-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UVPjBk4TlhklmPPmtUr5wr4N3c9JDjj48g6w6+oXUHOWpFAmHIE7ROTLIzp0/T6E be0365ObbcyFDS2FjYBH7w== 0000921895-99-000670.txt : 19991227 0000921895-99-000670.hdr.sgml : 19991227 ACCESSION NUMBER: 0000921895-99-000670 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUCO2 INC /FL CENTRAL INDEX KEY: 0000947577 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-CHEMICALS & ALLIED PRODUCTS [5160] IRS NUMBER: 650180800 STATE OF INCORPORATION: FL FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27378 FILM NUMBER: 99718929 BUSINESS ADDRESS: STREET 1: 2820 S E MARKET PLACE CITY: STUART STATE: FL ZIP: 34997 BUSINESS PHONE: 5612211754 MAIL ADDRESS: STREET 1: 2820 SE MARKET PLACE CITY: STUART STATE: FL ZIP: 34997 FORMER COMPANY: FORMER CONFORMED NAME: FOWLER CARBONICS INC DATE OF NAME CHANGE: 19951108 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transaction period from ___________ to ___________ Commission file number: 0-27378 NUCO2 INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Florida 65-0180800 - -------------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 2800 S.E Market Place, Stuart, Florida 34997 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (561) 221-1754 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value ----------------------------- (Title of Class) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ (continued next page) The aggregate market value at September 20, 1999 of shares of the Registrant's common stock, $.001 par value per share (based upon the closing price of $7.00 per share of such stock on the Nasdaq National Market on such date), held by non-affiliates of the Registrant was approximately $38,870,000. Solely for the purposes of this calculation, shares held by directors and executive officers of the Registrant have been excluded. Such exclusion should not be deemed a determination or an admission by the Registrant that such individuals are, in fact, affiliates of the Registrant. At September 20, 1999, there were outstanding 7,216,664 shares of the Registrant's common stock, $.001 par value. DOCUMENTS INCORPORATED BY REFERENCE The information required by Items 10, 11, 12 and 13 of Part III is incorporated by reference to the Registrant's definitive proxy statement to be filed not later than October 28, 1999 pursuant to Regulation 14A. NUCO2 INC. Index Page PART I. Item 1. Business. 1 Item 2. Properties. 9 Item 3. Legal Proceedings. 9 Item 4. Submission of Matters to a Vote of Security Holders. 9 PART II. Item 5. Market For Registrant's Common Equity and Related Stockholder Matters. 9 Item 6. Selected Financial Data. 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 11 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 18 Item 8 Financial Statements and Supplementary Data. 18 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 18 PART III. Item 10. Directors and Executive Officers of the Registrant. 18 Item 11. Executive Compensation. 18 Item 12. Security Ownership of Certain Beneficial Owners and Management. 18 Item 13. Certain Relationships and Related Transactions. 18 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 19 Signatures 22 Index to Financial Statements F-1 1. Business. General NuCo2 Inc. is the largest supplier in the United States of bulk CO2 systems and bulk CO2 for carbonating and dispensing fountain beverages. In most instances, CO2 is presently supplied to fountain beverage users in the form of gas, which is transported and stored in high pressure cylinders. Bulk CO2 is a relatively new technology that is replacing high pressure CO2 as the beverage carbonation system of choice. We are the first and only company to operate a national network of service locations with over 97% of fountain beverage users in the Continental United States within our current service area. Our customers are many of the major national and regional restaurant and convenience store chains, movie theater operators, theme parks, resorts and sports venues, including:
QUICK SERVE RESTAURANTS CASUAL/DINNER HOUSES Burger King Captain D's Applebee's Landry's Pizza Hut Sonic Drive-In Outback Steakhouse Red Lobster/Olive Garden Taco Bell White Castle Chili's Shoney's KFC Roy Rogers Ryan's Family Steak House Longhorn Steakhouse McDonald's Dunkin' Donuts Pizzeria Uno Ponderosa Steak House Wendy's Pizza Inn Hard Rock Cafe Friendly's Restaurant Krystal Bumpers Drive-In Official All Star Cafe Ruby Tuesday Hardee's Checker's Spaghetti Warehouse Roadhouse Grill Churchs Chicken CONTRACT FEEDERS WHOLESALE CLUBS CONVENIENCE/PETROLEUM Sodexho Marriott BJ's Wholesale 7-Eleven Exxon Host Marriott Costco Circle K Shell ETD Daka International Sam's Club Coastal Mart E-Z Serve ARAmark Total Petroleum Racetrac Petroleum Fine Host Golden Pantry Spectrum Stores Sport Services Handy Way Sunshine Jr. Christy's Market Star Enterprises SPORTS VENUES Phillips 66 BP/Amoco Pro Player Stadium Madison Square Garden MOVIE THEATRES Georgia Dome Regal Cinemas General Cinema Derby Lane American Multi Cinema Carmike Cinemas AMF Bowling Centers Sony/Loew's Cinemas United Artists Cinemas Litchfield Cinemas
We are a Florida corporation, incorporated in 1990. Through a combination of internal growth and over 30 acquisitions, we have expanded our service area from one service location and 19 customers in Florida to 84 service locations and approximately 65,000 bulk and high pressure CO2 customers in 44 states. Our customer base has increased by an average of 78% annually. Today, the majority of our growth is driven by the conversion of high pressure CO2 users to bulk CO2 systems. 1 [MAP WITH SERVICE AREA AND DEPOT LOCATIONS] Customer Base Fiscal Year Ended June 30 1995 1996 1997 1998 1999 10,467 16,184 28,719 55,095 65,000 55% 77% 92% 18% Our bulk CO2 customer base is highest in Florida, Texas, Georgia and New York. We expanded our service area by one state during fiscal 1999, 13 states during fiscal 1998 and 12 states during fiscal 1997. States with Largest Bulk CO2 Customer Base Florida Texas Georgia New York 11,804 6,081 5,004 2,754 2 Substantially all of our revenues have been derived from the rental of bulk CO2 systems installed at customers' sites, the sale of CO2 and high pressure cylinder revenues. Revenues have grown from $812,000 in fiscal 1991 to $47.1 million in fiscal 1999, an average increase of 68% annually. We believe that earnings before interest, taxes, depreciation and amortization ("EBITDA") is the principal financial measure by which we should be measured as we continue to achieve national market share and build route density. EBITDA has grown from $15,000 in fiscal 1991 to $11.3 million in fiscal 1999, an average increase of 72% annually from fiscal 1994 to fiscal 1999. Net Sales (in millions) For Fiscal Year Ended June 30 1995 1996 1997 1998 1999 6.1 12.0 18.9 35.1 47.1 97% 58% 85% 34% EBITDA (in millions) For Fiscal Year Ended June 30 1995 1996 1997 1998 1999 2.1 3.7 4.1 7.1 11.3 76% 10% 74% 59% 3 Opportunity for Growth CO2 is universally used for the carbonation and dispensing of fountain beverages. Unlike high pressure cylinders, which are typically changed out when empty and transported to the supplier's depot for refilling, bulk CO2 systems are permanently installed at the customer's site and are filled by the supplier from a specialized bulk CO2 truck on a constant "stay fill" basis. Advantages to users of bulk CO2 systems over high pressure cylinders include enhanced safety, improved beverage quality and product yields, reduced employee handling and cylinder storage requirements, and elimination of downtime and product waste during high pressure cylinder changeovers. Consequently, we believe that bulk CO2 systems will eventually displace most high pressure cylinders in the fountain beverage market. There are currently approximately 120,000 bulk CO2 beverage users in the United States. Of these, approximately 59,000 are already our customers. We also currently service approximately 6,000 high pressure CO2 customers and estimate that there are approximately 800,000 fountain beverage users in the Continental United States and therefore the bulk CO2 industry presents substantial opportunity for growth. Total Beverage CO2 Users (800,000) Bulk CO2 High Pressure NUCO2 Inc. Market Share Users CO2 Users of Bulk CO2 Users (120,000) (680,000) (59,000) 15% 85% 49% Products and Services We offer our customers two principal services: (1) a stationary bulk CO2 system installed on the customer's site and (2) routine filling of the bulk CO2 system with bulk CO2 on a three to four week cycle. The bulk CO2 system installed at a customer's site consists of a cryogenic vessel for the storage of bulk CO2 and related valves, regulators and gas lines. The cryogenic vessel preserves CO2 in its liquid form and then converts the liquid product to gaseous CO2, the necessary ingredient for beverage carbonation. We offer bulk CO2 systems ranging from 50 to 600 lbs. of CO2 capacity. This range of bulk CO2 system sizes permits us to market our services to a broad range of potential customers. Presently, we typically enter into a six year bulk CO2 system lease and CO2 supply agreement with our customers. Generally, these agreements are classified as one of two types: (1) "budget plan" service contracts or (2) "rental plus per pound charge" contracts. Under budget plan contracts, customers pay a fixed monthly charge for the lease of a bulk CO2 system installed on the customer's site and refills of bulk CO2. The bulk CO2 is included in the monthly rental charge up to a predetermined maximum annual volume. This arrangement is appealing to the customer since we bear the initial cost of the equipment and installation, with the customer only facing a predictable 4 and modest monthly usage fee. If the maximum annual volume of CO2 is exceeded, the customer is charged on a per pound basis for additional bulk CO2 delivered. Under rental plus per pound charge contracts, we also lease a bulk CO2 system to the customer, but the customer is charged on a per pound basis for all bulk CO2 delivered. Although the bulk CO2 system is typically owned by us and leased to the customer, some customers own their own bulk CO2 systems. Even with customers that own their own their own bulk CO2 systems, we seek to arrange for long-term bulk CO2 supply contracts. We believe that the use of long-term contracts provides benefits to both us and our customers. Customers are able to largely eliminate CO2 supply interruptions and the need to operate CO2 equipment themselves, while the contract adds stability to our revenue base. In each of fiscal 1997, 1998 and 1999, less than 5% of our bulk CO2 systems in service experienced service terminatiion. Service termination is typically caused by restaurant closure. After the expiration of the initial term of a contract, the contract generally renews unless we or the customer notifies the other of intent to cancel. To date, our experience has been that contracts generally "roll-over" without a significant terminating in any one year. The largest number (approximately 40%) of our current contracts expire in 2003. We also supply high pressure gases in cylinder form, including CO2, helium and nitrogen. We estimate that we currently service approximately 6,000 high pressure CO2 customers, most of whom are very low volume users. Helium and nitrogen are supplied mostly to existing customers in connection with filling balloons and dispensing beer, respectively. We have an agreement with MiCell Technologies Inc. ("MiCell") to be the exclusive supplier in the United States and Canada of bulk CO2 systems and bulk CO2 to MiCell's customers in the dry cleaning industry that use the MICO2 garment cleaning fluid system technology developed and patented by MiCell. While perchloroethylele ("perc") has been used effectively in the dry cleaning industry for years, there are growing concerns that perc may be a health hazard and tighter controls have been placed on its use. Dry cleaners and other businesses that use perc must dispose of it as hazardous waste. The MICO2 system is an alternative to perc and uses a combination of CO2 and specialty detergents as a cleaning solvent. MiCell believes that the MICO2 system is environmentally benign, non-carcinogenic, safe for garments and does a better job of cleaning than any of the alternatives. MiCell completed field testing of the MICO2 system and began its sale in November 1998. We currently service 5 MiCell customers and expect that number to increase if MiCell is successful in commercializing the MICO2 system. Consequently, we may eventually have significant revenues outside of the fountain beverage industry. Tests of the MICO2 system have indicated that the average dry cleaner customer will use approximately 10 times the volume of bulk CO2 that an average fountain beverage customer uses. We also have an agreement with Geotechnical Instruments, Inc. to be the exclusive distributor in the United States of stationary carbon dioxide detectors. Escaped CO2 in an enclosed area displaces oxygen and can lead to asphyxiation. Our bulk CO2 systems are typically installed in store rooms or basements at a customer's site. Municipalities have increasingly been requiring the use of carbon dioxide detectors as a preventive measure. Marketing and Customers At June 30, 1999, we serviced approximately 65,000 bulk and high pressure CO2 customers, none of which accounted for more than 5% of our fiscal 1999 net sales. We market our bulk CO2 products and services to large customers such as restaurant and convenience store chains, movie theater operators, theme parks, resorts and sports venues. Our customers include most of the major national and regional chains throughout the United States. We approach large chains on a corporate or regional level for approval to become the exclusive supplier of bulk CO2 products and services on a national basis or within a designated territory. We then direct our sales efforts to the managers or owners of the individual or franchised operating units. Our relationships with chain customers in one geographic market frequently help us to establish service with these same chains when we expand into new markets. After accessing the chain accounts in a new market, we attempt to rapidly build route density by leasing bulk CO2 systems to independent restaurants, convenience stores and theaters. While the large chains offer immediate penetration on a national or regional basis, the small operators are important accounts because they provide geographic density which optimizes delivery efficiency and reduces costs on a per customer basis. The introduction of smaller bulk CO2 systems (50 and 100 lb. capacity vessels), which we helped develop, allows us to penetrate the market for lower volume users of CO2 such as mall-based food courts, small restaurants and mass-market retailers. Our products and services are sold by a sales force of 75 commission only independent sales representatives and 33 salaried sales personnel. 5 Competition We are the largest as well as the sole national supplier of bulk CO2 systems and bulk CO2 for carbonating and dispensing fountain beverages. In many of our markets, we are a leading or the dominant supplier of bulk CO2 services. Major restaurant and convenience store chains continue to adopt bulk CO2 technology and search for qualified suppliers to install and service bulk CO2 systems. With the exception of us, we believe that qualified suppliers of bulk CO2 services do not presently exist in many regions of the United States. Unlike many of our competitors for whom bulk CO2 is a secondary service line, we have no material lines of business at present other than the provision of bulk CO2 services. All aspects of our operations are guided by our focus on the bulk CO2 business, including our selection of operating equipment, design of delivery routes, location of service locations, structure of customer contracts, content of employee training programs and design of management information and accounting systems. By restricting the scope of our activities to the bulk CO2 business, and largely avoiding the dilution of management time and resources that would be required by other service lines, we believe that we are able to maximize the level of service we provide to our bulk CO2 customers. We offer a wide range of innovative sales, marketing and billing programs. We believe that our ability to compete depends on a number of factors, including price, product quality, availability and reliability, name recognition, delivery time and post-sale service and support. Despite the customer-level advantages of bulk CO2 systems over high pressure cylinders, we generally price our services comparably to the price of high pressure cylinders. This has proved an effective inducement to cause customers to convert from high pressure cylinders to bulk CO2 systems. We believe that we enjoy cost advantages over our competitors due to the density of our route structure, a lower average time and distance traveled between stops and a lower average cost per delivery. Each bulk CO2 system serviced by us has a label with a toll-free help line for the customer's use. We respond to service calls on a 24-hour, 7-day-a-week basis, and the experience level of our personnel aids in the resolution of equipment failures or other service interruptions, whether or not caused by our equipment. Recognizing the public visibility of our customers, we carefully maintain the appearance of our vehicles and the professional image of our employees. Many types of businesses compete in the fountain beverage CO2 business and market share is fragmented. High pressure cylinders and bulk CO2 services are most frequently provided by distributors of industrial gases. These companies generally provide a number of products and services in addition to CO2 and often view bulk CO2 systems as high-service adjuncts to their core business. Industrial gas distributors generally have been reluctant to attempt to convert their high pressure cylinder customers to bulk CO2 systems for several reasons including the capital outlays required to purchase bulk CO2 systems and the idling of existing high pressure cylinders and associated equipment. Other competitors in the fountain beverage CO2 business include fountain supply companies and distributors of restaurant supplies and groceries which vary greatly in size. There are also a number of small companies that provide bulk CO2 services that operate on a local or regional geographic scope. While many of these suppliers lack the capital necessary to offer bulk CO2 systems to customers on lease, or to purchase additional or replacement specialized bulk CO2 trucks and equipment, suppliers vary widely in size and some of our competitors have significantly greater financial, technical or marketing resources than we do. 6 Operations At June 30, 1999, we operated 84 service locations (69 stationary depots and 15 mobile depots) located throughout our 44 state service area and operated 166 specialized bulk CO2 trucks, 86 installation vehicles and seven high pressure cylinder delivery trucks. Each specialized bulk CO2 truck refills bulk CO2 systems at customers' sites on a regular cycle and CO2 delivery quantities are measured by flow meters installed on the bulk CO2 trucks. Each stationary depot is equipped with a storage tank (up to 40 tons) which receives bulk CO2 from large capacity tanker trucks and from which our specialized bulk CO2 trucks are filled with bulk CO2 for delivery to customers. In most instances, the bulk CO2 system at a customer's site is accessible from the outside of the establishment and delivery of bulk CO2 does not cause any interference with the operations of the customer. All dispatch and billing functions are conducted from our corporate headquarters in Stuart, Florida, with route drivers, installers and service personnel operating from our service locations. We have begun rolling out a new mobile information system for use in our field operations. The system utilizes a hand held device to provide field personnel with up to date delivery route and customer account information and also serves as an input source to record all delivery transaction information. At the end of the driver's shift, all delivery transaction information is transmitted electronically to our headquarters in Stuart, Florida and downloaded into our computer systems. We believe that this new system will revolutionize our route management system and lead to improved efficiencies in virtually all aspects of our operations. Anticipated benefits include improved route efficiencies and monitoring of driver performance, a reduction in courier charges for overnight shipment of delivery tickets and in employee hours to manually input delivery tickets since delivery information will be transmitted electronically, virtual elimination of illegible delivery tickets and consequently a reduction in billing errors and customer disputes and a reduction in paperwork as well as telephone calls to and from the field. Bulk CO2 Supply Bulk CO2 is currently a readily available commodity product which is processed and sold by various sources. In May 1997, we entered into a ten year bulk CO2 exclusive requirements contract with The BOC Group, Inc. that provides high quality CO2 as well as relatively stable prices at competitive levels. In addition, the agreement provides that if sufficient quantities of bulk CO2 become unavailable for any reason, we will receive treatment as a preferred customer. Bulk CO2 Systems We purchase new bulk CO2 systems from their two major manufacturers pursuant to purchase agreements and we believe that we are the largest purchaser of bulk CO2 systems from these manufacturers combined. We purchase bulk CO2 systems in six sizes (50, 100, 250, 300, 400 or 600 lbs. bulk CO2 capacity) depending on the needs of our customers. Bulk CO2 systems are vacuum insulated containers with extremely high insulation characteristics allowing the storage of CO2, in its liquid form, at very low temperatures. Bulk CO2 systems operate under low pressure, are fully automatic, and require no electricity. Based upon manufacturers' estimates, the service life of a bulk CO2 system is expected to exceed 20 years with minimal maintenance. We generally maintain a 60 day inventory of bulk CO2 systems to meet expected customer demand. 