RELIABIITY INCORPORATED
Exhibit 4.2
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "Amendment"),
dated as of March 10, 1997, is between RELIABILITY INCORPORATED, a
Texas corporation ("Borrower"), and XXXXX FARGO BANK (TEXAS),
NATIONAL ASSOCIATION ("Lender").
RECITALS:
A. Borrower and First Interstate Bank of Texas, N.A., predecessor
in interest to Lender, entered into that certain Loan
Agreement dated as of July 1, 1995 (the "Agreement").
B. Borrower and Lender now desire to amend the Agreement as
herein set forth.
NOW, THEREFORE, in consideration of the premises herein
contained and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto 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 meanings given to such terms in the Agreement, as amended
hereby.
ARTICLE II
Amendments
Section 2.01. Amendment to Certain Definitions.
(a) Effective as of date hereof, the definition of each of the
following terms contained in Section 1.01 of the Agreement is
amended to read in its respective entirety as follows:
"Commitment" means the obligation of Lender to make Advances
hereunder in an aggregate principal amount at any time
outstanding up to but not exceeding (a) $7,500,000.00 from
March 10, 1997 through September 30, 1997, (b) $7,000,000.00
from October 1, 1997 through March 31, 1998, (c) $6,500,000.00
from April 1, 1998 through September 30, 1998, (d)
$6,000,000.00 from October 1, 1998 through March 31, 1999, (e)
1
36
$5,500,000.00 from April 1, 1999 through September 30, 1999,
(f) $5,000,000.00 from October 1, 1999 through March 31, 2000,
(g) $4,500,000.00 from April 1, 2000 through September 30,
2000, (h) $4,000,000.00 from October 1, 2000 through March 31,
2001, (i) $3,500,000.00 from April 1, 2001 through September
30, 2001, (j) $3,000,000.00 from October 1, 2001 through March
31, 2002, (k) $2,500,000.00 from April 1, 2002 through
September 30, 2002, and (l) $2,000,000.00 from October 1, 2002
through the Termination Date; provided that Borrower may
further reduce the Commitment as provided in Section 2.08.
"Default Rate" means the lesser of (a) the sum of the Prime
Rate in effect from day to day plus three percent (3%) or (b)
the Maximum Rate.
"Termination Date" means 11:00 a.m., Houston, Texas time on
March 31, 2003, or such earlier date on which the Commitment
terminates as provided in this Agreement.
(b) Effective as of the date hereof, the following definitions
shall be added to Section 1.01 of the Agreement in proper
alphabetical order:
"Capital Lease Payments" means for Borrower and its
Subsidiaries, on a consolidated basis, the amount due and
payable during the next succeeding twelve month period on
leases of Borrower and its Subsidiaries which are capitalized
in accordance with GAAP.
"Current Maturities of Long Term Debt" means for Borrower and
its Subsidiaries, on a consolidated basis, the principal
amount due and payable during the next succeeding twelve month
period on Debt of Borrower and its Subsidiaries for borrowed
money which Debt has a final maturity more than twelve months
from the date of calculation.
"Debt Service Coverage Ratio" means for Borrower and its
Subsidiaries on a consolidated basis for any period the sum of
(a) net income from operations, plus (b) depreciation,
amortization and other non-cash charges, plus (c) interest
expense, divided by the sum of (x) Current Maturities of Long
Term Debt, plus (y) Capital Lease Payments, plus (z) interest
expense.
"Lender" means Xxxxx Fargo Bank (Texas), National Association,
and its successors and assigns.
2
37
"Liabilities" means all amounts which, in conformity with
GAAP, would be included as liabilities on a consolidated
balance sheet of Borrower and its Subsidiaries.
"Reduction Day" means each day on which the amount of the
Commitment reduces as provided in the definition of the term
"Commitment".
(c) Effective as of the date hereof, the following terms are
deleted from the Agreement:
"Borrowing Base"
"Borrowing Base Certificate"
"Eligible Accounts"
"Eligible Inventory"
"Major Account Debtors"
Section 2.02. Amendment to Section 2.01. Effective as of the date
hereof, the phrase "; provided that the aggregate amount of all
Advances at any time outstanding shall not exceed the lesser of the
Commitment or the Borrowing Base" shall be deleted from the first
sentence of Section 2.01.
