SECOND AMENDMENT TO
LOAN AGREEMENT AND LOAN DOCUMENTh
THIS SECOND AMENDMENT TO LOAN AGREEMENT AND LOAN DOCUMENTS ("Amendment")
dated as of the 17th day of July, 1997, is made and entered into on the terms
and conditions hereinafter set forth, by and between CONSUMAT ENVIRONMENTAL
SYSTEMS, INC. (formerly known as Reorganized Consumat Systems, Inc.), a Virginia
corporation ("Borrower"), and SIRROM INVESTMENTS, INC., a wholly-owned
subsidiary of and successor-in-interest to Sirrom Capital Corporation, a
Tennessee corporation ("Lender").
W I T N E S S E T H:
WHEREAS, Sirrom Capital Corporation and Lender have made term loans to
Borrower in the aggregate original principal amount of ONE MILLION and No/lOOths
Dollars ($1,000,000.00) (the "Loan") on the terms and conditions set forth in
that certain Loan Agreement dated as of March 12,1996, by and between Sirrom
Capital Corporation and Borrower (as now or hereafter amended, the "Loan
Agreement"); capitalized terms used herein but not otherwise defined shall have
the meanings ascribed thereto in the Loan Agreement; and
WHEREAS, the Loan is further evidenced and secured by certain
agreements, documents and instruments as more particularly described in the Loan
Agreement and defined therein as the "Loan Documents"; and
WHEREAS, Borrower desires to borrow from Lender and Lender desires to
lend to Borrower an additional FIVE HUNDRED THOUSAND and No/lOOths Dollars
($500,000.00) (the "Additional Loan"), all on the terms and conditions set forth
in the Loan Agreement, secured and evidenced by among other things (a) a
security interest in certain personal property granted pursuant to that certain
Security Agreement dated as of March 12, 1996, by and between Sirrom Capital
Corporation and Borrower (the "Security Agreement"); and (b) a security interest
in certain intellectual property granted pursuant to that certain Collateral
Assignment of Intellectual Property dated as of March 12,1996, by and between
Sirrom Capital Corporation and Borrower.
WHEREAS, this Amendment shall amend the Loan Documents.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
1. The second sentence of Section 1.1 of the Loan Agreement is hereby
amended to read in its entirety as follows:
The Loan shall be evidenced by (i) a promissory note (the "First
Note") in the original principal amount of $500,000.00, substantially
in the form of Exhibit A attached hereto and incorporated herein by
this reference, dated March 12, 1996, executed by Borrower in favor of
Sirrom Capital Corporation, (ii) a promissory note (the "Second Note")
in the original principal amount of $500,000.00, substantially in the
form of Exhibit A attached to that certain First Amendment to Loan
Agreement and Loan Documents dated March 26, 1997 (the "First
Amendment") and incorporated herein by this reference, of even date
with the First Amendment executed by Borrower in favor of Lender, and
(iii) a promissory note (the "Third Note") in the original principal
amount of $500,000.00, substantially in the form of Exhibit A attached
to the Amendment and incorporated herein by this reference, of even
date with the Amendment, executed by Borrower in favor of Lender (the
First Note, the Second Note, and the Third Note shall be referred to
herein collectively as the "Note").
2. The obligations of Borrower in connection with and/or relating to
the Additional Loan are further evidenced and/or secured by the Loan Documents.
3. Upon satisfaction of the conditions set forth in Section 9 hereof,
Lender shall immediately disburse the proceeds of the Additional Loan to
Borrower by wire transfer upon instructions therefor given to Lender.
4. Borrower hereby represents and warrants to Lender that all of the
representations made in Section 2.1 of the Loan Agreement are (i) now applicable
to Borrower and (ii) true and correct as of the date hereof, except as modified
or supplemented by Schedule A attached hereto and incorporated herein by this
reference.
5. The covenants and agreements in Article III of the Loan Agreement
are amended as set forth on Schedule B attached hereto and incorporated herein
by this reference.
6. Borrower hereby represents and warrants to Lender that all
representations regarding Borrower's location(s) set forth in Section 3(f) of
the Security Agreement are true and correct as of the date hereof.
7. Borrower shall pay to Lender a processing fee of $10,000.00 in
connection with the Additional Loan.
8. Borrower shall use the proceeds of the Additional Loan for (a)
working capital and (b) to finance a contract for the construction of an
incinerator.