7 Employees At June 30, 1999, we employed 543 full-time employees, 178 of whom were involved in an executive, marketing or administrative capacity, 264 of whom were route drivers and 101 of whom were in installation functions. We consider our relationship with our employees to be good. Trademarks We market our services using the NuCo2(R) trademark which has been registered by us with the United States Patent and Trademark Office. The current registration expires in 2007. Seasonality At June 30, 1999, approximately 6,000 of our bulk CO2 customers were billed under rental plus per pound charge contracts and approximately 9,600 of our bulk CO2 customers own their own bulk CO2 systems and are billed by the pound for all bulk CO2 delivered. Customers who purchase bulk CO2 by the pound tend to consume less CO2 in the winter months and our revenues to such customers will be correspondingly lower in times of cold or inclement weather. Regulatory Matters Our business is subject to various federal, state and local laws and regulations adopted for the protection of the environment, the health and safety of employees and users of our products. For example, the transportation of bulk CO2 is subject to regulation by various federal, state and local agencies, including the U.S. Department of Transportation. Regulatory authorities have broad powers and we are subject to regulatory and legislative changes that can affect the economics of the industry by requiring changes in operating practices or by influencing the demand for, and the costs of, providing services. We believe that we are in compliance in all material respects with all such laws, regulations and standards currently in effect and that the cost of compliance with such laws, regulations and standards has not and is not anticipated to materially adversely effect us. 8 2. Properties. Our corporate headquarters are located in a 32,400 square foot rented facility in Stuart, Florida that accommodates corporate, administrative, marketing, sales and warehouse space. At June 30, 1999, we also rented 69 stationary service locations throughout 44 states. These facilities are rented on terms consistent with market conditions prevailing in the area. We believe that our existing facilities are suitable for our current needs and that additional or replacement facilities, if needed, are available to meet future needs. 3. Legal Proceedings. We are involved from time to time in litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on our financial condition or results of operations. 4. Submission of Matters to a Vote of Security Holders. Not applicable. 5. Market For Registrant's Common Equity and Related Stockholder Matters. Our common stock trades on the Nasdaq National Market under the symbol "NUCO". The following table indicates the range of high and low bid information for our common stock for each quarterly period during fiscal 1998 and 1999, as reported by Nasdaq. Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily reflect actual transactions. Calendar 1997 High Low Third Quarter 18 1/4 14 3/8 Fourth Quarter 16 1/8 10 1/4 Calendar 1998 First Quarter 13 3/4 10 1/2 Second Quarter 13 1/4 9 7/8 Third Quarter 10 3/8 5 1/2 Fourth Quarter 8 1/2 5 Calendar 1999 First Quarter 9 7/8 6 1/8 Second Quarter 9 5/8 5 1/4 At June 30, 1999, there were approximately 219 holders of record of our common stock. This number does not include an indeterminate number of shareholders whose shares are held by brokers in "street name." We have never paid cash dividends on our common stock and we do not anticipate declaring any cash dividends on our common stock in the foreseeable future. We intend to retain all future earnings for use in the development of our business. In addition, the payment of cash dividends is restricted by financial covenants in our loan agreements. On May 4, 1999, in connection with and in consideration for the purchase of $10.0 million of our 12% Senior Subordinated Promissory Notes due 2005 by an existing holder of our 12% Senior Subordinated Promissory Notes due 2004 and an affiliate of SunTrust Bank, South Florida, National Association, we issued warrants to purchase 372,892 shares of our Common Stock at an exercise price of $6.65 per share in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended. No discounts or commissions were paid. 6. Selected Financial Data. The Selected Financial Data set forth below reflect our historical results of operations, financial condition and operating data for the periods indicated and should be read in conjunction with the consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K. 9
Fiscal Year Ended June 30, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (in thousands, except per share amounts and Operating Data) Income Statement Data: Net Sales.......................................... $ 47,098 $ 35,077 $ 18,944 $ 11,966 $ 6,062 Cost of products sold.............................. 25,225 18,578 8,992 5,177 2,503 Selling, general and administrative expenses....... 10,554 9,396 5,859 3,066 1,448 Depreciation and amortization...................... 12,763 8,912 4,246 2,417 1,380 ----------- ----------- --------- -------- ------- Operating income (loss)............................ (1,444) (1,809) (153) 1,305 731 Interest expense, net.............................. 7,489 3,639 (681) 1,258 1,264 ----------- ----------- ---------- -------- ------- Income (loss) before extraordinary item............ (8,933) (5,448) 527 47 (533) Extraordinary item................................. - 187 - 860 - ----------- ----------- --------- -------- ------- Net income (loss) (8,933) (5,635) 527 (813) (533) Dividends on Preferred Stock....................... - - - (111) - ----------- ----------- --------- -------- ------- Net income (loss).................................. $ (8,933) $ (5,635) $ 527 $ (924) $ (533) =========== ============ ========= ========= ======= Income (loss) per common share before extraordinary item............................ $ (1.24) $ (0.75) $ .07 $ (.02) $ (.17) Extraordinary item................................. - (0.03) - (.19) - ------------ ----------- --------- -------- ------- Net income (loss) per common share $ (1.24) $ (0.78) $ .07 $ (.21) $ (.17) Weighted average shares outstanding................ 7,217 7,210 7,318 4,500 3,379 Other Data: EBITDA (1)......................................... $ 11,319 $ 7,103 $ 4,093 $ 3,722 $2,111 Operating Data: Company owned bulk CO2 systems serviced: Beginning of period........................... 39,295 21,919 12,884 7,967 4,237 New installations, net........................ 11,100 9,446 5,817 3,337 1,703 Acquisitions - 7,930 3,218 1,580 2,027 ----------- ----------- --------- -------- ------- Total Company owned bulk CO2 systems serviced: 50,395 39,295 21,919 12,884 7,967 Customer owned bulk CO2 systems serviced........... 8,605 6,800 4,800 2,900 2,300 ----------- ----------- --------- -------- ------- Total bulk CO2 systems serviced.................... 59,000 46,095 26,719 15,784 10,267 Total high pressure CO2 customers.................. 6,000 9,000 2,000 400 200 ----------- ----------- --------- -------- ------- Total customers.................................... 65,000 55,095 28,719 16,184 10,467 Stationary depots.................................. 69 63 38 24 15 Mobile depots...................................... 15 2 0 0 0 Bulk CO2 trucks.................................... 166 150 83 49 30 Installation vehicles.............................. 86 76 36 19 18 High pressure cylinder delivery trucks............. 7 17 1 1 1 Balance Sheet Data: Cash and cash equivalents.......................... $ 1,579 $ 337 $ 11,673 $ 43,001 $ 562 Total assets....................................... 141,630 124,498 73,344 74,633 21,143 Total debt (including short-term debt)............. 82,460 59,328 9,546 10,844 17,391 Total shareholders' equity......................... $ 47,733 $ 55,643 $ 60,702 $ 60,684 $ 743
10 - -------------------- (1) EBITDA represents operating income plus depreciation and amortization. Information regarding EBITDA is presented because of its use by certain investors as one measure of an issuer's ability to generate cash flow. EBITDA should not be considered an alternative to, or more meaningful than, operating income or cash flows from operating activities as an indicator of an issuer's operating performance. 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, OUR EXPANSION INTO NEW MARKETS, COMPETITION, TECHNOLOGICAL ADVANCES, YEAR 2000 ISSUES AND AVAILABILITY OF MANAGERIAL PERSONNEL. Overview We are the largest supplier in the United States of bulk CO2 systems and bulk CO2 for carbonating and dispensing fountain beverages. We currently operate a national network of 84 service locations in 44 states servicing approximately 65,000 bulk and high pressure customers. Over 97% of fountain beverage users in the Continental United States are within our current service area. Growth in our customer base has averaged 78% annually. Our rapid growth has been due to a combination of internal growth and over 30 acquisitions. Today, the majority of our growth is driven by the conversion of high pressure CO2 users to bulk CO2 systems. Our success in conversions is demonstrated in the Florida market where we continue to rapidly add new bulk CO2 system installations, even after actively marketing in the state since 1990. Substantially all of our revenues have been derived from the rental of bulk CO2 systems installed at customers' sites, the sale of CO2 and high pressure cylinder revenues. Revenues have grown from $812,000 in fiscal 1991 to $47.1 million in fiscal 1999, an average increase of 68% annually. We believe that our revenue base is stable due to the existence of long-term contracts with our customers which generally roll-over without a significant portion expiring without renewal in any one year. In each of fiscal 1997, 1998 and 1999, less than 5% of our bulk CO2 systems in service experienced service termination. Service termination is typically caused by restaurant closure. Affected bulk CO2 systems are either removed and reconditioned, or left in place when prospects for a new restaurant at the same location appear likely. Revenue growth is largely dependent on both (1) the rate of new bulk CO2 system installations and (2) the growth in bulk CO2 sales at (i) customers on the rental plus per pound charge contracts and (ii) customers that own their own bulk CO2 systems. During fiscal 1999, we installed a net of 925 bulk CO2 systems monthly. Cost of products sold is comprised of purchased CO2 and labor, vehicle and service location costs associated with the storage and delivery of CO2 to customers. Selling general and administrative expenses consist of salaries, dispatch and communications costs, and expenses associated with marketing, administration, accounting and employee training. Consistent with the capital intensive nature of our business, we incur significant depreciation and amortization expenses. These stem from the depreciation of our bulk CO2 systems; depreciation and amortization of bulk CO2 system installation costs; amortization of sales commissions; and amortization of goodwill, deferred financing costs and other intangible assets. With respect to bulk CO2 systems, we only capitalize costs that are associated with specific successful placements of such systems with customers under noncancelable contracts and which would not be incurred but for a successful placement. All other service, marketing and administrative costs are expended as incurred. Since 1990, we have devoted significant resources to building a sales and marketing organization, adding administrative personnel and developing a national infrastructure to support the rapid growth in the number of our installed base of bulk CO2 systems. The cost of this expansion and the significant depreciation expense of our installed network have resulted in significant operating losses to date and accumulated net losses of $17.1 million at June 30, 1999. 11 We believe that our future revenue growth, gains in gross margin and profitability will be dependent upon increases in route density and the expansion and penetration of bulk CO2 system installations in existing and new market regions resulting from successful ongoing marketing. Our experience has been that gross margins at service locations have generally increased with the length of time that the service location is in operation. Gross margins in our mature markets are generally in the 55% to 65% range. For the quarter ended June 30, 1999, 36% of our stationary service locations were open over three years and averaged a 58% gross margin, 19% of our stationary service locations were open between two and three years and averaged a 54% gross margin, 42% of our stationary service locations were open between one and two years and averaged a 35% gross margin and 3% of our stationary service locations were open under one year and averaged a 39% gross margin. Additionally, we operate 15 mobile service locations with an average 43% gross margin for the quarter ended June 30, 1999. New service locations typically operate at low or negative gross margins in the early stages and detract from our highly profitable service locations in mature markets. Increases in gross margins at service locations are directly related to increases in the number of customers serviced. New accounts are being added to newer depots for which there is substantial excess capacity, and therefore, relatively little additional cost is incurred to service new customers. New multi-unit placement agreements combined with single-unit placements will help us in achieving route density. During fiscal 1999, we reached multi-unit placement agreements with national and regional chains aggregating approximately 7,000 locations. Our success in reaching these multi-placement agreements is due in part to our national delivery system. As our customer base increases, we anticipate that our financial performance on a sequential basis will improve at an accelerated rate. Our route density is highest in Florida and is less developed in the other areas where we presently have operations. We believe that optimal route density is achieved at over 400 accounts serviced per bulk CO2 truck and we typically employ targeted sales efforts to build density within an existing delivery route. We maintain a "hub and spoke" route structure and establish additional stationary bulk CO2 service locations as a service area expands through geographic growth. Our entry into many states was accomplished largely through business acquisitions with thinly developed route networks. We expect to benefit from route efficiencies and other economies of scale as we build our customer base in these states through intensive marketing initiatives. Greater scale may also lead to better vehicle and fixed asset utilization as well as the ability to spread fixed marketing and administrative costs over a broader revenue base. We believe that earnings before interest, taxes, depreciation and amortization ("EBITDA") is the principal financial measure by which we should be measured as we continue to achieve national market presence and to build route density. Our revolving credit facility utilizes EBITDA for its calculation of financial leverage, affecting the amount of funds available to us to borrow. Information regarding EBITDA is presented because of its use by certain investors as one measure of a corporation's ability to generate cash flow. EBITDA should not be considered as an alternative to, or more meaningful than, operating income or cash flows from operating activities as an indicator of a corporation's operating performance. EBITDA excludes significant costs of doing business and should not be considered in isolation from GAAP measures. EBITDA has grown from $15,000 in fiscal 1991 to $11.3 million in fiscal 1999, an average increase of 72% annually from fiscal 1994 to fiscal 1999. 12 Results of Operations The following table sets forth, for the periods indicated, the percentage relationship which the various items bear to net sales:
Fiscal Year Ended June 30, 1999 1998 1997 ---- ---- ---- Income Statement Data: Net sales......................................... 100.0% 100.0% 100.0% Cost of products sold............................. 53.6 53.0 47.5 Selling, general and administrative expenses...... 22.4 26.8 30.9 Depreciation and amortization..................... 27.1 25.4 22.4 ------- --------- ------- Operating loss.................................... (3.1) (5.2) (.8) Interest expense (income)......................... 15.9 10.4 (3.6) ------- ---------- -------- Income (loss) before extraordinary item........... (19.0) (15.6) 2.8 Extraordinary item................................ - .5 - ------- --------- ------ Net income (loss)................................. (19.0%) (16.1%) 2.8% ======== ========== ====== Other Data: EBITDA......................................... 24.0% 20.3% 21.6% ======== =========== ======