Section 2.03. Amendment to Section 2.03. Effective as of the date
hereof, a new sentence shall be added to the end of Section 2.03 of
the Agreement which shall read in its entirety as follows:
On each Reduction Day Borrower shall also repay the Advances,
together with accrued interest on the amount repaid, in a
principal amount so that the outstanding amount of the
Advances is not greater than the Commitment as reduced on such
Reduction Day.
Section 2.04. Amendment to Section 2.04. Effective as of the date
hereof, Section 2.04 of the Agreement is amended to read in its
entirety as follows:
Section 2.04 Interest. The unpaid principal amount of the
Advances shall bear interest prior to maturity at a varying
rate per annum equal from day to day to the lesser of (a) the
Maximum Rate or (b) the Prime Rate minus one quarter percent
(1/4%), and each change in the rate of interest charged on the
Advances shall become effective, without notice to Borrower,
on the effective date of each change in the Prime Rate or the
Maximum Rate, as the case may be; provided, however, if at any
time the rate of interest specified in clause (b) preceding
shall exceed the Maximum Rate, thereby causing the interest on
3
38
the Advances to be limited to the Maximum Rate, then any
subsequent reduction in the Prime Rate shall not reduce the
rate of interest on the Advances below the Maximum Rate until
the aggregate amount of interest accrued on the Advances
equals the aggregate amount of interest which would have
accrued on the Advances if the interest rate specified in
clause (b) preceding had at all times been in effect. Accrued
and unpaid interest on the Advances shall be payable on the
last day of each month commencing on April 30, 1997, and on
the earlier of the Termination Date or any other date on which
the principal amount of the Advances is paid (whether as a
result of optional or mandatory prepayment or acceleration).
All past due principal and interest shall bear interest at the
Default Rate.
Section 2.05. Amendment to Section 2.06. Effective as of the date
hereof, Section 2.06 of the Agreement is amended to read in its
entirety as follows:
Section 2.06. Use of Proceeds. The proceeds of the Advances
shall be used for general working capital purposes and for
general corporate purposes, including the purchase of
Borrower's stock.
Section 2.06. Deletion of Section 2.07. Effective as of the date
hereof, Section 2.07 shall be deleted from the Agreement.
Section 2.07. Amendment to Section 4.01. Effective as of the date
hereof, (a) the phrase "provided, however, that the Security
Agreement shall not become effective until the occurrence of an
Event of Default and the giving of notice by Lender as provided in
Section 11.16" shall be deleted from the end of Section 4.01(a) of
the Agreement, (b) the phrase "provided, however, that the Security
Agreement shall not become effective until the occurrence of an
Event of Default and the giving of notice by Lender as provided in
Section 11.16" shall be deleted from the end of Section 4.01(b) of
the Agreement, and (c) the phrase "provided that Lender shall not
file any Uniform Commercial Code financing statement related to the
collateral covered by the Security Agreement until the occurrence
of an Event of Default and the giving of notice by Lender as
provided in Section 11.16" shall be deleted from the end of Section
4.01(c) of the Agreement.
Section 2.08. Amendment to Section 7.01.
(a) Effective as of the date hereof, paragraph (d) is deleted from
Section 7.01 of the Agreement.
4
39
(b) Effective as of the date hereof, paragraph (e) is deleted from
Section 7.01 of the Agreement.
Section 2.09. Addition of Section 7.12. Effective as of the date
hereof, Section 7.12 is added to the Agreement which shall read in
its entirety as follows:
Section 7.11. Lockbox. Borrower will cause its account
debtors and the account debtors of RICR to make all payments
of its accounts receivable and all payments of RICR's accounts
receivable directly to the lockbox established under the
lockbox agreement executed by Borrower in favor of Lender.