9. The obligation of Lender to fund the Additional Loan on the date
hereof is subject to Borrower's satisfaction of each of the following:
2
(a) delivery to Lender of a Secured Promissory Note executed by
Borrower, substantially in the form of Exhibit A attached hereto;
(b) delivery to Lender of a Stock Purchase Warrant executed by
Borrower, substantially in the form of Exhibit B attached hereto, together with
a warrant valuation letter in form and substance acceptable to Lender;
(c) delivery to Lender of an opinion of XxXxxxx Xxxx, as Borrower's
counsel, of even date herewith, in form and substance acceptable to Lender's
counsel, Xxxxxxxxx, Xxxxxx & Xxxxxxx, P.C.;
(d) delivery to Lender of a Corporate Secretary's Certificate in form
and substance satisfactory to Lender;
(e) delivery to Lender of resolutions of Borrower's Board of Directors
authorizing the Additional Loan, the issuance of the stock purchase warrant in
connection therewith and the reservation of the shares to be issued in
connection with such warrant;
(f) delivery to Lender of XXX xxxxx 000, 000 xxx 0000 (Xxxx X)
completed and executed by Borrower; and
(g) delivery to Lender of a Subordination Agreement executed by Central
Fidelity in form and substance satisfactory to Lender's counsel.
10. The terms "Loan Document" and "Loan Documents" as defined in the
Loan Agreement are amended to include this Amendment and any and all other
documents relating to the Loan or the Additional Loan (i) by and between
Borrower or any other person or entity and Lender or (ii) executed by Borrower
or any other person or entity in favor of Lender.
11. Except as modified and amended hereby, the Loan
Documents shall remain in full force and effect.
3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment, or
have caused this Amendment to be executed by their duly authorized officers, as
of the day and year first above written.
BORROWER: LENDER:
CONSUMAT ENVIRONMENTAL SIRROM INVESTMENTS, INC.,
SYSTEMS, INC., a Tennessee corporation and
a Virginia corporation assignee of Sirrom Capital
Corporation
By: /s/ Xxxxxx X. Xxxxxx By: /s/ Xxxxx X. Xxxxx
Title: /s/ President & CEO Title: COO
4
SCHEDULE A
Modifications of and Supplements to
Representations and Warranties
1. The first sentence of Section 2.1(e) of the Loan Agreement is
deleted and replaced with the following:
The authorized capital stock of Borrower consists of (i)
25,000,000 shares of common stock, of which 1,011,200 shares
(the "Common Shares") are issued and outstanding, and (ii)
5,000,000 shares of preferred stock, of which 0 shares (the
"Preferred Shares") are issued and outstanding.
2. Schedule 2. l(e) to the Loan Agreement is deleted and replaced with
new Schedule 2.1(e) attached hereto.
3. Schedule 2. l(i)(A) and (B) to the Loan Agreement is deleted and
replaced with new Schedule 2. 1(i)(A) and (B) attached hereto.
4. Schedule 2.1(1) to the Loan Agreement is deleted and replaced with
new Schedule 2.1(1) attached hereto.
5. Schedule 2.1(o) to the Loan Agreement is deleted and replaced with
new Schedule 2.1(O) attached hereto.
6. Schedule 2.1(r) to the Loan Agreement is deleted and replaced with
new Schedule 2.1(r) attached hereto.
Schedule 2. 1(e) - Outstanding Options, Warrants, etc.
1996 Incentive Stock Option Agreement
-------------------------------------
NAME ISSUE DATE # OF SHARES EXERCISE PRICE EXPIRATION
---- ---------- ----------- -------------- ----------
Xxxxxx X. Xxxxxx 12/13/96 30,000 $1.5625 12/12/2006
Xxxxxx X. Xxx 12/13/96 20,000 1.5625 12/12/2006
Xxxx X. Hills 12/13/96 20,000 1.5625 12/12/2006
Xxxxxxxx X. Xxxxxxx 12/13/96 2,500 1.5625 12/12/2006
Xxxxx X. Xxxxx 12/13/96 10,000 1.5625 12/12/2006
Xxxxxx X. Xxxxx 12/13/96 2,500 1.5625 12/12/2006
G. Xxxxxxxx Xxxxxxx 12/13/96 2,500 1.5625 12/12/2006
Xxxxxx X. Silver 12/13/96 10,000 1.5625 12/12/2006
Directors' Stock Options
------------------------
D. Xxxxxxxx Xxxxxx 06/14/96 25,000 $ 3.50 06/14/2006
Xxxxxxx X. Xxxxxx 06/14/96 25,000 3.50 06/14/2006
Xxxxx Stock Option
------------------
Xxxxx T, Xxxxx 01/14/97 100,000 $ 1.3125 01/13/2007
Non-Management Stock Option Plan
--------------------------------
15,000 shares for 12/13/96 500 $ 1.5625 12/12/2006
30 Non-Management
Employees
(500 share each)
Schedule 2. l(i)(A) - Financial Statements
See December 1996 Statement of Earnings and Balance Sheet attached
Schedule 2. 1(i)(B) - Additional Borrowings Since
There has been no additional borrowings since the attached December 1996
Statements attached, except for the borrowing by Borrower of $500,000 from
Sirrom Capital Corporation on March 26, 1997.