Fiscal Year Ended June 30, 1999 Compared to Fiscal Year Ended June 30, 1998 Net Sales Net sales increased $12.0 million, or 34.3%, from $35.1 million in fiscal 1998 to $47.1 million in fiscal 1999. Approximately $3.6 million, or 30.2%, of the increase represented net sales from fifteen acquisitions during fiscal 1998 which are included for the full year in fiscal 1999 as compared to from their dates of acquisition in fiscal 1998. The remainder of the increase in net sales was primarily due to internal growth in the number of Company owned and customer owned bulk CO2 systems serviced. At June 30, 1999, there were approximately 50,400 Company owned and 8,600 customer owned bulk CO2 systems in service, an increase of 12,900, or 28%, over the approximately 39,300 Company owned and 6,800 customer owned bulk CO2 systems in service at the end of fiscal 1998. Increases in net sales due to price increase were insignificant. Cost of Products Sold Cost of products sold increased by $6.6 million, or 35.8%, from $18.6 million in fiscal 1998 to $25.2 million in fiscal 1999, and increased as a percentage of net sales from 53.0% in fiscal 1998 to 53.6% in fiscal 1999. The dollar increase is attributable to our continued growth. The percentage increase is largely attributable to an increase in bulk CO2 purchases as a percentage of net sales. Bulk CO2 purchases increased by $2.1 million from $4.2 million in fiscal 1998 to $6.3 million in fiscal 1999 and increased as a percentage of net sales from 12.1% to 13.4%. Fully loaded route drivers increased by $2.0 million from $6.2 million in fiscal 1998 to $8.2 million in fiscal 1999 and decreased as a percentage of net sales from 17.7% to 17.5%. Auto and truck expense increased by $1.0 million from $3.2 million in fiscal 1998 to $4.2 million in fiscal 1999 and decreased as a percentage of net sales from 9.2% to 9.0%. Depot expense increased by $476,000 from $1.7 million in fiscal 1998 to $2.2 million in fiscal 1999 and decreased as a percentage of net sales from 4.9% to 4.7%. Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $1.2 million, or 12.3%, from $9.4 million in fiscal 1998 to $10.6 million in fiscal 1999, and decreased as a percentage of net sales from 26.8% in fiscal 1998 to 22.4% in fiscal 1999. The dollar increase is primarily attributable to growth in the number of marketing and administrative personnel and their associated expenses. The percentage decrease is attributable to economies of scale. Fully loaded marketing, administrative and executive personnel increased by $1.1 million from $5.6 million in fiscal 1998 to $6.7 million in fiscal 1999, and decreased as a percentage of net sales from 16.1% in fiscal 1998 to 14.2% in fiscal 1999. At June 30, 1999, we had operations in 44 states and employed 178 marketing, administrative and executive 13 personnel, and at the end of fiscal 1998, we had operations in 43 states and employed 146 marketing, administrative and executive personnel. Depreciation and Amortization Depreciation and amortization increased by $3.9 million from $8.9 million in fiscal 1998 to $12.8 million in fiscal 1999. As a percentage of net sales, such expense increased from 25.4% in fiscal 1998 to 27.1% in fiscal 1999. Depreciation expense increased by $2.7 million from $6.0 million in fiscal 1998 to $8.7 million in fiscal 1999 principally due to the increase in bulk CO2 systems leased to customers. As a percentage of net sales, depreciation expense increased from 17.2% in fiscal 1998 to 18.6% in fiscal 1999. Amortization expense increased by $1.2 million from $2.9 million in fiscal 1998 to $4.0 million in fiscal 1999 primarily due to the increase in amortization of deferred lease acquisition costs, deferred charges and goodwill and customer lists resulting from acquisitions. As a percentage of net sales, amortization expense increased from 8.2% in fiscal 1998 to 8.5% in fiscal 1999. Operating Loss For the reasons described above, operating loss decreased by $365,000, or 20.2%, from $1.8 million in fiscal 1998 to $1.4 million in fiscal 1999, and decreased as a percentage of net sales from 5.2% in fiscal 1998 to 3.1% in fiscal 1999. Interest Expense Net interest expense increased by $3.9 million from $3.6 million in fiscal 1998 to $7.5 million in fiscal 1999, and increased as a percentage of net sales from 10.4% in fiscal 1998 to 15.9% in fiscal 1999. This increase is attributable to the increased level of long-term and subordinated debt in fiscal 1999 as compared to fiscal 1998. During fiscal 1998, $187,000 of deferred financing costs relating to our prior credit facility was written off. Net Loss For the reasons described above, net loss increased by $3.3 million, or 58.5%, from $5.6 million in fiscal 1998 to $8.9 million in fiscal 1999. No provision for income tax expense in either fiscal 1998 or fiscal 1999 has been made due to historical net losses. At June 30, 1999, we had net operating loss carryforwards for federal income tax purposes of $45.6 million, which are available to offset future federal taxable income through 2014. EBITDA For the reasons described above, EBITDA increased from $7.1 million in fiscal 1998 to $11.3 million in fiscal 1999, or 59.3%, and increased as a percentage of net sales from 20.3% to 24.0%. Fiscal Year Ended June 30, 1998 Compared to Fiscal Year Ended June 30, 1997 Net Sales Net sales increased $16.1 million, or 85.2%, from $18.9 million in fiscal 1997 to $35.1 million in fiscal 1998. Approximately $6.1 million of the increase represented net sales resulting from 15 acquisitions during the fiscal year ended June 30, 1998. In addition, approximately $2.9 million of the increase represented net sales from nine acquisitions during fiscal 1997 which are included for the full year in fiscal 1998 as compared to from their dates of acquisition in fiscal 1997. At June 30, 1998, there were approximately 39,300 Company owned bulk systems in service, an increase of 17,400 over the approximately 21,900 Company owned bulk systems in service at the end of fiscal 1997. Of such increase, approximately 7,900 resulted from acquisitions of businesses completed during fiscal 1998 and the remaining 9,500 resulted from internal marketing efforts. Increases in net sales due to price increases were insignificant. 14 Cost of Products Sold Cost of products sold increased by $9.6 million, or 106.6%, from $9.0 million in fiscal 1997 to $18.6 million in fiscal 1998, and increased as a percentage of net sales from 47.5% in fiscal 1997 to 53.0% in fiscal 1998. This increase was attributable to our expansion into new territories. Fully loaded route drivers increased by $3.2 million from $3.0 million in fiscal 1997 to $6.2 million in fiscal 1998, and increased as a percentage of net sales from 16.0% to 17.7%. The number of depots we operated at June 30, 1998 increased to 65, compared to 38 at June 30, 1997. Depot expense increased by $956,000 from $775,000 in fiscal 1997 to $1.7 million in fiscal 1998, and increased as a percentage of net sales from 4.1% to 4.9%. Auto and truck expense increased by $1.7 million from $1.5 million in fiscal 1997 to $3.2 million in fiscal 1998 and increased as a percentage of net sales from 8.2% to 9.2%. When we open new depots and expand into new markets, higher costs expressed as a percentage of net sales are incurred until route density is achieved. We typically service approximately 350 customers per delivery vehicle in mature markets. In new territories, a delivery vehicle can initially service as few as 100 customers. Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $3.5 million, or 60.4%, from $5.9 million in fiscal 1997 to $9.4 million in fiscal 1998, and decreased as a percentage of net sales from 30.9% in fiscal 1997 to 26.8% in fiscal 1998. The dollar increase was primarily attributable to growth in the number of marketing and administrative personnel and their associated expenses, as well as the costs of expanding our geographic areas of service. Fully loaded marketing, administrative and executive personnel increased by $2.4 million from $3.2 million in fiscal 1997 to $5.6 million in fiscal 1998, and decreased as a percentage of net sales from 16.9% in fiscal 1997 to 16.1% in fiscal 1998. The percentage decrease is attributable to economies of scale. At June 30, 1997, we had operations in 30 states and at the end of fiscal 1998, we had operations in 43 states. Depreciation and Amortization Depreciation and amortization increased by $4.7 million from $4.2 million in fiscal 1997 to $8.9 million in fiscal 1998. As a percentage of net sales, such expense increased from 22.4% in fiscal 1997 to 25.4% in fiscal 1998. Depreciation expense increased by $2.9 million from $3.1 million in fiscal 1997 to $6.0 million in fiscal 1998 principally due to the increase in bulk CO2 systems leased to customers. As a percentage of net sales, depreciation expense increased from 16.5% in fiscal 1997 to 17.2% in fiscal 1998. Amortization expense increased by $1.8 million from $1.1 million in fiscal 1997 to $2.9 million in fiscal 1998 primarily due to the increase in amortization of deferred lease acquisition costs and goodwill and customer lists resulting from acquisitions. As a percentage of net sales, amortization expense increased from 5.9% in fiscal 1997 to 8.2% in fiscal 1998. Operating Loss For the reasons described above, operating loss increased by $1.7 million, from $153,000 in fiscal 1997 to $1.8 million in fiscal 1998, and increased as a percentage of net sales from 0.8% in fiscal 1997 to 5.2% in fiscal 1999. Interest Expense Net interest income in fiscal 1997 was $681,000 compared to net interest expense in fiscal 1998 of $3.6 million. This change is attributable to the decreased level of cash and cash equivalents and the increased level of long-term and subordinated debt in fiscal 1998 as compared to fiscal 1997. During fiscal 1998, $187,000 of deferred financing costs relating to our prior credit facility was written off. Net Income/Loss For the reasons described above, net income in fiscal 1997 was $527,000 compared to a net loss of $5.6 million in fiscal 1998. No provision for income tax expense in either fiscal 1997 or fiscal 1998 has been made due to historical net losses. At June 30, 1998, we had net operating loss carryforwards for federal income tax purposes of $26.2 million, which are available to offset future federal taxable income through 2013. 15 EBITDA For the reasons described above, EBITDA increased from $4.1 million in fiscal 1997 to $7.1 million in fiscal 1998, or 73.6%, but decreased as a percentage of net sales from 21.6% to 20.3%. Liquidity and Capital Resources Our cash requirements consist principally of (1) capital expenditures associated with purchasing and placing new bulk CO2 systems into service at customers' sites; (2) payments of interest on outstanding indebtedness; and (3) working capital. Whenever possible, we seek to obtain the use of vehicles, land, buildings, and other office and service equipment under operating leases as a means of conserving capital. As of June 30, 1999, we anticipated making cash capital expenditures of at least $20.0 million to $40.0 million during each of fiscal 2000 and fiscal 2001, primarily for purchases of bulk CO2 systems that we expect to place into service. Once bulk CO2 systems are placed into service, we generally experience positive cash flows on a per-unit basis, as there are minimal additional capital expenditures required for ordinary operations. In addition to capital expenditures related to internal growth, we review opportunities to acquire bulk CO2 service businesses, and may require cash in an amount dictated by the scale and terms of any such transactions successfully concluded. During fiscal 1999, our capital resources included cash flows from operations, available borrowing capacity under our credit facility and proceeds from the sale of our 12% Senior Subordinated Promissory Notes due 2005 (the "2005 Notes"). On May 4, 1999, we entered into a $75.0 million amended and restated revolving credit facility with a syndicate of banks led by SunTrust Bank, South Florida, National Association ("Amended SunTrust Facility"). The Amended SunTrust Facility contains interest rates and an unused facility fee based on a pricing grid calculated quarterly on senior funded debt to annualized EBITDA. We are entitled to select the Base Rate or LIBOR, plus applicable margin, for principal drawings under the Amended SunTrust Facility. The applicable LIBOR margin pursuant to the pricing grid ranges from 1.75% to 3.5%, the applicable unused facility fee pursuant to the pricing grid ranges from .375% to .50% and the applicable Base Rate margin pursuant to the pricing grid ranges from 0.25% to 2.00%. Interest only is payable periodically until the expiration of the Amended SunTrust Facility. The Amended SunTrust Facility expires May 4, 2002, however, it contains a two year renewal option subject to approval. Additionally, it is collateralized by substantially all of our assets. Drawings pursuant to the Amended SunTrust Facility are limited to availability under a formula predicated upon multiples of EBITDA. We are precluded from declaring or paying any cash dividends and are required to meet certain affirmative and negative covenants, including but not limited to financial covenants. At various dates in the past we have been unable to meet certain covenants and have had to obtain waivers or modifications of terms from our lenders. Although we believe that we will be able to comply with the current provisions of our borrowing arrangements, circumstances may result in our having to obtain waivers or further modifications in the future. We believe that we have an excellent relationship with our lenders. Simultaneously with the Amended SunTrust Facility, we sold $10.0 million of our 2005 Notes. Except for their October 31, 2005 maturity date, the 2005 Notes are substantially identical to our 12% Senior Subordinated Promissory Notes due 2004 (the "2004 Notes"). The 2005 Notes were sold with detachable 6-1/2 year warrants to purchase an aggregate of 372,892 shares of our Common Stock at an exercise price of $6.65 per stock unit. In connection with the sale of the 2005 Notes, certain financial covenants governing the 2004 Notes and the 2005 Notes were adjusted as of March 31, 1999 and prospectively and the exercise price for 612,023 warrants issued in connection with the sale of the 2004 Notes was reduced from $12.40 per share to $6.65 per stock unit. Additionally, effective May 4, 1999, the interest rate on the original $30.0 million of Notes increased to 14% per annum and will continue at 14% per annum during any quarter during which certain financial ratios are not met. As of June 30, 1999, a total of $43.3 million was outstanding under the Amended SunTrust Facility with interest at three hundred fifty basis points above the 180-day London InterBank Offering Rate ("LIBOR") (8.88% at June 30, 1999). Working Capital. At June 30, 1998, we had negative working capital of $3.1 million. At June 30, 1999, we had negative working capital of $455,000. 16 Cash Flows from Operating Activities. During fiscal 1998 and fiscal 1999, net cash provided by operating activities was $7.4 million and $4.2 million, respectively. Cash flows from operating activities decreased by $3.2 million during fiscal 1999 compared to fiscal 1998 primarily due to an increase in net loss and a decrease in the change in accounts payable. Net loss increased by $3.3 million from $5.6 million in fiscal 1998 to $8.9 million in fiscal 1999. The increase in accounts payable in fiscal 1998 was $4.5 million and in fiscal 1999 was $105,000. Cash Flows from Investing Activities. During fiscal 1999 and fiscal 1998, we made net capital expenditures of $24.0 million and $23.5 million, respectively, primarily for purchases of new bulk CO2 systems and associated installation and direct placement costs. In addition, during fiscal 1998, we made 15 acquisitions and expended cash of $12.4 million. Cash Flows from Financing Activities. During fiscal 1999 and fiscal 1998, net cash provided by financing activities was $22.7 million and $18.6 million, respectively. For fiscal 1999 and fiscal 1998, cash flows provided by financing activities were primarily from the issuance of subordinated debt and borrowings under our revolving credit facility. We believe that cash from operating activities and available borrowings under the Amended SunTrust Facility will be sufficient to fund proposed operations for at least the next 12 months at our anticipated rate of growth. Year 2000 We have conducted a review to identify which of our computer and other business operating systems will be affected by the "Year 2000" problem and have developed a project plan and schedule to solve this issue. Among the functions and systems impacted could be inventory and accounting systems, dispatch and delivery systems, electronic data interchange, and mechanical systems operating everything from office building environmental controls to telephone switches and fax machines. We believe that the costs of modifications, upgrades, or replacements of software, hardware, or capital equipment which would not be incurred but for Year 2000 compatibility requirements have not and will not have a material impact on our financial position or results of operations. We are also engaged in communications with our significant business partners, suppliers and customers to determine the extent to which we are vulnerable to such third parties' failure to address their own Year 2000 issues. Our assessment of the impact of Year 2000 issues includes an assessment of our vulnerability to such third parties. We are seeking assurances from our significant business partners, suppliers and customers that their computer applications will not fail due to Year 2000 problems. Nevertheless, we do not control, and can give no assurances as to the substance or success of the Year 2000 compliance efforts of such independent third parties and we believe that there is a risk that certain of these third parties on whom our finances and operations depend will experience Year 2000 problems that could affect our financial position or results of operations. These risks include, but are not limited to, the potential inability of suppliers to correctly or timely provide necessary services, materials and components for our operations; the inability of our customers to timely or correctly process and pay our invoices; and the inability of lenders, lessors or other sources of our necessary capital and liquidity to make funds available to us when required. Because we are unaware of any material Year 2000 compliance issues, we lack a Year 2000-specific contingency plan. If Year 2000 compliance issues are discovered, we will evaluate the need for one or more contingency plans relating to such issues. If we are unable to develop and implement appropriate contingency plans, as needed, in a timely manner, we may experience delays in, or increased costs associated with, implementation of changes to address any such issues, which could have material adverse effect on our business, operating results or financial condition. Inflation The modest levels of inflation in the general economy have not affected our results of operations. Additionally, our customer contracts generally provide for annual increases in the monthly rental rate based on increases in the consumer price index. We believe that inflation will not have a material adverse effect on our future results of operations. 17 Our bulk CO2 requirements contract with The BOC Group, Inc. provides for annual adjustments in the purchase price for bulk CO2 based upon increases or decreases in the Producer Price Index for Chemical and Allied Products or the average percentage increase in the selling price of bulk merchant carbon dioxide purchased by BOC's large, multi-location beverage customers in the United States, however, such increases are limited to 3% annually until June 2002. 