Section 2.10. Amendment to Section 8.01. Effective as of the date
hereof clause (f) of Section 8.01 is amended to read in its
entirety as follows:
(f) Debt in an aggregate principal amount which does not
exceed $100,000.00 at any time, which is incurred after the
date of this Agreement in the ordinary course of business for
fixed assets and is secured by fixed assets; provided that
after the incurrence of such Debt Borrower is in compliance
with the covenants contained in Article IX.
Section 2.11. Addition of Section 8.07. Effective as of the date
hereof, Section 8.07 is added to the Agreement which shall read in
its entirety as follows:
Section 8.07. Restricted Payments. Borrower will not declare
or pay any cash dividends or make any other payment or
distribution in cash on account of its capital stock, unless
Lender shall specifically consent in writing to the
declaration or payment of such dividends, which consent shall
not be unreasonably withheld.
Section 2.12. Amendment to Section 9.02. Effective as of the date
hereof, Section 9.02 of the Agreement is amended to read in its
entirety as follows:
Section 9.02. Tangible Net Worth. Borrower will maintain
Tangible Net Worth of not less than (a) $9,500,000.00 from
March 10, 1997 through December 30, 1997, (b) $12,500,000.00
from December 31, 1997 through December 30, 1998, (c)
$16,500,000.00 from December 31, 1998 through December 30,
1999, and (d) $20,000,000.00 as of December 31, 1999 and
throughout the remainder of the term of this Agreement.
5
40
Section 2.13. Amendment to Section 9.03. Effective as of the date
hereof, Section 9.03 of the Agreement is amended to read in its
entirety as follows:
Section 9.03. Ratio of Liabilities to Tangible Net Worth.
Borrower will at all times maintain a ratio of Liabilities of
Borrower and its Subsidiaries to Tangible Net Worth of not
greater than (a) 1.50 to 1.00 from March 10, 1997 through
December 30, 1997, (b) 1.35 to 1.00 from December 31, 1997
through December 30, 1998, (c) 1.20 to 1.00 from December 31,
1998 through December 30, 1999, and (d) 1.00 to 1.00 as of
December 31, 1999 and throughout the remainder of the term of
this Agreement.
Section 2.14. Addition of Section 9.04. Effective as of the date
hereof, Section 9.04 shall be added to the Agreement and shall read
in its entirety as follows:
Section 9.04. Debt Service Coverage Ratio. Borrower and its
Subsidiaries will at all times maintain, on a consolidated
basis, a Debt Service Coverage Ratio of not less than (a) 1.75
to 1.00 from March 10, 1997 through December 30, 1998, and (b)
2.00 to 1.00 from December 31, 1998 and at all times
thereafter. The Debt Service Coverage Ratio shall be
calculated as of the last day of each fiscal quarter on a
cumulative basis for the four quarters ended as of such date.
Section 2.15. Addition of Section 9.05. Effective as of the date
hereof, Section 9.05 shall be added to the Agreement and shall read
in its entirety as follows:
Section 9.05. Capital Expenditures. Borrower and its
Subsidiaries shall not expend more than (a) $9,000,000.00 for
capital expenditures during the fiscal year ending December
31, 1997, and (b) $4,000,000.00 for capital expenditures
during any fiscal year thereafter, unless Lender shall
specifically consent in writing to such capital expenditures,
which consent shall not be unreasonably withheld.
Section 2.16. Deletion of Section 10.01(j). Effective as of the
date hereof, Paragraph (j) of Section 10.01 is deleted from the
Agreement.
Section 2.17. Amendment to Exhibits. Effective as of the date
hereof, (a) Exhibit "A" to the Agreement (Note) is amended to
conform in its entirety to Annex "A" to this Amendment, (b)
Exhibit "D" to the Agreement (Borrowing Base Certificate) is
deleted from the Agreement, and (c) Exhibit "E" (No Default
Certificate) to the Agreement is amended to conform in its entirety
to Annex "C" to this Amendment.
6
41
ARTICLE III
Conditions Precedent
Section 3.01. Conditions. The effectiveness of this Amendment is
subject to the receipt by Lender of the following in form and
substance satisfactory to Lender:
(a) Resolutions - Borrower. Resolutions of the Board of Directors
of Borrower certified by its Secretary or an Assistant
Secretary which authorize the execution, delivery and
performance by Borrower of this Amendment and the other Loan
Documents to which Borrower is or is to be a party hereunder.
