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EXHIBIT 10.38
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("Amendment" or "First Amendment")
executed October ____, 1998 to be effective as of September 24, 1998 ("Effective
Date"), is between XETEL CORPORATION ("Borrower") and CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION ("Bank," formerly Texas Commerce Bank National
Association).
PRELIMINARY STATEMENT. Borrower and Bank entered into a Amendment and
Restatement of Credit Agreement dated as of June 25, 1998 (as amended by this
and prior amendments, "Credit Agreement" or "Agreement"). In this Amendment, all
capitalized terms defined in the Credit Agreement and not otherwise defined
herein have the same meanings as in the Credit Agreement, and each Section,
Exhibit and similar reference is to the Credit Agreement as amended. Borrower
and Bank have agreed to amend the Credit Agreement to the extent set forth
herein, and in order to, among other things, modify the revolving Commitment and
various covenants and conditions of lending.
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties, Borrower and Bank agree as follows:
1. REVOLVING CREDIT NOTE. Section 1.1.A is amended to read as follows:
"REVOLVING CREDIT NOTE 1.1.A-1 Subject to the terms and conditions hereof,
Bank agrees to make loans ("REVOLVING LOANS") to Borrower from time to time
before the Termination Date, not to exceed at any one time outstanding the
lesser of the Borrowing Base or $17,000,000.00 (the "COMMITMENT"), such
amount also subject to reduction in respect of L/C Obligations as provided
hereinafter. Borrower has the right to borrow, repay and reborrow. Loans may
only be used for supporting Borrower's accounts receivable and inventory.
Chapter 346 of the Texas Finance Code (which governs certain revolving loan
accounts) will not apply to this Agreement, the Revolving Note, any
Revolving Loan or L/C Obligation. Revolving Loans will be evidenced by, and
will bear interest and be payable as provided in, Borrower's $17,000,000.00
Revolving Credit Note dated the Effective Date (together with any and all
renewals, extensions, modifications and replacements thereof and
substitutions therefor, the "REVOLVING NOTE"), given to renew and increase
Borrower's $10,000,000.00 revolving promissory note dated April 15, 1997
(including all prior notes of which said note represents a renewal,
extension, modification, increase, substitution, rearrangement or
replacement thereof, a "Renewed Note"). "TERMINATION DATE" means the earlier
of: (a) August 31, 1999; or (b) the date specified by Bank pursuant to
Section 6.1 hereof.
"LETTER OF CREDIT SUB-LIMIT 1.1.A-2:
"(a) Subject to the approval of Bank in Bank's sole discretion, Bank may
issue commercial or standby letters of credit ("Letters of Credit") before
the Termination Date for the account of Borrower and in favor of such
Person(s) designated by Borrower. Each Letter of Credit shall expire no
later than the Termination Date. Borrower shall request each Letter of
Credit using Bank's then standard form of application for the type requested
("Application"), presented in form and substance satisfactory to Bank, not
less than 2 business days before the requested issuance date, and shall pay
the fees quoted by the Bank for such issuance. Borrower authorizes Bank to
advance Revolving Loans under the Revolving Note, in Bank's sole discretion
and without notice to Borrower, to make payment on any L/C Obligation.
Letters of Credit shall be issued for the purpose of [PROVIDING SUPPORT FOR
BORROWER'S OBTAINING SUPPLIER CREDIT FOR REGULAR BUSINESS OPERATIONS].
"(b) Limitations: (i) The face amount of all outstanding Letters of Credit,
plus the amount of all unreimbursed drawings or other amounts owing to Bank
under or in respect of all Letters of Credit and Applications (such sum
being the "L/C Obligations") shall not at any time exceed $3,000,000.00;
(ii) the sum of L/C Obligations and Revolving Loans outstanding at any one
time shall not exceed $17,000,000.00; and (iii) the sum of all L/C
Obligations plus Loans outstanding at any one time shall not exceed the
Borrowing Base."
2. CONFIRMATION OF SECURITY INTERESTS. No security interest, lien, or other
interest granted by Borrower, any guarantor or other person to Bank is released
or limited in connection with the execution of this Amendment. Borrower confirms
and ratifies each of the liens, security interests and other interests granted
in each and all security agreements executed in connection with, related to, or
securing the Prior Credit Agreement, Renewed Notes, and Notes as extending to
and securing all, Loans, Notes and L/C Obligations including but not limited to
each of those interests and liens described in the following listed Security
Agreements. Borrower further agrees and acknowledges that the terms "secured
indebtedness," "indebtedness secured hereby," "Obligations" and any similar
reference used in any security agreement executed by Borrower in favor of Bank,
including but not limited to the following security agreements executed by
Borrower and delivered to Bank: Security Agreement Accounts dated August 23,
1996; Security Agreement - Inventory dated August 23, 1996, any supplemental
security agreements supplementing any of the foregoing, and any other security
agreements previously executed by Borrower and delivered to Bank and not
released by Bank and all security agreements executed as of the Effective Date
(each and all "Security Agreements") include, but are not limited to, each and
all indebtedness of all character and kind related to or evidenced by the
Revolving Note, the Advance/Term Note L/C Obligations or otherwise related to
the Loan Documents.