7A. Quantitative and Qualitative Disclosures About Market Risk. As discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" above, as of June 30, 1999, a total of $43.3 million was outstanding under the Amended SunTrust Facility with interest at three hundred fifty basis points above the 180 day LIBOR rate (8.88% at June 30, 1999). Based upon $43.3 million outstanding under the Amended SunTrust Facility at June 30, 1999, our annual interest cost under the Amended SunTrust Facility would increase by $433,000 for each one percent increase in LIBOR (i.e., from 8.0% to 9.0%). In order to reduce our exposure to increases in LIBOR, and consequently to increases in interest payments, on June 9, 1998 we entered into an interest rate swap transaction (the "Swap") with SunTrust Bank, Atlanta, in the amount of $10.0 million (the "Notional Amount"). The effective date of the Swap is September 2, 1998 and it terminates on September 5, 2000. Pursuant to the Swap, we pay a fixed interest rate of 6% per annum and receive a LIBOR-based floating rate. The effect of the Swap is to neutralize any changes in LIBOR on the Notional Amount. If LIBOR decreases below 6% during the period the Swap is in effect, interest payments by us on the Notional Amount will be greater than if we had not entered into the Swap, since by exchanging LIBOR for a fixed interest rate, we would not benefit from falling interest rates on LIBOR, a variable interest rate. We do not enter into speculative derivative transactions or leveraged swap transactions. 8. Financial Statements and Supplementary Data. See page F-1. 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Not applicable. 10. Directors and Executive Officers of the Registrant. The information required by Item 10 is incorporated by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission no later than October 28, 1999 pursuant to Regulation 14A. 11. Executive Compensation. The information required by Item 11 is incorporated by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission no later than October 28, 1999 pursuant to Regulation 14A. 12. Security Ownership of Certain Beneficial Owners and Management. The information required by Item 12 is incorporated by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission no later than October 28, 1999 pursuant to Regulation 14A. 13. Certain Relationships and Related Transactions. The information required by Item 13 is incorporated by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission no later than October 28, 1999 pursuant to Regulation 14A. 18 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) The following documents are filed as part of this report: (1) Financial statements. See Index to Financial Statements which appears on page F-1 herein. (2) Financial Statement Schedules II - Valuation and Qualifying Accounts. (3) Exhibits: 19 Exhibit No. Exhibit ----------- ------- **3.1 -- Amended and Restated Articles of Incorporation of the Company. *****3.2 -- Articles of Amendment to the Articles of Incorporation of the Company, dated December 18, 1995. *****3.3 -- Articles of Amendment to the Articles of Incorporation of the Company, dated December 17, 1996. **3.4 -- Bylaws of the Company. *****10.1 -- 1995 Stock Option Plan. **10.2 -- Directors' Stock Option Plan. **10.3 -- Noncompetition Agreement between the Company and Edward M. Sellian, dated November 30, 1995. **10.4 -- Lease for 2528 North Tamiami Trail, Ft. Myers, Florida, between the Company and Edward M. Sellian. ***10.5 -- Lease for 2800 Southeast Market Place, Stuart, Florida between the Company and Edward M. Sellian. *****10.6 -- Lease for 2820 Southeast Market Place, Stuart, Florida between the Company and Edward M. Sellian dated as of February 1, 1998. ****10.7 -- Employment agreement between the Company and Joann Sabatino, dated October 16, 1996. *10.8 -- Amended and Restated Revolving Credit Agreement, dated as of May 4, 1999 by and among the Company, SunTrust Bank, South Florida, National Association, Bank Austria Creditanstalt Corporate Finance, Inc., The Provident Bank and Bank Leumi Le-Israel B.M. (the "Lenders") and SunTrust Bank, South Florida, National Association, as agent for the Lenders (the "Agent"). *10.9 -- First Amendment to Amended and Restated Credit Agreement dated as of June 16, 1999 by and among the Company, the Lenders and the Agent. *****10.10 -- Senior Subordinated Note Purchase Agreement, dated as of October 31, 1997 between the Company, the Subsidiary Guarantors and the Investors. *****10.11 -- Amendment No. 1 to Senior Subordinated Note Purchase Agreement dated as of November 14, 1997 between the Company, the Subsidiary Guarantors and the Investors. *****10.12 -- Amendment No. 2 to Senior Subordinated Note Purchase Agreement dated as of June 30, 1998 between the Company, the Subsidiary Guarantors and the Investors. *10.13 -- Amendment No. 3 to Senior Subordinated Note Purchase Agreement dated as of May 4, 1999 between the Company, the Subsidiary Guarantors and the Investors. *****10.14 -- Warrant Agreement dated as of October 31, 1997 among the Company and the Initial Holders. 20 *****10.15 -- Amendment No. 1 to Warrant Agreement dated as of November 14, 1997, between the Company and the Initial Holders. *10.16 -- Amendment No. 2 to Warrant Agreement dated as of May 4, 1999 between the Company and the Holders. *****21 -- Subsidiaries *23 -- Consent of Margolin, Winer & Evens LLP to the incorporation by reference to the Company's Registration Statement on Form S-8 (No. 333-06705) of the independent auditors' report included herein. *27 -- Financial Data Schedule. (b) Reports on Form 8-K The Company filed a Form 8-K dated May 4, 1999 reporting an Item 5 event. - --------------------------- * Included herein. ** Incorporated by reference to the Company's Registration Statement on Form SB-2, filed with the Commission on November 7, 1995 (Commission File No. 33-99078), as amended. *** Incorporated by reference to the Company's Registration Statement on Form SB-2, filed with the Commission on June 7, 1996 (Commission File No. 333-3352). **** Incorporated by reference to the Company's Form 10-KSB for the fiscal year ended June 30, 1997. ***** Incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1998. 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NUCO2 INC. Dated: September 28, 1999 /s/ Edward M. Sellian ------------------------ Edward M. Sellian, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Craig L. Burr Director September 28, 1999 ------------------------ Craig L. Burr /s/ Robert L. Frome Director September 28,1999 ------------------------ Robert L. Frome /s/ John A. Kerney Director September 28, 1999 ------------------------ John A. Kerney /s/ Robert Ranieri Director September 28, 1999 ------------------------ Robert Ranieri /s/ Daniel Raynor Director September 28, 1999 ------------------------ Daniel Raynor /s/ Edward M. Sellian Director September 28, 1999 ------------------------ Edward M. Sellian /s/ Joann Sabatino Chief Financial September 28, 1999 ------------------------ Officer Joann Sabatino 22 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. NuCo2 Inc. Report of Independent Auditors ...........................................F-2 Consolidated Financial Statements: Consolidated Balance Sheets as of June 30, 1998 and 1999..........F-3 Consolidated Statements of Operations for the Fiscal Years Ended June 30, 1997, 1998 and 1999......................F-4 Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended June 30, 1997, 1998 and 1999...............F-5 Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 1997, 1998 and 1999......................F-6 Notes to Consolidated Financial Statements................................F-8 Schedule II - Valuation and Qualifying Accounts for the Fiscal Years Ended June 30, 1997, 1998 and 1999..........................F-19 F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders NuCo2 Inc. Stuart, Florida We have audited the accompanying consolidated balance sheets of NuCo2 Inc. as of June 30, 1998 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 1999. We have also audited the financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of NuCo2 Inc. as of June 30, 1998 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 1999 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule when considered in relation to the basic financial statement taken as a whole, presents fairly, in all material respects, the information set forth herein. MARGOLIN, WINER & EVENS LLP Garden City, New York August 20, 1999 F-2 NuCo2 Inc. CONSOLIDATED BALANCE SHEETS ASSETS (NOTE 5)
June 30, -------- 1998* 1999 ----------- ------------ Current assets: Cash and cash equivalents $ 336,510 $ 1,579,191 Trade accounts receivable; net of allowance for doubtful accounts of $395,491 and $557,592, respectively 4,285,158 6,767,716 Inventories 211,027 213,605 Prepaid expenses and other current assets 434,784 593,487 ------------- ------------- Total current assets 5,267,479 9,153,999 ------------- ------------- Property and equipment, net (Note 3) 85,435,933 99,664,890 ------------- ------------- Other assets: Goodwill, net 22,891,846 21,645,293 Deferred charges, net 2,004,259 2,915,167 Customer lists, net 3,963,588 2,897,638 Restrictive covenants, net 2,275,964 1,928,700 Deferred lease acquisition costs, net 2,475,139 3,236,919 Deposits 184,059 187,595 ------------- ------------- 33,794,855 32,811,312 ------------- ------------- $ 124,498,267 $ 141,630,201 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt (Note 5) $ 139,251 $ 96,748 Accounts payable 6,596,722 6,701,695 Accrued expenses 323,254 747,631 Accrued interest 844,153 1,473,704 Accrued payroll 476,458 543,924 Other current liabilities 7,179 45,570 ------------- ------------- Total current liabilities 8,387,017 9,609,272 Long-term debt, excluding current maturities (Note 5) 29,460,614 43,615,025 Subordinated debt (Note 6) 29,728,571 38,748,695 Customer deposits 1,279,178 1,924,528 ------------- ------------- Total Liabilities 68,855,380 93,897,520 ------------- ------------- Commitments and contingencies (Note 13) Shareholders' equity (Note 7): Preferred Stock; no par value; 5,000,000 shares authorized; none issued -- -- Common Stock; par value $.001 per share; 30,000,000 shares authorized; issued and outstanding 7,216,664 shares at June 30, 1998 and 1999 7,217 7,217 Additional paid-in capital 63,809,014 64,831,748 Accumulated deficit (8,173,344) (17,106,284) ------------- ------------- Total shareholders' equity 55,642,887 47,732,681 ------------- ------------- $ 124,498,267 $ 141,630,201 ============= =============
*Restated to conform to current year's classifications See accompanying notes to consolidated financial statements. F-3 NuCo2 Inc. CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30, 1997 1998 1999 ---- ---- ---- Net sales $ 18,943,569 $ 35,077,361 $ 47,097,670 ------------ ------------ ------------ Costs and expenses: Cost of products sold 8,991,823 18,578,063 25,224,746 Selling, general and administrative expenses 5,858,934 9,396,003 10,554,146 Depreciation and amortization 4,246,035 8,912,124 12,762,707 ------------ ------------ ------------ 19,096,792 36,886,190 48,541,599 ------------ ------------ ------------ Operating (loss) (153,223) (1,808,829) (1,443,929) Other expenses (income): Interest expense 884,627 3,809,138 7,524,966 Interest (income) (1,565,289) (170,160) (35,955) ------------ ------------ ------------ Income (loss) before extraordinary item 527,439 (5,447,807) (8,932,940) ------------ ------------ ------------ Extraordinary item - loss on extinguishment of debt (Note 5) -- 186,945 -- ------------ ------------ ------------ Net income (loss) $ 527,439 $ (5,634,752) $ (8,932,940) ============ ============ ============ Basic and Diluted EPS Income (loss) before extraordinary item $ 0.07 $ (0.75) $ (1.24) Extraordinary item -- (0.03) -- ------------ ------------ ------------ Net income (loss) $ 0.07 $ (0.78) $ (1.24) ============ ============ ============ Weighted average number of common and common equivalent shares outstanding Basic 7,164,924 7,210,350 7,216,664 ============ ============ ============ Diluted 7,317,926 7,210,350 7,216,664 ============ ============ ============
See accompanying notes to consolidated financial statements. F-4 NuCo2 Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Total Common Stock Additional Accumulated Shareholders' Shares Amount Paid-In Capital Deficit Equity ------ ------ --------------- ------- ------ Balance, June 30, 1996 7,129,467 $ 7,129 $ 63,743,312 $ (3,066,031) $ 60,684,410 Issuance of 34,289 share's of common stock - exercise of options 34,289 34 152,319 -- 152,353 Redemption of warrant -- -- (1,143,450) -- (1,143,450) Additional expense - secondary offering -- -- (59,100) -- (59,100) Issuance of 33,962 shares of common stock - asset acquisition 33,962 35 539,962 -- 539,997 Net income -- -- -- 527,439 527,439 ------------ ------------ ------------ ------------ ------------ Balance, June 30, 1997 7,197,718 7,198 63,233,043 (2,538,592) 60,701,649 Issuance of 18,835 shares of common stock - asset acquisition 18,835 19 274,972 -- 274,991 Issuance of 111 shares of common stock - exercise of options 111 -- 999 -- 999 Issuance of warrants -- -- 300,000 -- 300,000 Net (loss) -- -- -- (5,634,752) (5,634,752) ------------ ------------ ------------ ------------ ------------ Balance , June 30, 1998 7,216,664 7,217 63,809,014 (8,173,344) 55,642,887 Issuance and repricing of warrants -- -- 1,022,734 -- 1,022,734 Net (loss) -- -- -- (8,932,940) (8,932,940) ------------ ------------ ------------ ------------ ------------ Balance, June 30, 1999 7,216,664 $ 7,217 $ 64,831,748 $(17,106,284) $ 47,732,681 ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements. F-5 NuCo2 Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, -------------------- 1997 1998* 1999 ---- ----- ---- Income (loss) before extraordinary item $ 527,439 $ (5,447,807) $ (8,932,940) Extraordinary item - loss on extinguishment of debt -- (186,945) -- ------------ ------------ ------------ Net income (loss) 527,439 (5,634,752) (8,932,940) Cash flows from operating activities: Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization of property and equipment 3,130,022 6,045,652 8,743,134 Amortization of other assets 1,116,013 2,866,471 4,019,574 Loss on disposal of property and equipment 294,411 499,704 1,109,738 Write-off of deferred financing costs -- 186,945 -- Changes in operating assets and liabilities: Decrease (increase) in: Trade accounts receivable (735,238) (2,017,485) (2,482,558) Inventories (33,176) (115,968) (2,578) Prepaid expenses and other current assets 108,090 (157,926) (158,703) Increase (decrease) in: Accounts payable (712,747) 4,542,532 104,973 Accrued expenses 363,361 (395,794) 424,377 Accrued payroll (93,592) 243,989 67,466 Accrued interest 193,800 824,585 629,551 Other current liabilities (50,830) (41,061) 38,391 Customer deposits 236,392 591,296 645,350 ------------ ------------ ------------ Net cash provided by operating activities 4,343,945 7,438,188 4,205,775 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from disposal of property and equipment 2,133,776 410,868 104,173 Purchase of property and equipment (16,945,522) (23,456,104) (24,048,318) Acquisition of businesses (17,692,662) (12,406,907) 45,460 Increase in deferred lease acquisition costs (914,999) (1,805,874) (1,717,579) (Increase) decrease in deposits 160,500 (79,661) (3,536) ------------ ------------ ------------ Net cash used in investing activities $(33,258,907) $(37,337,678) $(25,619,800) ------------ ------------ ------------
* Restated to conform to current year's classifications. See accompanying notes to consolidated financial statements. F-6 NuCo2 Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended June 30, -------------------- 1997 1998 1999 ---- ---- ---- Cash flows from financing activities: Proceeds from issuance of Common Stock $ (59,100) $ -- $ -- Net proceeds from issuance of long-term debt and subordinated debt -- 21,610,820 24,292,857 Repayment of long-term debt (1,309,704) (831,409) (138,092) Increase in deferred charges (53,307) (2,216,916) (1,498,059) Exercise of warrants and options 152,353 999 -- Redemption of warrant (1,143,450) -- -- ------------ ------------ ------------ Net cash provided by (used in) financing activities (2,413,208) 18,563,494 22,656,706 ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents (31,328,170) (11,335,996) 1,242,681 Cash and cash equivalents, beginning of year 43,000,676 11,672,506 336,510 ------------ ------------ ------------ Cash and cash equivalents, end of year $ 11,672,506 $ 336,510 $ 1,579,191 ============ ============ ============ Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 903,729 $ 2,966,659 $ 6,870,822 ============ ============ ============ Income taxes $ -- $ -- $ -- ============ ============ ============ Supplemental schedule of noncash investing and financing activities: Acquisition of businesses: Fair value of assets acquired $ 1,098,718 $ 26,426,234 $ -- Cost in excess of net assets of businesses acquired 244,000 16,256,879 -- Liabilities assumed or incurred (56,250) (30,001,215) -- Issuance of Common Stock (539,996) (274,991) -- ------------ ------------ ------------ Cash paid $ 746,472 $ 12,406,907 $ -- ============ ============ ============
In 1997, the Company purchased equipment and incurred debt in the amount of $11,604. In 1998, the Company wrote-off a restrictive covenant and the related liability in the amount of $19,231 due to the employee resigning. In 1998, the Company repaid long-term debt in the amount of $20,782,995 with the proceeds of the issuance of subordinated debt. In connection therewith, detachable warrants were issued and original issue discount in the amount of $300,000 was recorded. In 1999, the Company repaid long-term debt in the amount of $5,000,000 with the proceeds of the issuance of subordinated debt. In connection therewith, detachable warrants were issued and original issue discount in the amount of $549,032 was recorded. Additionally, in connection with the repricing of the Company's 2004 warrants, original issue discount in the amount of $473,702 was recorded. See accompanying notes to consolidated financial statements. F-7 NuCo2 Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Description of Business and Summary of Significant Accounting Policies (a) Basis of Presentation The consolidated financial statements include the accounts of NuCo2 Inc. and its wholly-owned subsidiary, NuCo2 Acquisition Corp. which was formed during the year ended June 30, 1998 to acquire the stock of Koch Compressed Gases, Inc. (see Note 2). All material intercompany accounts and transactions have been eliminated. (b) Description of Business The Company is a supplier of bulk CO2 dispensing systems to customers in the food, beverage, lodging and recreational industries in the United States. (c) Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. (d) Inventories Inventories, consisting primarily of carbon dioxide gas, are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. (e) Property and Equipment Property and equipment are stated at cost. The Company does not depreciate bulk systems held for installation until the systems are in service and leased to customers. Upon installation, the systems, component parts and direct costs associated with the installation are transferred to the leased equipment account. These costs are associated with successful placements of such systems with customers under noncancelable contracts and which would not be incurred by the Company but for a successful placement. Upon early service termination, the unamortized portion of direct costs associated with the installation are charged to cost of products sold. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the respective assets or the lease terms for leasehold improvements, whichever is shorter. The depreciable lives of property and equipment are as follows: Estimated Life Leased equipment 5-20 years Equipment and cylinders 3-20 years Vehicles 3-5 years Computer equipment 3-7 years Office furniture and fixtures 5-7 years Leasehold improvements lease term F-8 NuCo2 Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Description of Business and Summary of Significant Accounting Policies - (continued) (f) Other Assets Goodwill, Net Goodwill, net, represents costs in excess of net assets of businesses acquired and is being amortized on a straight-line basis over twenty years. Accumulated amortization of goodwill was $1,370,779 and $2,582,372 at June 30, 1998 and 1999, respectively. The Company periodically assesses the recoverability of the cost of its goodwill, as well as of its other intangible assets, based on a review of projected undiscounted cash flows of the related operating assets. These cash flows are prepared and reviewed by management in connection with the Company's annual long range planning process. Deferred Charges, Net Deferred charges, net, consist of the unamortized portion of financing costs which are being amortized over the term of the related indebtedness, ranging from thirty-six to eighty-four months. Accumulated amortization of deferred charges was $417,646 and $1,004,797 at June 30, 1998 and 1999, respectively. Included in the consolidated statements of operations for the year ended June 30, 1998 are extraordinary write-offs of deferred financing fees in connection with the reduction of certain indebtedness. Customer Lists, Net Customer lists, net, consist of the unamortized portion of customer lists acquired in connection with asset acquisitions which are being amortized over five years, the average life of customer leases. Accumulated amortization of customer lists was $1,380,411 and $2,435,861 at June 30, 1998 and 1999, respectively. The Company's policy is to value customer lists based on the estimated value of future cash flows over the life of the customer lease. Restrictive Covenants, Net Restrictive covenants, net, consist of covenants not to compete arising in connection with asset acquisitions which are being amortized over their contractual lives ranging from thirty to one hundred and twenty months. Accumulated amortization of restrictive covenants was $353,993 and $701,257 at June 30, 1998 and 1999, respectively. The Company's policy is to value restrictive covenants based on the negotiated contractual value of the restrictive covenant or a third party appraisal. Deferred Lease Acquisition Costs, Net Deferred lease acquisition costs, net, consist of commissions associated with the acquisition of new leases and are being amortized over the life of the related leases, generally five years. Accumulated amortization of deferred lease acquisition costs was $1,197,756 and $1,932,060 at June 30, 1998 and 1999, respectively. Upon early service termination, the unamortized portion of deferred lease acquisition costs are charged to selling, general and administrative expenses. (g) Revenue Recognition The Company earns its revenues from the leasing of CO2 systems and related gas sales. The Company, as lessor, recognizes revenue from leasing of CO2 systems on a straight-line basis over the life of the related leases. The majority of CO2 system leases generally include payments for leasing of equipment and a continuous supply of CO2 until usage reaches a pre-determined maximum annual level, beyond which the customer pays for CO2 on a per pound basis. Other CO2 and gas sales are recorded upon delivery to the customer. F-9 NuCo2 Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Description of Business and Summary of Significant Accounting Policies - (continued) (h) Income Taxes Income taxes are accounted for under Financial Accounting Standards Board Statement No. 109, Accounting for Income Taxes. Statement No. 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Under Statement No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (i) Net Income or Loss Per Common Share Net income or loss per common share is presented in accordance with SFAS No. 128, "Earnings per Share." Basic earnings per common share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per common share incorporate the incremental shares issuable upon the assumed exercise of stock options and warrants to the extent they are not anti-dilutive. (j) Use Of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (k) Employee Benefit Plan On June 1, 1996, the Company adopted a deferred compensation plan under Section 401(K) of the Internal Revenue Code which covers all eligible employees. Under the provisions of the plan, eligible employees may defer a percentage of their compensation subject to the Internal Revenue Service limits. Contributions to the plan are made only by employees. Note 2 - Acquisitions In August 1996, the Company acquired the bulk CO2 operations of two affiliated companies operating in Ohio, Kentucky and Indiana for an aggregate purchase of approximately $1,350,000. The Company paid cash for these transactions. In March 1997, the Company acquired certain assets of three unrelated companies operating in Texas for an aggregate purchase price of approximately $2,875,000. The Company paid cash for these transactions. In April 1997, the Company acquired certain assets of Texas Oxygen, Inc./Texas CO2, Inc. for an aggregate purchase price of approximately $3,925,000. The Company paid cash for these transactions. In May 1997, the Company acquired certain assets from two companies, City Carbonic Company, Inc., and the BOC Group, Inc. City Carbonic Company, Inc. operating in Oklahoma, Kansas, Texas and Arkansas, sold assets for an aggregate purchase price of approximately $3,290,000. The BOC Group, Inc. beverage bulk CO2 operations were located in Massachusetts, Pennsylvania and Tennessee and were acquired for an aggregate purchase price of approximately $5,233,000. The Company paid cash for these transactions. In June 1997, the Company acquired certain assets of a business operating in Georgia for a purchase price of $1,350,000. The Company paid approximately $750,000 cash, incurred liabilities of $60,000 and issued 33,962 shares of Common Stock at market, for a value of $540,000. F-10 NuCo2 Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Acquisitions (continued) Effective July 15, 1997, the Company purchased substantially all of the assets of a bulk CO2 company operating in Colorado for a purchase price of $675,000. The purchase price was funded through a borrowing under the Company's credit facility. Effective July 31, 1997, the Company purchased certain assets from CC Acquisition Corp. (Carbo Co.) for an aggregate purchase price of $11,000,000. Carbo Co. had operations in Nebraska, Kansas, Oklahoma, Iowa, Missouri, Arkansas and South Dakota. The Company funded $5,000,000 through a borrowing under its credit facility and paid cash for the balance. In September 1997, the Company purchased certain assets of a bulk CO2 company with operations in Arizona for an aggregate purchase price of $1,084,250. The Company funded $1,075,000 through a borrowing under its credit facility and paid cash for the balance. Effective October 1, 1997, a newly formed wholly-owned subsidiary of the Company purchased all of the issued and outstanding shares of Common Stock of Koch Compressed Gases, Inc. ("Koch") for an aggregate purchase price of approximately $5,000,000. Koch operated a bulk CO2 business as well as provided carbon dioxide and other gases in high-pressure cylinders throughout the tri-state New York metropolitan area. The purchase price was funded through a borrowing under the Company's credit facility. In November 1997, the Company purchased substantially all of the assets of a bulk CO2 company operating in Texas for a purchase price of $949,240. The Company paid $674,249 cash and issued 18,835 shares of Common Stock at market, for a value of $274,991. Effective December 2, 1997, the Company purchased certain assets from four related carbonic gas distributors, Miller Carbonic Systems Co. Inc., Miller Carbonic, Inc., Carbonic National Systems, Inc., and Carbonic Gas Service, Inc., operating primarily in Illinois, Indiana, Wisconsin and Michigan for an aggregate purchase price of $11,150,000. The Company paid approximately $4,650,000 cash and funded $6,500,000 through a borrowing under the Company's SunTrust Facility (see Note 5). Effective December 2, 1997, the Company purchased certain assets of a bulk CO2 company with operations in Kansas for a purchase price of approximately $990,000. The purchase price was funded through a borrowing under the Company's SunTrust Facility (see Note 5). Effective January 23, 1998, the Company purchased substantially all of the assets of a bulk CO2 company operating in California for a purchase price of $4,500,000. The purchase price was funded through a borrowing under the Company's SunTrust Facility (see Note 5). Effective March 2, 1998, the Company purchased certain assets from Florida Carbonic Distributor, Inc., a carbonic gas distributor operating in Florida for a purchase price of $6,300,000. The purchase price was funded through a borrowing under the Company's SunTrust Facility (see Note 5). In March, 1998, the Company purchased certain assets from three unrelated carbonic gas distributors with operations in Texas, Maine and Alabama for an aggregate purchase price of $406,000. The Company paid cash for these transactions. The Company did not consumate any acquisitions during the fiscal year ended June 30, 1999. These acquisitions were accounted for by the purchase method of accounting and, accordingly, the purchase prices and direct costs of the acquisitions have been allocated to the respective assets and liabilities of the acquired companies based upon their estimated fair market values at the date of acquisition. This resulted in goodwill of approximately $4,732,000 and $16,257,000 in the two years ended June 30, 1998, respectively, which is being amortized on a straight-line basis over twenty years. The results of operations of the acquired companies are included in the Company's consolidated financial statements since the effective date of the acquisitions. F-11 NuCo2 Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Acquisitions (continued) The following summarized, unaudited, pro forma results of operations assume that the acquisitions described above occurred as of the beginning of the earliest year presented: Year Ended June 30, ------------------- 1997 1998 ---- ---- Net sales $ 33,104,161 $ 39,078,542 (Loss) before extraordinary item (1,751,557) (6,133,862) Net (loss) (1,751,557) (6,320,807) Net (loss) per common share (0.24) (0.88) Note 3 - Property and Equipment, Net Property and equipment, net consists of the following: June 30, -------- 1998 1999 ---- ---- Leased equipment $ 77,378,765 $ 95,925,286 Equipment and cylinders 12,126,813 13,939,944 Systems held for installation 3,925,539 5,150,513 Vehicles 622,092 448,363 Computer equipment 1,516,153 2,062,704 Office furniture and fixtures 997,142 1,216,246 Leasehold improvements 1,039,442 1,484,856 Construction in progress 221,999 -- ------------ -------------- - - 97,827,945 120,227,912 Less accumulated depreciation and amortization 12,392,012 20,563,022 ------------ --------------- $ 85,435,933 $ 99,664,890 ============ =============== Capitalized component parts and direct costs associated with installation of equipment leased to others included in leased equipment was $12,429,913 and $19,417,952 at June 30, 1998 and 1999, respectively. Accumulated depreciation and amortization of these costs were $3,525,574 and $6,332,121 at June 30, 1998 and 1999, respectively. Depreciation and amortization of property and equipment was $3,130,022, $6,045,652 and $8,743,134 for the years ended June 30, 1997, 1998, and 1999, respectively. Note 4 - Leases The Company leases equipment to its customers generally pursuant to five-year noncancelable operating leases which expire on varying dates through June 2005. At June 30, 1999, future minimum rentals due from customers which includes, where applicable, a continuous supply of CO2 (see Note 1(g)), are approximately as follows: Year Ending June 30, 2000 $ 31,935,000 2001 28,932,000 2002 24,973,000 2003 17,226,000 2004 9,064,000 Thereafter 5,295,000 -------------- $ 117,425,000 ============== F-12 NuCo2 Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Long-Term Debt Long-term debt consists of the following:
June 30, 1998 1999 Note payable to bank under credit facility. Drawings at June 30, 1999 are at LIBOR rates plus 3.5% (8.8831%). Drawings at June 30, 1998 are at 6 month LIBOR rates plus 2.25%. (7.875% to 8.00%) (a) $ 29,000,000 $ 43,250,000 Note payable assumed in connection with the acquisition of the stock of Koch of $388,082, principal and interest (9%) payments of $4,413 through April 2003 and $5,405 from May 2003 through April 2008. 375,741 355,788 Various notes payable 224,124 105,985 ------------ ------------ 29,599,865 43,711,773 Less current maturities of long-term debt 139,251 96,748 ------------ ------------ Long-term debt, excluding current maturities $ 29,460,614 $ 43,615,025 ============ ============
(a) On May 4, 1999, the Company entered into a $75.0 million amended and restated revolving credit facility with a syndicate of banks led by SunTrust Bank, South Florida, N.A. ("Amended SunTrust Facility"). The Amended SunTrust Facility amended and restated the Company's existing $50.0 million syndicated facility which had been entered into in October 1997. As of June 30, 1999, $31.75 million is available under the Amended SunTrust Facility. The Amended SunTrust Facility contains interest rates and an unused facility fee based on a pricing grid calculated quarterly on senior funded debt to annualized EBITDA (as defined). The Company is entitled to select the Base Rate or LIBOR, plus applicable margin, for principal drawings under the Amended SunTrust Facility. The applicable LIBOR margin pursuant to the pricing grid ranges from 1.75% to 3.5%. The applicable unused facility fee pursuant to the pricing grid ranges from .375% to .50%. Interest only is payable periodically until the expiration of the Amended SunTrust Facility on May 4, 2002; there is, however, a two year renewal option subject to approval. The Amended SunTrust Facility is collateralized by substantially all of the assets of the Company. The Company is precluded from declaring or paying any cash dividends and is required to meet certain affirmative and negative covenants including, but not limited to, financial covenants. Pursuant to the Amended SunTrust Facility, drawings are limited to availability under a formula predicated upon multiples of EBITDA. On June 9, 1998, the Company entered into an interest rate swap transaction (the "Swap") with SunTrust Bank, Atlanta, in the amount of $10.0 million (the "Notional Amount"). The effective date of the Swap is September 2, 1998 and terminates on September 5, 2000. Pursuant to the Swap, the Company pays a fixed interest rate of 6% per annum and receives a LIBOR-based floating rate. The aggregate maturities of long-term debt for each of the five years subsequent to June 30, 1999 are as follows: Year Ending June 30, 2000 $ 96,748 2001 33,495 2002 43,286,638 2003 40,073 2004 43,826 Thereafter 210,993 ---------------- $ 43,711,773 ================ Extraordinary item - loss on extinguishment of debt During the year ended June 30, 1998, the Company incurred an extraordinary charge of $186,945, for the write-off of deferred financing costs in connection with the early repayment of debt. F-13 NuCo2 Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 - Subordinated Debt In October 1997, the Company issued $30.0 million of its 12% Senior Subordinated Promissory Notes ("Notes") with interest only payable semi-annually on April 30 and October 31, due October 31, 2004. The Notes were sold with detachable seven year warrants to purchase an aggregate of 655,738 shares of the Company's Common Stock at an exercise price of $16.40 per share. The effective rate of the Notes is 12.1% per annum after giving effect to the amortization of the original issue discount. The Company is required to meet certain affirmative and negative covenants. Additionally, NationsBanc Montgomery Securities, Inc., the placement agent, received a warrant to purchase an aggregate of 30,000 shares of the Company's Common Stock at an exercise price of $14.64 per share which expires on October 31, 2004. On May 4, 1999, the Company sold an additional $10.0 million of its 12% Senior Subordinated Promissory Notes ("Additional Notes"). Except for their October 31, 2005 maturity date, the Additional Notes are substantially identical to the Notes described above. The Additional Notes were sold with detachable 6-1/2 year warrants to purchase an aggregate of 372,892 shares of Common Stock at an exercise price of $6.65 per share. In connection with the sale of the Additional Notes, certain financial covenants governing the Notes and the Additional Notes were adjusted as of March 31, 1999 and prospectively and the exercise price of 612,023 of the warrants issued in connection with the sale of the Notes was reduced to $6.65 per share. The effective rate of the Additional Notes is 13.57% per annum after giving effect to the amortization of the original issue discount. Additionally, effective May 4, 1999, the interest rate on the original $30.0 million of Notes increased to 14% and will continue at 14% during any quarter which certain financial ratios are not met. Note 7 - Shareholders' Equity (a) Non-Qualified Stock Options and Warrants In June 1995, the Company granted a ten year warrant to purchase 84,917 shares of Common Stock at $5.00 per share to the Company's then current lending institution in connection with a refinancing. As of June 30, 1999 the warrant is outstanding. In June 1995, the Company granted options to purchase 67,934 shares of Common Stock at $4.40 per share to certain officers and employees. In June and July 1996, these options were exercised. Proceeds to the Company from the exercise of these stock options in fiscal 1997 aggregated $149,455. In connection with the Company's Initial Public Offering in December 1995, representatives of the Underwriters received warrants to purchase up to an aggregate of 110,000 shares of Common Stock. Such warrants are exercisable for a period of five years, at an exercise price of $10.80 per share. In July 1996, the Company redeemed and canceled a warrant issued to one of the representatives of the underwriters to purchase 77,000 shares of Common Stock for $1,143,450. This amount represented the approximate market value of such warrant on the date of redemption. In May 1997, the Company granted a warrant to purchase 1,000,000 shares of Common Stock to BOC pursuant to the supply agreement (see Note 13c). The warrant is exercisable from May 1, 1999 to May 1, 2002 at an exercise price of $17 per share and from May 1, 2002 until April 30, 2007 at an exercise price of $20 per share. (b) Stock Option Plans The board of directors adopted the 1995 Option Plan (the "1995 Plan"). Under the 1995 Plan, the Company has reserved 850,000 shares of Common Stock for employees of the Company. Under the terms of the 1995 Plan, options granted may be either incentive stock options or non-qualified stock options, or both. The exercise price of incentive options shall be at least equal to 100% of the fair market value of the Company's Common Stock at the date of the grant, and the exercise price of non-qualified stock options issued to employees may not be less than 75% of the fair market value of the Company's Common Stock at the date of the grant. The maximum term for all options is 10 years. Options granted to date vest in three to five installments over periods of three to four and one-half years. As of June 30, 1997, 1998 and 1999, options for 41,437 shares, 105,900 shares and 277,307 shares are exercisable, respectively. The weighted-average fair value per share of options granted during the years ended June 30, 1997, 1998 and 1999 were $2.93, $2.81 and $2.20, respectively. As of June 30, 1999, the weighted-average remaining life of the options was 6.9 years. F-14 NuCo2 Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Shareholders' Equity (continued) The following table summarizes the transactions pursuant to the 1995 Plan.