(b) Incumbency Certificate - Borrower. A certificate of
incumbency certified by the Secretary or an Assistant
Secretary of Borrower certifying the names and signatures of
the officers of Borrower authorized to sign this Amendment and
each of the other Loan Documents to which Borrower is or is to
be a party hereunder.
(c) Certificates of Existence and Good Standing - Borrower.
Certificates of the appropriate governmental officials
regarding the existence and good standing of Borrower in the
State of Texas.
(d) Note. The Note executed by Borrower.
(e) First Amendment to Security Agreements. The First Amendment
to Security Agreement in the form of Annex "B" hereto,
executed by Borrower.
(f) UCC Search. A Uniform Commercial Code search showing all
financing statements and other documents or instruments on
file against Borrower in Xxxxxx County, Texas and the office
of the Secretary of State of Texas.
(g) Fee. A commitment fee in the amount of $20,625.00.
(h) Legal Fees. Payment of the reasonable legal fees and expenses
of Lender's counsel.
(i) Additional Information. Such additional documents,
instruments and information as Lender may request.
Section 3.02. Additional Conditions. The effectiveness of this
Amendment is also subject to the satisfaction of the additional
conditions precedent that (a) the representations and warranties
7
42
contained herein and in all other Loan Documents, as amended
hereby, shall be true and correct as of the date hereof as if made
on the date hereof, (b) all proceedings, corporate or otherwise,
taken in connection with the transactions contemplated by this
Amendment and all documents, instruments and other legal matters
incident thereto shall be satisfactory to Lender, and (c) no Event
of Default shall have occurred and be continuing and no event or
condition shall have occurred that with the giving of notice or
lapse of time or both would be an Event of Default.
ARTICLE IV
Ratifications, Representations, and Warranties
Section 4.01. Ratifications. The terms and provisions set forth
in this Amendment shall modify and supersede all inconsistent terms
and provisions set forth in the Agreement and except as expressly
modified and superseded by this Amendment, the terms and provisions
of the Agreement are ratified and confirmed and shall continue in
full force and effect. Borrower and Lender agree that the
Agreement as amended hereby shall continue to be the legal, valid
and binding obligation of such Persons enforceable against such
Persons in accordance with its terms.
Section 4.02. Representations, Warranties and Agreements.
Borrower hereby represents and warrants to Lender that as of the
date hereof, and taking into account the provisions of this
Amendment, (a) the execution, delivery, and performance of this
Amendment and any and all other Loan Documents executed or
delivered in connection herewith have been authorized by all
requisite corporate action on the part of Borrower and will not
violate the articles of incorporation or bylaws of Borrower, (b)
the representations and warranties contained in the Agreement as
amended hereby, and all other Loan Documents are true and correct
on and as of the date hereof as though made on and as of the date
hereof, (c) no Event of Default has occurred and is continuing and
no event or condition has occurred that with the giving of notice
or lapse of time or both would be an Event of Default, (d) Borrower
is in full compliance with all covenants and agreements contained
in the Agreement as amended hereby, (e) Borrower is obligated to
Lender pursuant to the terms of the Note, as the same may have been
renewed, modified, extended, increased and rearranged, including,
without limitation, renewals, modifications, increases and
extensions made pursuant to this Amendment, (f) the liens, security
interests, encumbrances and assignments created and evidenced by
the Loan Documents are, respectively, valid and subsisting liens,
8
43
security interests, encumbrances and assignments (except as
provided in the First Amendment to Security Agreement of even date
herewith between Borrower and Lender) and secure the Note as the
same may have been renewed, modified, increased or rearranged,
including, without limitation, renewals, modifications, increases
and extensions made pursuant to this Amendment, and (g) Borrower
has no claims, credits, offsets, defenses or counterclaims arising
from the Loan Documents or Lender's performance under the Loan
Documents.
ARTICLE V
Miscellaneous
Section 5.01. Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other
Loan Documents including any Loan Document furnished in connection
with this Amendment shall fully 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 on
them.