3. Exhibits A and C are replaced with Exhibits A and C attached hereto.
4. ASSET AUDIT. Pursuant to Section 4.5, Borrower and Bank have scheduled as
asset field audit to commence November 9, 1998, Borrower acknowledging that
execution of this amendment is premised upon Bank's reliance that such audit
will be facilitated on a timely basis.
5. In consideration for the modifications to the terms of the Commitment made by
this Amendment, Borrower agrees to pay a flat fee in the aggregate amount of
$50,000.00, of which $25,000.00 shall be due and payable upon execution of this
Amendment and $25,000.00 due and payable January 1, 1999.
6. YEAR 2000. Any reprogramming required to permit the proper functioning, in
and following the year 2000, of (i) the Borrower's and Guarantors' computer
systems and (ii) equipment containing embedded microchips (including systems and
equipment supplied by others or with which Borrower's or Guarantors' systems
interface) and the testing of all such systems and equipment, as so
reprogrammed, will be completed by January 1, 1999. The cost to Borrower and
Guarantors of such reprogramming and testing and of the reasonably foreseeable
consequences of year 2000 to the Borrowers and Guarantors (including, without
limitation, reprogramming errors and the failure of others' systems or
equipment) will not result in any Event of Default or have a material adverse
effect on Borrower or any Guarantor.
7. Borrower represents and warrants to Bank that after giving effect to this
Amendment: (a) the representations and warranties set forth in the Credit
Agreement are true and correct on the date hereof as though made on and as of
such date; and (b) no Event of Default, or event which with passage of time, the
giving of notice or both would become an Event of Default, has occurred and is
continuing as of the date hereof. Borrower further acknowledges and agrees that
each of the other Loan Documents is in all other respects ratified and
confirmed, and all of the rights, powers and privileges created thereby or
thereunder are ratified, extended, carried forward and remain in full force and
effect except as the Credit Agreement is amended by this Amendment.
8. This Amendment shall become effective as of its Effective Date upon execution
and delivery by each of the parties named in the signature lines below, and
"Agreement" and "Credit Agreement" as used in the Credit Agreement and this
Amendment shall refer to the Credit Agreement as amended by this Amendment. This
Amendment shall be included within the definition of "Loan Documents" as used in
the Agreement. This Amendment may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute but one and the same agreement.
9. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS AND AS APPLICABLE, THE LAWS OF THE UNITED STATES OF
AMERICA.
THIS WRITTEN AMENDMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN
AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE,
AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
effective as of its Effective Date.
BORROWER: CUSTOMER BANK: CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION
By: By:
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Name: Name:
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Title: Title:
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Address:
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EXHIBIT A
BORROWING BASE REPORT
BORROWING BASE REPORT FOR PERIOD BEGINNING:__________ AND ENDING _________
("CURRENT PERIOD") REQUIRED BY THE CREDIT AGREEMENT DATED JUNE 25, 1998 BETWEEN
XETEL CORPORATION AND CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
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BORROWER WILL DELIVER THIS BORROWING BASE REPORT COMPLETED IN PROPER FORM ON
EACH THURSDAY REPORTING INFORMATION AS OF THE PREVIOUS SATURDAY, AND PROVIDE
WITH EACH SUCH REPORT AN ACCOUNTS RECEIVABLE AGING AND LISTING, AND AN INVENTORY
REPORT.