Weighted-Average Shares Exercise Price Exercise Price ------ -------------- -------------- Outstanding at June 30, 1996 130,651 $9-$17.50 $13.88 Granted 222,500 $11.25 $11.25 Expired or canceled 6,225 $9-11.25 $9.31 Exercised 322 $9 $9 ------- ------------- -------- Outstanding at June 30, 1997 346,604 $9-$17.50 $12.28 Granted 341,500 $10.25-$11.28 $10.43 Expired or canceled 77,067 $9-$17.50 $17.29 Exercised 111 $9 $9 ------- ------------- -------- Outstanding at June 30, 1998 610,926 $9-$11.28 $10.61 Granted 214,500 $5.50-$7 $5.74 Expired or canceled 21,200 $9-$11.25 $10.40 ------- ------------- -------- Outstanding at June 30, 1999 804,226 $5.50-$11.28 $9.32 ======= ============= ========
The board of directors of the Company adopted the Directors' Stock Option Plan (the "Directors' Plan"). Under the Directors' Plan, each non-employee director will receive options for 6,000 shares of Common Stock on the date of his or her first election to the board of directors. In addition, on the third anniversary of each director's first election to the Board, and on each three year anniversary thereafter, each non-employee director will receive an additional option to purchase 6,000 shares of Common Stock. The exercise price per share for all options granted under the Directors' Plan will be equal to the fair market value of the Common Stock as of the date of grant. All options vest in three equal annual installments beginning on the first anniversary of the date of grant. The maximum term for all options is ten years. As of June 30, 1997, 1998 and 1999 options for 8,000 shares, 14,000 shares and 8,000 shares were currently exercisable and options for 24,000 shares, 22,000 shares and 30,000 shares were outstanding. No options have been exercised under the Directors' Plan. The weighted-average fair value per share of options granted during the years ended June 30, 1998 and 1999 were $4.11 and $2.58, respectively. During the fiscal years ended June 30, 1998 and 1999, 6,000 options and 18,000 options were granted, respectively. No options were granted during the year ended June 30, 1997. As of June 30, 1999, the weighted-average remaining life of the options was 8.7 years. Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, defines a fair value based method of accounting for stock options. The Statement allows an entity to continue to measure cost using the accounting method prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees, and to make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in fiscal 1997, 1998 and 1999; expected volatility of 39% to 40%, risk-free interest rate of 4.3% to 6.5%, expected dividend yield of 0% and expected lives of one to five years. The Company adopted SFAS 123 in fiscal year ended June 30, 1997 and presents the following pro forma disclosures rather than change its present method of accounting for employee stock options:
Year Ended June 30, ------------------- 1997 1998 1999 ---- ---- ---- Net income (loss) available to common shareholders $ 27,439 $ (5,974,752) $ (9,462,940) Net income (loss) per common share $ 0.01 $ (0.83) $ (1.31) ========= ============ =============== Weighted average number of common and common equivalent shares outstanding 7,302,662 7,210,350 7,216,664 ========== ============ ==============
The pro forma adjustment for stock based compensation costs under SFAS 123 for the years ending 1997, 1998 and 1999 is approximately $500,000, $340,000 and $530,000, respectively. No stock based compensation was recognized in the financial statements pursuant to APB Opinion No. 25. F-15 NuCo2 Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 - Earnings per Share In February 1997, the FASB issued Statement 128, "Earnings Per Share". Statement 128 supersedes APB Opinion No. 15, "Earnings Per Share" and specifies the computation, presentation and disclosure requirements for earnings per share ("EPS") for entities with publicly held Common Stock or potential Common Stock. It replaces the presentation of primary EPS with the presentation of basic EPS and replaces fully diluted EPS with diluted EPS. It also requires dual presentation of basic and diluted EPS on the face of the statement of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Statement 128 is effective for financial statements for periods ending after December 15, 1997. Earnings per share of Common Stock for the year ended June 30, 1997 has been restated to conform to the guidelines of Statement 128. Following is a reconciliation of the numerator and denominator of the basic and diluted per share computations for income from continuing operations for the year ended June 30, 1997.
Weighted Per-Share Net Income Average Shares Amount ---------- -------------- ------ Basic EPS Income available to common shareholders $ 527,439 7,164,924 $ 0.07 Effect of dilutive options and warrants - 153,002 - ----------- --------- ------- Diluted EPS $ 527,439 7,317,926 $ 0.07 =========== ========= =======
Incremental shares for stock options and warrants calculated pursuant to the treasury stock method for the years ended June 30, 1998 and 1999 were 136,972 shares and 52,668 shares, respectively. These shares were not included in diluted EPS because they would have been antidilutive. Additionally, options and warrants to purchase 1,075,000 shares, 655,738 shares and 36,000 shares for $17.00-$17.50 per share, $16.40 per share and $12.50-$14.64 per share, respectively, and options and warrants to purchase 1,043,715 shares, 321,810 shares and 350,416 shares for $16.40-$17.00 per share, $11.00-$14.64 per share and $8.94-$10.80 per share, respectively, were outstanding during all or a portion of the years ended June 30, 1998 and 1999, respectively, but were not included in the computation of diluted EPS because the options and warrants exercise price was greater than the average market price of the common shares. Note 9 - Income Taxes The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows:
June 30, 1998 1999 Deferred tax assets: Allowance for doubtful accounts $ 111,000 $ 209,600 Amortization expense 269,900 512,500 Other 4,200 10,900 Net operating loss carryforwards 9,862,700 17,143,400 ----------- ---------- Total gross deferred tax assets 10,247,800 17,876,400 Less valuation allowance (2,766,200) (6,236,400) ----------- ----------- Net deferred tax assets 7,481,600 11,640,000 ----------- ----------- Deferred tax liabilities: Depreciation expense (7,481,600) (11,640,000) ----------- ----------- Total gross deferred tax liabilities (7,481,600) (11,640,000) ----------- ----------- Net deferred taxes $ - $ - =========== ===========
F-16 NuCo2 Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9 - Income Taxes (continued) At June 30, 1999, the Company had net operating loss carryforwards for Federal income tax purposes of approximately $45,600,000 which are available to offset future Federal taxable income, if any, in varying amounts through June 2014. The net change in the total valuation allowance for the years ended June 30, 1998 and 1999 was an increase of $2,129,800 and $3,470,200, respectively. Note 10 - Related Party Transactions The Company entered into leases with the chairman of the board and chief executive officer for certain warehouse/depots and office facilities with annual rentals of approximately: Year Ending June 30, 2000 $ 276,000 2001 235,000 2002 109,000 2003 60,000 2004 - -------------- $ 681,000 ============== Rental expense was $166,549, $246,551 and $274,711 in 1997, 1998 and 1999, respectively, under these leases. Note 11 - Lease Commitments The Company leases office equipment, trucks and warehouse/depot and office facilities under operating leases (including related party leases, see Note 10) that expire at various dates through June 2006. Primarily all of the leases contain renewal options and escalations for real estate taxes, common charges, etc. Future minimum lease payments under noncancelable operating leases (that have initial noncancelable lease terms in excess of one year) are as follows: Year Ending June 30, 2000 $ 4,293,000 2001 3,954,000 2002 3,559,000 2003 2,412,000 2004 1,115,000 Thereafter 257,000 ---------------- $ 15,590,000 ================ Total rental expense under noncancelable operating leases was approximately $1,413,000, $3,284,000 and $4,386,142 in 1997, 1998 and 1999, respectively. Note 12 - Concentration of Credit and Business Risks The Company's business activity is with customers located within the United States. For the years ended June 30, 1997, 1998 and 1999 the Company's sales to customers in the food and beverage industry were approximately 98%, 99% and 99%, respectively. There were no customers that accounted for greater than 5% of total sales for the three years ended June 30, 1999, nor were there any customers that accounted for greater than 5% of total accounts receivable at June 30, 1998 or 1999. The Company purchases new bulk CO2 systems from the two major manufacturers of such systems. The inability of both or either of these manufacturers to deliver new systems to the Company could cause a delay in the Company's ability to fulfill the demand for its services and a possible loss of sales, which could affect operating results adversely. F-17 NuCo2 Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 13 - Commitments and Contingencies (a) Employment Agreement The Company has an employment agreement with an officer of the Company that currently provides minimum annual compensation of $150,000 per year through October 1999. The contract provides for additional compensation in the form of bonuses to be determined by the board of directors and incentive and non-qualified stock options pursuant to the Company's 1995 Plan to purchase up to 100,000 shares of the Company's Common Stock. The agreement also calls for a covenant against competition which extends one year beyond termination for any reason. (b) Consulting Agreement Effective April 13, 1998, the Company entered into a three year consulting agreement with the former president of the Company. Pursuant to the terms of the agreement, the former president shall receive $50,000 per annum and shall not compete with the Company for a period of two years after the expiration of the contract. Simultaneously, options to purchase 75,000 shares of Common Stock were canceled. (c) Supply Agreement In May 1997, the Company entered into an exclusive ten-year carbon dioxide supply agreement with The BOC Group, Inc. ("BOC"). The agreement ensures readily available high quality CO2 as well as relatively stable liquid carbon dioxide prices. Pursuant to the agreement, the Company must purchase all of its liquid CO2 requirements from BOC. The agreement contains annual adjustments over the prior contract year for an increase or decrease in the Producer Price Index for Chemical and Allied Products ("PPI") or the average percentage increase in the selling price of bulk merchant carbon dioxide purchased by BOC's large, multi-location beverage customers in the United States. However, such increases shall not exceed 3% per year in the first five contract years. The Company is a defendant in legal actions which arise in the normal course of business. In the opinion of management, the outcome of these matters will not have a material effect on the Company's financial position or results of operations. Note 14 - Disclosures about Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments. (a) Cash and cash equivalents The carrying amount approximates fair value due to the short maturity of these instruments. (b) Long-term debt The fair value of the Company's long-term debt has been estimated based on the current rates offered to the Company for debt of the same remaining maturities. The carrying amounts and fair values of the Company's financial instruments are as follows:
June 30, -------- 1998 1999 ------- -------- Carrying Amount Carrying Amount and Fair Value and Fair Value -------------- -------------- Cash and cash equivalents $ 336,510 $ 1,579,191 Long-term debt, including current maturities 29,599,865 43,711,773 Subordinated debt 29,728,571 38,748,695
As of June 30, 1998 and 1999, the fair value of the Company's interest rate swap (see Note 5) was not material. F-18 NuCo2 Inc. Schedule II Valuation and Qualifying Accounts
Column B Column C - Additions Column D Column E -------- -------------------- -------- -------- Balance at Charge to beginning of costs and Charged to Balance at period expenses other accounts Deductions end of period ------ -------- -------------- ---------- ------------- Year ended June 30, 1997 Allowance for doubtful accounts $210,629 $143,210 $ -- $240,785 $113,054 Year ended June 30, 1998 Allowance for doubtful accounts $113,054 $450,871 $ 43,276(1) $211,710 $395,491 Year ended June 30, 1999 Allowance for doubtful accounts $395,491 $665,219 $ -- $503,118 $557,592
(1) Initial reserve of acquired company F-19 EX-10.8 2 AMENDED AND RESTATED REVOLVING AGREEMENT AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT Dated as of May 4, 1999 By and Among NUCO2 INC., SUNTRUST BANK, SOUTH FLORIDA, NATIONAL ASSOCIATTION the banks or other lending institutions signatory hereto from time to time and SUNTRUST BANK, SOUTH FLORIDA, NATIONAL ASSOCIATION, as Agent for the Lenders and SUNTRUST EQUITABLE SECURITIES CORPORATION, as Arranger TABLE OF CONTENTS ARTICLE 1 .................................................. DEFINITIONS 1 Definitions .............................................................1 Calculations. Accounting Terms..........................................18 Other Definitional Provisions...........................................19 Captions................................................................19 ARTICLE II .....................................AMOUNT AND TERMS OF LOANS 19 Revolving Loan Commitments and Revolving Notes..........................19 Method of Borrowing Under the Commitments...............................21 Swing Line Subcommitment................................................22 Letter of Credit Subcommitment..........................................23 Notice of Issuance of Letter of Credit; Agreement to Issue..............23 Payment of Amounts drawn under Letter of Credit.........................24 Payment by Lenders......................................................25 Obligations Absolute....................................................25 Indemnification; Nature of Agent's Duties...............................26 Prepayment of Borrowings Under the Commitments..........................26 Mandatory Prepayments...................................................26 Voluntary Reduction of Commitments......................................27 Allocation of Payments..................................................28 Termination of Commitments..............................................28 Use of Proceeds.........................................................28 Fees....................................................................28 Interest................................................................29 Interest Periods........................................................29 Extension of Commitments................................................30 Increased Costs.........................................................31 Capital Adequacy........................................................32 Funding Losses..........................................................33 Making of Payments......................................................33 Default Rate of Interest................................................33 Proration of Payments...................................................34 Lenders' Obligations Several............................................34 Calculation of Interest.................................................34 Payments Free of Taxes..................................................34 Interest Rate Not Ascertainable, etc....................................35 Illegality..............................................................35 ARTICLE III.....................................CONDITIONS TO BORROWINGS 36 Conditions Precedent to Initial Advances................................36 Conditions Precedent to Each Advance and Letters of Credit..............39 ARTICLE IV.................................REPRESENTATIONS AND WARRANTIES 40 Corporate Status of Company; Status of Subsidiaries.....................40 Corporate Power and Authority...........................................41 ii Compliance with Other Instruments.......................................41 Enforceable Obligations.................................................41 Governmental Authorizations.............................................41 Intellectual Property...................................................42 Outstanding Indebtedness................................................42 Insurance Coverage......................................................42 Title to Properties.....................................................42 No Burdensome Restrictions..............................................43 No Material Violation of Law............................................43 No Default Under Other Agreements.......................................43 No Equity Investments...................................................43 Financial Statements....................................................43 Litigation..............................................................44 Taxes...................................................................44 Margin Regulations......................................................44 ERISA...................................................................44 Compliance With Environmental Laws......................................45 Possession of Material Patents, Trademarks, Etc. .......................45 Subsidiaries............................................................46 Disclosure..............................................................46 Year 2000 Compliance....................................................46 Projections.............................................................46 ARTICLE V ...................................AFFIRMATIVE COVENANTS 47 Use of Proceeds.........................................................47 Reporting Covenants.....................................................47 Maintenance of Properties...............................................48 Maintenance of Insurance................................................48 Maintenance of Books; Inspection of Property and Records................49 Existence and Status....................................................49 Taxes and Claims........................................................49 Compliance with Laws, Etc...............................................50 ERISA...................................................................50 Litigation..............................................................50 Notice of Events of Default.............................................51 Stockholder Reports, etc. ..............................................51 Future Guarantors.......................................................51 Ownership of Guarantors.................................................51 Interest Rate Protection................................................52 Cost of Products Sold...................................................52 ARTICLE VI....................................NEGATIVE COVENANTS 52 Limitation on Liens and Security Interests..............................52 Indebtedness............................................................53 Compliance with ERISA...................................................54 Sale and Leaseback......................................................54 iii Transactions with