Section 5.02. Reference to Agreement. Each of the Loan Documents,
including the 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
Agreement, as amended hereby, are hereby amended so that any
reference in such Loan Documents to the Agreement shall mean a
reference to the Agreement, as amended hereby.
Section 5.03. Expenses of Lender. As provided in the 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 documents and
instruments executed pursuant hereto and any and all amendments,
modifications and supplements thereto, including, without
limitation, the costs and fees of Lender's legal counsel, and all
costs and expenses incurred by Lender in connection with the
enforcement or preservation of any rights under the Agreement, as
amended hereby, or any other Loan Document, including, without
limitation, the costs and fees of Lender's legal counsel.
Section 5.04. 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.
9
44
Section 5.05. Applicable Law. This Amendment and all other Loan
Documents executed pursuant hereto shall be deemed to have been
made and to be performable in Houston, Xxxxxx County, Texas and
shall be governed by and construed in accordance with the laws of
the State of Texas.
Section 5.06. 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 5.07. 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 5.08. Effect of Waiver. No consent or waiver, express or
implied, by Lender to or for any breach of or deviation from any
covenant, condition or duty by Borrower shall be deemed a consent
or waiver to or of any other breach of the same or any other
covenant, condition or duty.
Section 5.09. Headings. The headings, captions, and arrangements
used in this Amendment are for convenience only and shall not
affect the interpretation of this Amendment.
5.10. Liens and Security Interests are Currently Effective. Prior
to the execution of this Amendment, the Agreement and the Security
Agreement contained provisions to the effect that the liens and
security interests created by the Security Agreement were not
effective until an Event of Default occurred. As provided in this
Amendment and the First Amendment to Security Agreement executed in
connection herewith, those provisions have been deleted from the
Agreement and the Security Agreement. Borrower and Lender agree
that the provisions of the Security Agreement are fully effective
and enforceable as of the date of this Amendment and that such
provisions have been fully effective and enforceable since the date
of execution of the Agreement. Borrower agrees that, upon the
execution of this Amendment, Lender may and shall file a UCC-1
financing statement with respect to the collateral covered by the
Security Agreement and that upon such filing, the liens and
security interests created by the Security Agreement shall be first
priority perfected security interests in favor of Lender, except as
provided in the First Amendment to Security Agreement of even date
herewith between Borrower and Lender.
10
45
Section 5.11. Consent to Purchase of Stock. Notwithstanding the
provisions of Section 6.10 of the Agreement, this Amendment will
constitute the consent by Lender to the purchase by Borrower, at
any time prior to April 1, 1997, of 1,270,221 shares of its common
stock.
Section 5.12. Permitted Security Interest. Notwithstanding the
provisions of the Agreement, the Security Agreement or any other
Loan Document, this Amendment will constitute the consent of Lender
to the first priority security interest granted by Borrower to AT&T
Capital Corporation in a TEK/27120 Analyzer System.
Section 5.13. ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER
INSTRUMENTS, DOCUMENTS, AND AGREEMENTS EXECUTED AND DELIVERED IN
CONNECTION WITH THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT
AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF
AND THEREOF AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR
ORAL, RELATING TO THIS AMENDMENT AND THE OTHER INSTRUMENTS,
DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH
THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS
AMONG THE PARTIES HERETO.
Section 5.14. Agreement for Binding Arbitration. Borrower and
Lender agree to be bound by the terms and provisions of Lender's
current Arbitration Program, which is acknowledged as having been
received by Borrower and which is incorporated by reference herein,
pursuant to which any and all disputes regarding the subject matter
hereof or of any Loan Documents shall be resolved by mandatory
binding arbitration upon the request of Borrower or Lender.
Executed as of the date first written above.
BORROWER: LENDER:
RELIABILITY INCORPORATED XXXXX FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By: /s/ Xxxxx Xxxxxxx By:/s/ Xxxxxxx Xxxxxxx
------------------ -------------------
Xxxxx Xxxxxxx Xxxxxxx Xxxxxxx
President Vice President
11
46
