First Amendment to Loan Agreement between Temtex Industries, Inc., Temco Fireplace Products, Inc., and The Frost National Bank

Summary

This amendment updates the original loan agreement between Temtex Industries, Inc., Temco Fireplace Products, Inc. (collectively, the Borrower), and The Frost National Bank. The changes allow Temtex to take on new subordinated debt and a secured term note, both subject to specific subordination and intercreditor agreements. The amendment revises definitions, adds new terms, and clarifies the rights and priorities of the lender and other creditors. It also restricts certain payments and capital expenditures, ensuring the lender’s interests remain protected under the updated agreement.

EX-10.7 14 ex10-7.txt AMENDMENT TO LOAN AGREEMENT WITH FROST NATIONAL BANK FIRST AMENDMENT TO LOAN AGREEMENT --------------------------------- 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 William Y. Tauscher, the Leonard Kee Living Trust, Richard Anderson and David Dalton 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 James E. 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 ----------- 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. -1- ARTICLE II Amendments ---------- 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 William Y. Tauscher, the Leonard Kee Living Trust, Richard Anderson and David Dalton 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 James E. 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. -2- "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." -3- 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 James E. 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. " -4- ARTICLE III Conditions Precedent -------------------- 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. -5- ARTICLE IV Limited Consent --------------- 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 --------------------------------------------- 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 ------------- 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. -6- 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. -7- 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. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -8- 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: ______________________ -9- EXHIBIT "B" Subordinated Lenders Upfield Holders of the Convertible Notes