Affiliates............................................54 Guaranties..............................................................55 Limitations on Payment Restrictions.....................................55 Merger; Joint Ventures; Sale of Assets; Acquisitions....................55 Dividends; Loans, Advances..............................................56 Nature of Business......................................................57 Sale of Subsidiaries....................................................57 Negative Pledges........................................................57 Creation of Subsidiaries................................................57 Prepayments Under and Amendment of Other Agreements.....................57 Capital Expendires......................................................58 ARTICLE VII....................................FINANCIAL COVENANTS 58 Senior Debt Coverage Ratio..............................................58 Interest Coverage Ratio.................................................58 Senior Debt Leverage Ratio..............................................58 Minimum Net Worth.......................................................58 ARTICLE VIII.............................EVENTS OF DEFAULT AND REMEDIES 59 Events of Default.......................................................59 Remedies on Default.....................................................61 ARTICLE IX.............................................THE AGENT 61 Appointment and Authorization...........................................61 Nature of Duties of the Agent...........................................62 Lack of Reliance on the Agent...........................................62 Certain Rights of the Agent.............................................62 Liability of the Agent..................................................63 Indemnification.........................................................64 Agent and Affiliates....................................................65 Successor Agent.........................................................65 ARTICLE X............................................MISCELLANEOUS 65 Survival................................................................65 Amendments; Consents....................................................66 Notices.................................................................66 Severability; Time of Essence...........................................68 Governing Law; Submission to Jurisdiction...............................68 Payment of Costs........................................................69 Indemnity...............................................................69 Benefit of the Agreement................................................69 Subordination of Indebtedness...........................................70 Maximum Interest Rate...................................................71 Entire Agreement........................................................71 Set-Off.................................................................71 Counterparts............................................................72 Replacement Notes.......................................................72 Release.................................................................72 iv Annexes Annex A - Projected Gross Margin Annex B - Capital Expenditures Exhibits Exhibit A - Form of Revolving Note Exhibit B - Form of Swing Line Note Exhibit C - Form of Notice of Borrowing Exhibit D - Form of Guaranty Agreement Exhibit E - Form of Contribution Agreement Exhibit F - Form of Closing Certificate Exhibit G - Form of Opinion of Counsel of the Company and the Guarantors Exhibit H - Form of Florida Counsel Opinion Exhibit I - Form of Compliance Certificate Exhibit J - Form of Assignment Agreement Exhibit K - Form of Borrowing Base Certificate Exhibit L - Form of Depot Report Exhibit M - Projections Schedules Schedule 1.01 - Calculation of Cost of Products Sold Schedule 4.07 - Outstanding Indebtedness Schedule 4.08 - Insurance Certificates Schedule 4.15 - Litigation Schedule 4.18 - ERISA Schedule 4.19 - Environmental Liability Schedule 4.21 - Subsidiaries Schedule 6.01 - Liens v AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT THIS AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT, dated as of May 4, 1999, by and among NUCO2 INC., a Florida corporation (the "Company"), SUNTRUST BANK, SOUTH FLORIDA, NATIONAL ASSOCIATION, a national banking association ("SunTrust"), BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC., a Delaware corporation (the "Documentation Agent"), THE PROVIDENT BANK, an Ohio banking corporation, BANK LEUMI LE-ISRAEL B.M., Miami Agency, and any other banks or other lending institutions that are or will become parties to this Agreement (collectively, the "Lenders" and each individually, a "Lender"), and SUNTRUST BANK, SOUTH FLORIDA, NATIONAL ASSOCIATION, as agent for the Lenders. W I T N E S S E T H : WHEREAS, the Company, the Agent and the Lenders entered into that certain Revolving Credit Agreement, dated as of October 31, 1997 (the "Existing Credit Agreement"); WHEREAS, the Company has requested, and the Lenders have agreed to amend and restate the Existing Credit Agreement to increase the revolving credit facility available to the Company, to add a letter of credit facility and to make certain other amendments on the terms and subject to the conditions set forth herein; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS SECTION 1.01 Definitions. In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Additional Guarantor" shall have the meaning assigned to such term in Section 5.13(a). "Advance" shall mean any advance by a Lender under the Commitments. "Agent" shall mean SunTrust Bank, South Florida, National Association, as agent for the Lenders hereunder and under the other Loan Documents, and each successor agent. "Agent Fee" shall mean the administrative fee described in the Fee Letter, payable on the Closing Date and thereafter annually in advance to the Agent during the period prior to the Commitment Termination Date. "Affiliate" shall mean, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such first Person. A Person shall be deemed to control another Person if such first Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. "Agreement" shall mean this Amended and Restated Revolving Credit Agreement, either as originally executed or as hereafter amended, restated, renewed, extended, supplemented or otherwise modified from time to time. "Annualized EBITDA" shall mean EBITDA for the fiscal quarter ending on the last day of such quarter, multiplied by four. "Applicable Commitment Fee Percentage" shall mean the percentage designated below based on the ratio of the Company's Senior Funded Debt to Annualized EBITDA for each fiscal quarter-end, as indicated below, provided, that, for purposes of this calculation, the term "Senior Funded Debt" shall include the Letter of Credit Obligations and aggregate outstanding amount of all Swing Line Loans: Senior Funded Debt to Applicable Commitment Annualized EBITDA Fee Percentage ----------------- -------------- Less than 1.50:1.0 0.375% Greater than or equal to 1.50:1.0 0.375% and less than 2.00:1.0 Greater than or equal to 2.00:1.0 0.375% and less than 2.50:1.0 Greater than or equal to 2.50:1.0 and less than 3.00:1.00 0.50% Greater than or equal to 3.00:1.00 and less than 3.25:1.0 0.50% Greater than or equal to 3.25:1.0 0.50% 2 From the Closing Date through and including September 30, 1999, the Applicable Commitment Fee Percentage shall be 0.50%. "Applicable Law" shall mean, anything in Section 10.05 notwithstanding, (i) all applicable common law and principles of equity and (ii) all applicable provisions of all (a) constitutions, statutes, rules, regulations and orders of governmental bodies, (b) Governmental Approvals, and (c) orders, decisions, judgments and decrees of all courts and arbitrators. "Applicable Margin" shall mean the percentage designated below based on the ratio of the Company's Senior Funded Debt to Annualized EBITDA for each fiscal quarter-end, as indicated below: Senior Funded Debt to Applicable Margin Applicable Margin Annualized EBITDA (LIBOR Advance) (Base Rate Advance) ----------------- --------------- ------------------- Less than 1.50:1.0 1.75% 0.25% Greater than or equal to 1.50:1.0 2.25% 0.75% and less than 2.00:1.0 Greater than or equal to 2.00:1.0 2.75% 1.25% and less than 2.50:1.0 Greater than or equal to 2.50:1.0 and less than 3.00:1.0 3.00% 1.50% Greater than or equal to 3.00:1.0 and less than 3.25:1.0 3.25% 1.75% Greater than or equal to 3.25:1.0 3.50% 2.00% From the Closing Date through and including December 31, 1999, the Applicable Margin on LIBOR Advances and Base Rate Advances shall be 3.50% and 2.00% respectively. "Asset Value" shall mean, with respect to any property or asset of the Company or any of its Subsidiaries as of any particular date, an amount equal to the greater of (i) the then book value of such property or asset as established in accordance with GAAP, and (ii) the then fair market value of such property or asset as determined in good faith by the board of directors of the Company or such Subsidiary. "Assignment Agreement" shall mean an agreement in the form of Exhibit J. 3 "Assignment of Leases" shall mean that certain Assignment of Leases agreement, dated as of October 31, 1997, executed by the Company and each Subsidiary in favor of the Agent, assigning the Company's and each Subsidiary's lessee's interest in any leasehold (except those leaseholds whose terms prohibit assignments), as the same may be hereafter amended, restated, renewed, extended, supplemented or otherwise modified from time to time. "Availability" shall mean, with respect to any Commitment, at any time, the amount by which such Commitment exceeds all Advances outstanding under such Commitment. "Bankruptcy Law" shall mean laws governing bankruptcy, suspension of payments, reorganization, arrangement, adjustment of debts, relief of debtors, dissolution, or other similar laws relating to the enforcement of creditors' rights generally. "Base Rate" shall mean the higher of (i) the rate which SunTrust designates from time to time as its prime lending rate, as in effect from time to time, and (ii) the Federal Funds Rate, as in effect from time to time, plus one-half of one percent (0.50%) per annum (any changes in such rates to be effective as of the date of any change in such rate). The SunTrust prime lending rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. SunTrust may make commercial loans or other loans at rates of interest at, above, or below the SunTrust prime lending rate. "Base Rate Advance" shall mean any Advance made to the Company by the Lenders at an interest rate equal to the Base Rate plus the Applicable Margin for such Advance. "Borrowing" shall mean a borrowing under the Commitments consisting of simultaneous Advances by the Lenders, including Swing Line Borrowings. "Borrowing Base" shall mean the product of (i) Gross Margin Factor multiplied by the EBITDA Multiple, and (ii) the sum of EBITDA for the prior three calendar months, multiplied by four. "Borrowing Base Certificate" shall have the meaning set forth in Section 5.02(a)(iv). "Business Day" shall mean a day of the year other than Saturday, Sunday or any other day on which the Agent is required to close. "Capital Expenditures" shall mean, for any period, expenditures made by the Company and its Subsidiaries to acquire or construct fixed assets, property, plant 4 and equipment (including renewals, improvements and replacements, but excluding repairs) during such period computed in accordance with GAAP. "CERCLA" shall mean the Comprehensive Environmental Response Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act (42 U.S.C. ss. 9601 et seq.). A "Change in Control" shall be deemed to have occurred if (a) any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) shall become the "beneficial owner(s)" (as defined in said Rule 13d-3) of more than forty percent (40%) of the shares of the outstanding common stock of the Company entitled to vote for members of the Company's board of directors; (b) a majority of the seats (other than vacant seats) on the board of directors of the Company shall at any time be occupied by persons who were neither (i) nominated by the board of directors of the Company, nor (ii) appointed by directors so nominated; (c) any event or condition shall occur or exist which requires or permits the holder(s) of Indebtedness of the Company to require that such Indebtedness be redeemed, repurchased, defeased, prepaid or repaid, in whole or in part, or the maturity of such Indebtedness to be accelerated in any respect as a result of a change in control provision of such Indebtedness; or (d) any person or group (other than the group in control of the Company on the date hereof) shall otherwise directly or indirectly control the Company. "Closing Date" shall mean May 4, 1999. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. "Collateral" shall mean all real and personal property and assets, now or hereafter existing, of the Company and its Subsidiaries over which the Company or such Subsidiary has granted a Lien to the Agent pursuant to the Security Documents, and all proceeds and products thereof. "Commitments" shall mean, collectively, the Revolving Loan Commitments, the Letter of Credit Subcommitment and the Swing Line Subcommitment. "Commitment Fee" shall have the meaning set forth in Section 2.16(c). "Commitment Letter" means that certain letter agreement, dated as of March 12, 1999, executed by SunTrust and SunTrust Equitable Securities Corporation, and accepted and agreed to by the Company. "Commitment Termination Date" shall have the meaning set forth in Section 2.01. 5 "Company" shall have the meaning set forth in the first paragraph of this Agreement. "Company Pledge Agreement" shall mean that certain Stock and Notes Pledge Agreement (Company), dated as of October 31, 1997, executed by the Company in favor of the Agent, as amended by the First Amendment to Stock and Notes Pledge Agreement (Company), dated as of the date hereof, and as hereafter amended, restated, supplemented or otherwise modified from time to time. "Company Security Agreement" shall mean that certain Security Agreement (Company), dated as of October 31, 1997, executed by the Company in favor of the Agent, as amended by the First Amendment to Security Agreement (Company), dated as of the date hereof, and as hereafter amended, restated, supplemented or otherwise modified from time to time. "Company Trademark Security Agreement" shall mean that certain Trademark Security Agreement (Company), dated as of October 31, 1997, executed by the Company in favor of the Agent, as amended by the First Amendment to Trademark Security Agreement (Company), dated as of the date hereof, and as hereafter amended, restated, supplemented or otherwise modified from time to time. "Compliance Certificate" shall have the meaning set forth in Section 5.02(a)(ii). "Consolidated Companies" shall mean, collectively, the Company and all of its Subsidiaries. "Consolidated EBIT" shall mean, for any fiscal period of the Company, an amount equal to the sum of (a) Consolidated Net Income (Loss), plus (b) to the extent deducted in determining Consolidated Net Income (Loss), (i) provisions for taxes based on income of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP, (ii) Interest Expense, and (iii) extraordinary items determined according to GAAP. "Consolidated Net Income (Loss)" shall mean, for any fiscal period of the Company, the net income (or loss) of the Company and its Subsidiaries determined on a consolidated basis for such period (taken as a single accounting period), in accordance with GAAP. "Consolidated Net Worth" shall mean, as of the date of determination, the total shareholders' equity of the Company and its Subsidiaries, determined in accordance with GAAP. 6 "Contractual Obligations" of any Person shall mean any provision of any security issued by such Person or of any agreement, instrument or undertaking under which such Person is obligated or by which it or any of its property is bound. "Contribution Agreement" shall mean that certain Amended and Restated Contribution Agreement, dated as of the date hereof, executed by the Company and each of the Guarantors, a copy of which is attached hereto as Exhibit E attached hereto, as hereafter amended, restated, supplemented or otherwise modified from time to time. "Cost of Products Sold" shall mean the Company's cost of products sold determined on a consolidated basis in accordance with GAAP as reported from time to time, and including all of the line items listed on Schedule 1.01. "Default" shall mean any event that, with the giving of notice, or lapse of time, or both, would constitute an Event of Default. "Depot" shall mean a location leased or owned by the Company for the storage of raw materials, supplies and motor vehicles used in the distribution of the Company's products. "Depot by Depot Report" shall have the meaning set forth in Section 5.02(a)(vii). "EBITDA" shall mean, for any period of the Company, an amount equal to the sum of Consolidated EBIT plus (i) depreciation and amortization expenses to the extent deducted in determining such Consolidated EBIT as determined on a consolidated basis in accordance with GAAP, and (ii) the historical Consolidated EBITDA of any Person for such period which accrued prior to the date such Person became a Subsidiary of the Company or was merged into or consolidated with the Company or any of its Subsidiaries or such Person's assets were acquired by the Company or any of its Subsidiaries (and the underlying records of such Person shall be audited to the extent the Company is required pursuant to Regulation S-X of the SEC to present audited financial information for such Person in documents filed by it with the SEC). If audited financial records are not available for acquired companies, pro forma financial statements (subject to review and acceptance by the Required Lenders) will be substituted. "EBITDA Multiple" shall mean (i) 3.65 for the period beginning on the Closing Date through and including July 31, 1999; (ii) 3.55 for the period beginning August 1,1999 through and including August 31, 1999; (iii) 3.45 for the period beginning September 1,1999 through and including September 30, 1999; (iv) 3.35 for the period beginning October 1,1999 through and including October 31, 1999; (v) 3.25 for the period beginning November 1,1999 through and including November 30, 1999; (vi) 3.15 for the period beginning December 1, 1999 to December 31, 1999; (vii) 3.0 for the period beginning January 1, 2000 through and including March 31, 2000; (viii) 2.75 for the period beginning April 1, 2000 through and including June 30, 2000; and (ix) 2.50 thereafter. 