2000, and February 28, 2001;
and (v) the Parent's consolidated current ratio number for May 31, 1999
contained in Section 6.9(e) of the New Covenants shall also be required for
August 31, 1999, November 30, 1999, February 28, 2000, May 31, 2000, August 31,
2000, November 30, 2000, and February 28, 2001.
11. Section 6.15 of the Agreement is hereby deleted in its entirety and
substituted therefor is the following:
6.15 Insurance. The Borrowers 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. The Borrowers
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 the Borrowers' and as may be reasonably requested by the
Lender in amounts reasonably requested by the Lender. In addition, the Parent
will secure and pay for "key man" insurance policies covering Xxxx Xxxxxxx, Jr.,
which policy shall (i) be in the amount of $1,000,000 and name the Parent as
beneficiary thereunder; provided, however, that the amount of such key man life
insurance
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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 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 six years from the New Closing Date. As of
the closing of the transactions contemplated by this Amendment, the Borrowers
will deliver to the Lender a written summary of all insurance held by the
Borrowers. Additionally, at any time and from time to time, the Borrowers will
furnish evidence of all insurance required by this Section 6.15 to the Lender
upon request by the Lender.
12. The Parties hereby acknowledge and agree that, in accordance with
the provisions of the Agreement, all representations, warranties or covenants
made by the Borrowing Subsidiaries in the Agreement, and all obligations of the
Borrowing Subsidiaries thereunder, shall survive the execution of this Amendment
and shall terminate upon the final payment due under the Notes. The Parent and
the Borrowing Subsidiaries hereby certify that all of the representations,
warranties and covenants are true and correct as of the New Closing Date and
that there are no and have not been any defaults thereunder.
13. All of the other terms and conditions contained in the Agreement
shall remain in full force and effect except as otherwise specifically amended
hereby.
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IN WITNESS WHEREOF, the Parent, the Borrowing Subsidiaries and Lender
have duly executed this First Amendment to Note Agreement effective as of the
14th day of April, 1997.
PARENT
ACR GROUP, INC.,
a Texas corporation
By:
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Name:
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Title:
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BORROWING SUBSIDIARIES
ACR SUPPLY, INC.,
a Texas corporation
By:
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Name:
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Title:
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TOTAL SUPPLY, INC. f/k/a
FABRICATED SYSTEMS, INC.,
a Texas corporation
By:
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Name:
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Title:
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HEATING AND COOLING SUPPLY, INC.
a Nevada corporation
By:
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Name:
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Title:
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WEST COAST HVAC SUPPLY, INC.,
a Texas corporation
By:
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Name:
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Title:
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LENDER
THE CATALYST FUND, LTD.,
a Texas limited partnership
By:
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Name:
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Title:
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First Amendment to Note Agreement
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