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Line
1 . Total Accounts as of the end of the Current Period $_____
INELIGIBLE ACCOUNTS AS OF THE END OF THE CURRENT PERIOD:
2. That portion (e.g., invoice) of all of the Accounts of any Account
Debtor where the Account is more than 90 days from invoice date (net
of unapplied cash and return material authorizations) $_____
3. That portion of all of the Accounts of any Account Debtor which exceeds
25% of the dollar amount of the total of all Accounts for all Account
Debtors for the Current Period (Line 1); except that with approval in
writing by Bank in its sole discretion, the percentage specified in
this item shall be higher with respect to such Account Debtors as
Borrower and Bank shall mutually specify $_____
4. Intercompany and Affiliate Accounts (Total Intercompany and Affiliate
Accounts = $__________ less $__________ [not to exceed $500,000.00 in
the aggregate] in Intercompany and Affiliate Accounts which Borrower,
by signing below, certifies as arising from "arms length" transactions) $_____
5. Government Accounts $_____
6. Foreign Accounts $_____
7. Accounts subject to any dispute or setoff or contra account $_____
8. Other Ineligible Accounts $_____
9. Total Ineligible Accounts for the Current Period (Add Lines 2 through 8) $_____
10. Total Eligible Accounts for the Current Period (Line 1 - Line 9) $_____
11. Multiplied by: Accounts Advance Factor 80%
12. Equals: Accounts Component of Borrowing Base $
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13. Total Foreign Accounts secured by a letter of credit issued by a bank
satisfactory to the Bank or covered by Exim bank insurance ("Secured
Foreign Accounts") $_____
14. Multiplied by: Secured Foreign Accounts Advance Factor 90%
15. Equals: Secured Foreign Accounts Component of Borrowing Base $
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16. Accounts of Ericsson, Inc., Dell Computer Corp., Dell International, Inc.
and all Subsidiaries of Dell International, Inc. or otherwise approved by
Bank in writing ("Acceptable Foreign Accounts") $_____
17. Multiplied by: Acceptable Foreign Accounts Advance Factor 80%
18. Equals: Acceptable Foreign Accounts Component of Borrowing Base $
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[LINES 19-23 NEED NOT BE REPORTED IF BORROWING BASE EXCLUDING AVAILABILITY
FROM INVENTORY IS SUFFICIENT TO COVER AGGREGATE AMOUNT OF LINE 25]
19. Net book value of Inventory as of the end of the Current Period $_____
20. Less: Ineligible Inventory $_____
21. Total Eligible Inventory as of the end of the
Current Period (Line 19 - Line 20) $_____
22. Multiplied by: Inventory Advance Factor 25%
23. Equals: Inventory Component of Borrowing Base $
(Not to exceed 25% of the Borrowing Base at any time) =====
24. Total BORROWING BASE as of the end of the Current Period (not to exceed $
$17,000,000) (Line 12 + Line 15 + Line 18 + Line 23) =====
25. Less: Aggregate principal outstanding under Notes as end of Current Period:
Revolving Note $_____
L/C Obligations $_____
Advance/Term Note $_____
Total usage of commitment $
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26. Equals: Amount available for borrowing subject to the terms of the
Agreement, if positive; or amount due, if negative $_____
The terms "ACCOUNTS" and "INVENTORY" have the respective meanings as set forth
in the Texas Business and Commerce Code in effect as of the date of the
Agreement. Inventory shall be valued at the lesser of: (a) market value; and (b)
cost. "OTHER INELIGIBLE ACCOUNTS" mean all such Accounts of Borrower that are
not subject to a first and prior Lien in favor of Bank, those Accounts that are
subject to any Lien not in favor of Bank and those Accounts of Borrower as shall
be deemed from time to time to be, in the sole judgment of Bank, ineligible for
purposes of determining the Borrowing Base. "INELIGIBLE INVENTORY" means that
Inventory of Borrower that is not subject to a first and prior Lien in favor of
Bank, that Inventory that is subject to any Lien not in favor of Bank and that
Inventory of Borrower as shall be deemed from time to time to be in the sole
judgment of Bank, ineligible for purposes of determining the Borrowing Base. All
other terms not defined herein shall have the respective meanings as in the
Agreement.
Borrower certifies that the above information and computations are true,
correct, complete and not misleading as of the date hereof.
Borrower: XETEL CORPORATION
By:
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Name:
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Title:
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Address:
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Date:
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EXHIBIT A
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EXHIBIT C to Agreement between XETEL CORPORATION ("Borrower")
and Chase Bank of Texas, National Association ("Bank")
dated June 25, 1998 (as may be amended, restated and supplemented in writing).
REPORTING REQUIREMENTS, FINANCIAL COVENANTS AND COMPLIANCE CERTIFICATE
FOR CURRENT REPORTING PERIOD ENDING _______, 199_ ("END DATE")
A. REPORTING PERIOD. THIS EXHIBIT WILL BE IN PROPER FORM AND SUBMITTED AS PROVIDED IN PART B. Borrower's fiscal year ends
March 30.
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B. Financial Reporting. Borrower will provide the following financial information within the times indicated: Compliance
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WHEN DUE WHAT (Circle)
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(i) Within 90 days of fiscal year end Annual financial statements (balance sheet, income statement, cash flow Yes No
statement) audited (with unqualified opinion) by independent certified
public accountants satisfactory to Bank, accompanied by Compliance
Certificate.