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Balance Sheet
December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------
Assets Successor
- ------------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 684,262
Short-term investment 92,500
Accounts receivable and contract costs (net of allowance for doubtful accounts of $10,000) (note 4) 696,613
Inventories (note 5) 226,351
Other current assets 70,812
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 1,770,538
- ------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net (note 6 and 8) 669,893
Note receivable from officer (note 3) 19,028
Debt issuance costs, net of accumulated amortization 79,111
Deferred income taxes (note 11) 154,921
Reorganization value in excess of amounts allocable to identifiable
assets, net of accumulated amortization (note 2) 1,045,372
- ------------------------------------------------------------------------------------------------------------------------
$ 3,738,863
- ------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities of capital lease obligation (note 8) $ 75,082
Current maturities of long-term debt (note 7) 59,578
Accounts payable 63,764
Accrued warranty costs 61,400
Other accrued expenses 164,498
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 424,322
- ------------------------------------------------------------------------------------------------------------------------
Senior debt (note 9) 1,500,000
Long-term debt (note 7) 85,311
Capitalized lease obligation, excluding current maturities (note 8) 501,668
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,511,301
- ------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (note 13)
Stockholders' equity (note 10):
Preferred stock, $1 par value: authorized - 5,000,000 shares,
issued and outstanding shares - none -
Common stock, $1 par value: authorized - 25,000,000 shares;
issued and outstanding shares - 1,010,000 1,010,000
Retained earnings 217,562
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,227,562
- ------------------------------------------------------------------------------------------------------------------------
$ 3,738,863
- ------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
(Formerly Reorganized Consumat Systems, Inc.)
Statements of Income
December 31, 1996
- -------------------------------------------------------------------------------------------------------------------
Successor Predecessor
----------------- ------------------------------------
Period from Period from
March 12 to January 1 to Year ended
December 31, March 11, December 31,
1996 1996 1995
- -------------------------------------------------------------------------------------------------------------------
Revenues $ 4,282,194 923,043 4,399,309
Cost of revenues 2,866,987 706,309 3,246,326
- -------------------------------------------------------------------------------------------------------------------
Gross profit 1,415,207 216,734 1,152,983
Selling, general and administrative expenses 790,428 177,710 992,110
Amortization of reorganization value in excess
of amounts allocable to identifiable assets 43,066 - -
- -------------------------------------------------------------------------------------------------------------------
Operating income 581,713 39,024 160,873
Other income (expense):
Investment income 20,192 - 5,264
Interest expense (242,369) (48,998) (107,217)
Other 18,026 48,660 30,318
- -------------------------------------------------------------------------------------------------------------------
Total other income (expense), net (204,151) (338) (71,635)
- -------------------------------------------------------------------------------------------------------------------
Income before fresh start revaluation, income tax
expense and extraordinary item 377,562 38,686 89,238
Fresh start revaluation (note 2) - 538,480 -
- -------------------------------------------------------------------------------------------------------------------
Income before income tax expense and
extraordinary item 377,562 577,166 89,238
Income tax expense 160,000 - -
- -------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 217,562 577,166 89,238
Extraordinary item-gain on debt discharge,
net of income taxes - 9,907 -
- -------------------------------------------------------------------------------------------------------------------
Net income $ 217,562 587,073 89,238
- -------------------------------------------------------------------------------------------------------------------
Income per common share:
Primary $ 0.17 0.38 0.06
Fully diluted $ 0.15 0.38 0.06
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Schedule 2.1(1) - Schedule of Debts and Liens
Lighthouse Investments, LLC
Promissory Note dated 3/12/96
Outstanding Balance: $119,475.68 including accrued interest
Security: All standard shop drawings owned by Consumat for its product lines of
waste disposal and air pollution control equipment
Schedule 2. l(o) - Debts to/from Shareholders. Officers and Directors
Note Receivable from Xxxxxx X. Xxxxxx, President
Note dated 12/11/85
Original Balance: $75,000.00
Current Balance: $19,028.00
Schedule 2. 1(r) - Schedule of Contracts in Excess of $25.000
Air Pollution Control Products, Inc.
Purchase Order # 008637 Change Order
Project # P-5227 Pentagon Project Addition
Contract Value: $622,400
Air Pollution Control Products, Inc.
Project # P-5261 East Carolina University Medical Center
Contract Value: $751,715
Samsung Heavy Industries Co., Inc.
Xxxxxxxx Xxxxx # X0XX0000
Project # 5272 Hankook Time
Contract Value: $2,137,288
SCHEDULE B
Amendments to Covenants and Agreements
None