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(ii) Within 45 days of each fiscal Unaudited interim financial statements (10-Q) accompanied by Compliance Yes No
quarter End Date, including final Certificate
quarter of fiscal year
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(iii) Within 30 days of the end of Beginning with Borrower's fiscal October 1998, unaudited interim Yes No
each month, including final month of financial statements accompanied by Compliance Certificate
fiscal year
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(iv) As provided in Exhibit A Borrowing Base Report with accounts receivable aging and listing & Yes No
inventory report
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C. FINANCIAL COVENANTS. Borrower will comply with the following financial covenants, defined in accordance with
GAAP and the definitions in Section 8, and incorporating the calculation adjustments indicated on the Compliance
Certificate:
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REQUIRED: Except as specified otherwise, COMPLIANCE CERTIFICATE/ACTUAL REPORTED Compliance
each covenant will be maintained at all times For Current Reporting Period/as of the End Date (Circle)
and reported for each Reporting Period or as
of each Reporting Period End Date, as
appropriate:
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I. Maintain a Tangible Net Worth as Stockholders' Equity $_____ Yes No
adjusted of at least $24,000,000.00 plus: (a) Minus: Goodwill $_____
75% of net income after 12/31/97, added at Other Intangible Assets $_____
end of each fiscal quarter and (b) 100% of Loans/Advances to
the net increase (after deduction of Equity holders $_____
goodwill) in shareholder's equity occurring Loans to Affiliates $_____
immediately after each issuance of equity Plus: Subordinated Debt $_____
securities and merger/ acquisition = Tangible Net Worth as adjusted $_____
transaction. Please indicate requirement so
calculated below:
$
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II. Commencing November 21, 1998, have a Net Income $_____ Yes No
Cash Flow Coverage Ratio for the three month Plus: Depreciation $_____
period ending on the last day of each fiscal Amortization $_____
month of at least 1.75 : 1.00. Tax expense $_____
Interest Expense $_____
Lease Expense $_____
Rent Expense $_____
Minus: Federal tax cash payments $_____
Equals: Adjusted EBITAR= $
=====
Current Maturities of Long Term Debt
(for the next quarter) $_____
Plus: Interest Expense $_____
Lease Expense $_____
Rent Expense $_____
Equals: Fixed Charges $
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$ / $ =
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Adjusted EBITAR Fixed Charges Cash Flow Coverage Ratio
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D. Other Required Covenants to be maintained and to be certified.
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REQUIRED ACTUAL REPORTED/COMPLIANCE CERTIFICATE Compliance
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(i) Additional Indebtedness, Liens and capital leases For fiscal year:______________, Yes No
are limited to $2,000,000.00 in the aggregate for each Debt for borrowed money = $_____,
fiscal year. Plus capital lease payments = $_____,
Plus Other Indebtedness = $_____.
Equals Total of: $_________
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(ii) Borrower shall not make any acquisition (by stock Please indicate acquisitions and total and Yes No
purchase, asset purchase, merger or otherwise) or cash consideration here or in attachment.
divestiture if: (a) the total purchase or sales price,
as the case may be (including cash, cash equivalents,
stock issued, and indebtedness assumed), exceeds 10% of
the book value of Borrower's assets before such
acquisition or divestiture, (b) if cash consideration
exceeds $3MM, or (c) any Event of Default otherwise
would result from such acquisition or divestiture;
unless Bank in its sole discretion shall have consented
in advance in writing.
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(iii) Capital expenditures & capital lease obligations For the most recent fiscal quarter Yes No
incurred shall not exceed $750,000.00 in any fiscal ended ______________:
quarter. $___________________________
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(iv) Commencing the fiscal month ending October 24, For the most recent month
1998, Borrower shall not have a negative Income Before ended ______________:
Income Taxes for any fiscal month in excess of $___________________________
$750,000.00
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THE ABOVE SUMMARY REPRESENTS SOME OF THE COVENANTS AND AGREEMENTS IN THE AGREEMENT AND DOES NOT IN ANY WAY RESTRICT OR MODIFY THE
TERMS AND CONDITIONS OF THE AGREEMENT. IN CASE OF CONFLICT BETWEEN THIS EXHIBIT AND THE AGREEMENT, THE AGREEMENT SHALL CONTROL. The
undersigned hereby certifies that the above information and computations are true and correct and not misleading as of the date
hereof, and that since the date of the Borrower's most recent Compliance Certificate (if any):
[ ] No default or Event of Default has occurred under the Agreement during the current Reporting Period, or been discovered from a
prior period, and not reported.
[ ] A default or Event of Default (as described below) has occurred during the current Reporting Period or has been discovered
from a prior period and is being reported for the first time and:
[ ] was cured on __________. [ ] was waived by Bank in writing on __________. [ ] is continuing.
Description of Event of Default:
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Executed this day of , 19 .
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BORROWER: XETEL CORPORATION
SIGNATURE:
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NAME: TITLE (CFO Or President)
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