7 "Environmental Laws" shall mean all federal, state, local and foreign statutes and codes or regulations, rules or ordinances issued, promulgated, or approved thereunder, now or hereafter in effect (including, without limitation, those with respect to asbestos or asbestos containing material or exposure to asbestos or asbestos containing material), relating to pollution or protection of the environment and relating to public health and safety, relating to (i) emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or industrial toxic or hazardous constituents, substances or wastes, including without limitation, any Hazardous Substance (as such term is defined under CERCLA), petroleum including crude oil or any fraction thereof, any petroleum product or other waste, chemicals or substances regulated by any Environmental Law into the environment (including without limitation, ambient air, surface water, ground water, land surface or subsurface strata), or (ii) the manufacture, processing, distribution, use, generation, treatment, storage, disposal, transport or handling of any Hazardous Substance (as such term is defined under CERCLA), petroleum including crude oil or any fraction thereof, any petroleum product or other waste, chemicals or substances regulated by any Environmental Law, and (iii) underground storage tanks and related piping, and emissions, discharges and releases or threatened releases therefrom, such Environmental Laws to include, without limitation (i) the Clean Air Act (42 U.S.C. ss. 7401 et seq.), (ii) the Clean Water Act (33 U.S.C. ss. 1251 et seq.), (iii) the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), (iv) the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq.) and (v) CERCLA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 and all rules and regulations promulgated pursuant thereto, as the same may from time to time be supplemented or amended. "ERISA Affiliate" shall mean any trade or business (whether incorporated or unincorporated) which together with the Company is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code. "Event of Default" shall have the meaning set forth in Article VIII. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time, and any successor statute thereto. "Executive Officer" shall mean each of the executive officers of the Company and any Person hereafter holding the following office or offices which, individually or collectively, are assigned substantially similar duties: Chairman, Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer. "Existing Credit Agreement" shall have the meaning set forth in the first recital. "Facilities" shall mean, collectively, the Commitments described hereunder. 8 "Federal Funds Rate" shall mean, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of Atlanta, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means that certain letter agreement, dated as of March 12, 1999, executed by SunTrust and SunTrust Equitable Securities Corporation, and accepted and agreed to by the Company, setting forth certain nonrefundable fees payable by the Company. "Fees" shall mean, collectively, the Agent Fee, the Underwriting Fee, the Commitment Fee and the Letter of Credit Fee. "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession in the United States of America, which are applicable to the circumstances as of the date of determination. "Governmental Approval" shall mean any order, permission, authorization, consent, approval, license, franchise, permit or validation of, exemption by, registration or filing with, or report or notice to, any governmental agency or unit, or any public commission, board or authority. "Gross Margin" shall mean, with respect to the Company and its Subsidiaries on a consolidated basis for any period, the ratio of (a) (i) Total Revenues less (ii) Cost of Products Sold to (b) Total Revenues. "Gross Margin Factor" shall mean, with respect to the Company and its Subsidiaries on a consolidated basis for any period, the ratio of (i) the average of the Gross Margin for each month of the most recently reported rolling three-month period to (ii) the average of the Projected Gross Margin for each month of such rolling three-month period. "Guarantor Pledge Agreement" shall mean that certain Stock and Notes Pledge Agreement (Guarantors), dated as of October 31, 1997, executed by each Guarantor in favor of the Agent, as amended by the First Amendment to Stock and Notes Pledge 9 Agreement (Guarantors), dated as of the date hereof, and as hereafter amended, restated, supplemented or otherwise modified from time to time. "Guarantor Security Agreement" shall mean that certain Security Agreement (Guarantors), dated as of October 31, 1997, executed by each Guarantor in favor of the Agent, as amended by the First Amendment to Security Agreement (Guarantors), dated as of the date hereof, and as hereafter amended, restated, supplemented or otherwise modified from time to time. "Guarantor Trademark Security Agreement" shall mean that certain Trademark Security Agreement (Guarantors), dated as of October 31, 1997, executed by each Guarantor in favor of the Agent, as amended by the First Amendment to Trademark Security Agreement (Guarantors), dated as of the date hereof, and as hereafter amended, restated, supplemented or otherwise modified from time to time. "Guarantors" shall mean, collectively, each Subsidiary of the Company that has executed a Guaranty Agreement as of the Closing Date, together with all other Subsidiaries that hereafter execute a Guaranty Agreement, and their respective successors and permitted assigns. "Guarantor" shall mean any of the Guarantors. "Guaranty Agreement" shall mean that certain Amended and Restated Guaranty Agreement, dated as of the date hereof, executed by each of the Guarantors in favor of the Lenders and the Agent, a copy of which is attached hereto as Exhibit D attached hereto, as hereafter amended, restated, supplemented or otherwise modified from time to time. "Guaranty Documents" shall mean, collectively, the Guaranty Agreement, and each other guaranty agreement, mortgage, deed of trust, assignment of lease, security agreement, pledge agreement, or other security or collateral document guaranteeing or securing the Obligations, as the same may be amended, restated, or supplemented from time to time, and the Contribution Agreement executed by each of the Guarantors, as the same may be amended, restated or supplemented from time to time. "Guaranty Obligations" shall mean the obligation of the Guarantors to the Lenders and the Agent, as set forth in the Guaranty Agreement. "Hazardous Substance" shall have the meaning assigned to that term in CERCLA. "Indebtedness" shall mean (i) indebtedness for borrowed money or for the deferred purchase price of property or services (other than trade accounts payable on customary terms in the ordinary course of business), (ii) financial obligations evidenced by bonds, debentures, notes or other similar instruments, (iii) financial obligations as lessee under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases, (iv) financial obligations as the issuer of capital stock 10 redeemable in whole or in part at the option of any Person other than such issuer, at a fixed and determinable date or upon the occurrence of an event or condition not solely within the control of such issuer, (v) all obligations (contingent or otherwise) with respect to interest rate and currency leasing agreements, (vi) reimbursement obligations (contingent or otherwise) with respect to amounts under letters of credit, bankers acceptances and similar instruments, (vii) financial obligations under purchase money mortgages, (viii) financial obligations under asset securitization vehicles, (ix) conditional sale contracts and similar title retention instruments with respect to property acquired, and (x) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or financial obligations of others of the kinds referred to in clauses (i) through (ix) above, except to the extent such guaranties are limited to a lesser amount. "Interest Coverage Ratio" shall mean, for any fiscal period of the Company, the ratio of (a) (i) EBITDA for the fiscal period ending on the last day of such period, minus (ii) Maintenance Capital Expenditures for the fiscal period ending on the last day of such period, to (b) Interest Expense for the fiscal period ending on the last day of such period. "Interest Expense" shall mean, for any fiscal period of the Company, total interest expense (including, without limitation, interest expense attributable to capitalized leases in accordance with GAAP) of the Company and its Subsidiaries, on a consolidated basis, for such period. "Interest Period" shall mean (i) as to any LIBOR Advance, the interest period selected by the Company pursuant to Section 2.18(a), and (ii) as to any Base Rate Advance, the interest period requested by the Company and agreed to by the participating Lenders pursuant to Section 2.18(b), and (iii) as to any Swing Rate Advance, the interest period requested by the Company and agreed to by SunTrust pursuant to Section 2.03. "Investment" shall mean, when used with respect to any Person, any direct or indirect advance, loan or other extension of credit (other than the creation of receivables in the ordinary course of business) or capital contribution by such Person (by means of transfers of property to others or payments for property or services for the account or use of others, or otherwise) to any Person, or any direct or indirect purchase or other acquisition by such Person of, or of a beneficial interest in, capital stock, partnership interests, bonds, notes, debentures or other securities issued by any other Person. "Lenders" shall have the meaning set forth in the first paragraph of this Agreement. "Lending Office" shall mean, for each Lender, the office such Lender may designate in writing from time to time to the Company and the Agent with respect to Base Rate Advances and LIBOR Advances. 11 "Letter of Credit Fee" shall have the meaning set forth in Section 2.16(d). "Letter of Credit Obligations" shall mean, with respect to Letters of Credit, as at any date of determination, the sum of (a) the maximum aggregate amount which at such date of determination is available to be drawn by the beneficiaries thereof (assuming the conditions for drawing thereunder have been met) under all Letters of Credit then outstanding, plus (b) the aggregate amount of all drawings under Letters of Credit honored by the Agent not theretofore reimbursed by the Company. "Letter of Credit Subcommitment" shall mean $2,000,000. "Letters of Credit" shall mean the letters of credit issued pursuant to Section 2.04 hereof by the Agent for the account of the Company pursuant to the Letter of Credit Subcommitment of the Revolving Loan Commitments. "LIBOR" shall mean, for any Interest Period, the offered rates for deposits in U.S. dollars for a period comparable to the Interest Period appearing on the Telerate Screen Page 3750, as of 11:00 a.m., London time, on the day that is two London banking days prior to the Interest Period. If at least two such rates appear on the Telerate Screen Page 3750, the rate for that Interest Period will be the arithmetic mean of such rates, and in either case as such rates may be adjusted for any applicable reserve requirements. "LIBOR Advance" shall mean any advance made to the Company by the Lenders at an interest rate equal to LIBOR plus the Applicable Margin for such advance. "Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien, assignment or charge of any kind or description and shall include, without limitation, any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof including any lease or similar arrangement with a public authority executed in connection with the issuance of industrial development revenue bonds or pollution control revenue bonds, and the filing of or agreement to give any financing statement under the Uniform Commercial Code (or comparable law) of any jurisdiction naming the owner of the asset to which such lien applies as a debtor (other than a filing which does not evidence an outstanding secured obligation, or a commitment to make advances or to incur any other obligation of any kind). "Loan Documents" shall mean this Agreement, each Exhibit and Schedule to this Agreement, the Notes, the Guaranty Documents, the Security Documents, the Letters of Credit, and each other document, instrument, certificate and opinion executed and delivered in connection with the foregoing, each as amended, restated, supplemented or otherwise modified from time to time as provided in Section 10.02. 12 "Maintenance Capital Expenditures" shall mean Capital Expenditures other than Capital Expenditures made (i) in connection with any business expansion of the Company or any of its Subsidiaries, (ii) in connection with any Investment made by the Company after the Closing Date, or (iii) in connection with any other acquisition or business expansion by the Company or any of its Subsidiaries. "Margin Regulations" shall mean Regulation T, Regulation U and Regulation X of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time. "Material Contract" shall mean any contract or other agreement, written or oral, of the Company or its Subsidiaries the failure to comply with which could reasonably be expected to have a Materially Adverse Effect. "Materially Adverse Effect" shall mean a materially adverse change in the operations, business, property or assets of, or in the condition (financial or otherwise) of, the Company and its Subsidiaries, taken as a whole. "Maximum Permissible Rate" shall mean, with respect to interest payable on any amount, the rate of interest on such amount that, if exceeded, could, under Applicable Law, result in (i) civil or criminal penalties being imposed on any Lender or (ii) any Lender being unable to enforce payment of (or if collected, to retain) all or part of such amount or the interest payable thereon. "Minimum Net Worth" shall have the meaning set forth in Section 7.04 hereof. "Mortgaged Property" shall mean, collectively, all parcels of real property owned or leased by the Company or any of its Subsidiaries which is subject to a Mortgage or which is assigned under an Assignment of Leases. "Mortgages" shall mean, collectively, all of the mortgages, deeds of trust or deeds to secure debt hereafter executed in favor of the Agent by the Company or any Subsidiary, as the same may be hereafter amended, restated, renewed, extended, supplemented or otherwise modified from time to time. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA as to which the Company, any Subsidiary or any ERISA Affiliate is obligated to make, has made, or will be obligated to make contributions on behalf of participants who are or were employed by any of them. "Net Worth" shall mean, at any date, the net worth of the Consolidated Companies, determined in accordance with GAAP as determined on such date. "Notes" shall mean, collectively, the Revolving Notes and the Swing Line Note. 13 "Notice of Borrowing" shall have the meaning set forth in Section 2.02(a) hereof. "Notice of Interest Rate Conversion" shall have the meaning set forth in Section 2.02(b) hereof. "Obligations" shall mean all amounts owing to the Agent or any Lender pursuant to the terms of this Agreement or any other Loan Document, including without limitation, all Advances (including all principal and interest payments due thereunder), Letter of Credit Obligations, Fees, expenses, indemnification and reimbursement payments, indebtedness, liabilities, and obligations of the Company and its Subsidiaries, covenants and duties of the Company to the Lenders and the Agent of every kind, nature and description, direct or indirect, absolute or contingent, due or not due, in contract or tort, liquidated or unliquidated, arising under this Agreement or under the other Loan Documents, by operation of law or otherwise, now existing or hereafter arising or whether or not for the payment of money or the performance or the nonperformance of any act, including, but not limited to, all debts, liabilities and obligations owing by the Company to others which the Lenders may have obtained by assignment or otherwise, and all damages which the Company may owe to the Lenders and the Agent by reason of any breach by the Company of any representation, warranty, covenant, agreement or other provision of this Agreement or of any other Loan Document. "Other Claims" shall have the meaning set forth in Section 5.07 hereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation and any successor thereto. "Person" shall mean an individual, corporation, partnership, trust, limited liability company or unincorporated organization, a government or any agency or political subdivision thereof. "Plan" shall mean any employee benefit plan, program, arrangement, practice or contract, maintained by or on behalf of the Company or an ERISA Affiliate, which provides benefits or compensation to or on behalf of employees or former employees, whether formal or informal, whether or not written, including but not limited to the following types of plans: (i) Executive Arrangements - any bonus, incentive compensation, stock option, deferred compensation, commission, severance, "golden parachute", "rabbi trust", or other executive compensation plan, program, contract, arrangement or practice; (ii) ERISA Plans - any "employee benefit plan" as defined in ERISA, including, but not limited to, any defined benefit pension plan, profit sharing plan, money purchase pension plan, savings or thrift plan, stock bonus plan, employee 14 stock ownership plan, Multiemployer Plan, or any plan, fund, program, arrangement or practice providing for medical (including post-retirement medical), hospitalization, accident, sickness, disability, or life insurance benefits; (iii) Other Employee Fringe Benefits - any stock purchase, vacation, scholarship, day care, prepaid legal services, severance pay or other fringe benefit plan, program, arrangement, contract or practice. "Projected Gross Margin" shall mean Gross Margin calculated monthly, projected by the Company and set forth on Annex A hereto. "Pro Rata Share" shall mean, for any Lender, the proportion expressed as a percentage equal to (1) the sum of such Lender's portion of the Total Commitments (including, without duplication, any portion of the Total Commitments in which such Lender has purchased a participation and excluding, without duplication, any portion of the Total Commitments in which such Lender has sold a participation), divided by (2) the sum of the Total Commitments. "Regulation U" shall mean Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time, and any regulation successor thereto. "Required Lenders" shall mean Lenders whose combined Pro Rata Shares as of the Closing Date of the Total Commitments are at least sixty-six and two-thirds percent (66_%) of the Total Commitments. "Revolving Loan Commitments" shall mean, for any Lender at any time, the revolving credit facility severally established by such Lender in favor of the Company pursuant to Section 2.01, as the same may be increased or decreased from time to time as a result of any reduction thereof pursuant to Section 2.10, any assignment thereof pursuant to Section 10.08, or any amendment thereof pursuant to Section 10.02. "Revolving Loans" shall mean, collectively, the loans made to the Company by the Lenders pursuant to Section 2.01. "Revolving Note" shall mean a promissory note of the Company payable to the order of any Lender in substantially the form of Exhibit A hereto, evidencing the maximum aggregate principal indebtedness of the Company to such Lender under such Lender's Revolving Loan Commitment, either as originally executed or as it may be from time to time supplemented, modified, amended, renewed or extended. "Security Documents" shall mean, collectively, the Mortgage, the Assignment of Leases, the Company Pledge Agreement, the Company Security Agreement, the Company Trademark Security Agreement, the Guarantor Pledge Agreement, the 15 Guarantor Security Agreement, the Guarantor Trademark Security Agreement, all UCC financing statements and fixture filings naming the Company or any of its Subsidiaries as debtor and the Agent as secured party, all stock certificates evidencing shares of stock pledged to the Agent, together with undated stock powers or other appropriate instruments of transfer executed in blank, and all filings in the U.S. Patent and Trademark Office which are required to be made under the Loan Documents. "Senior Debt Coverage Ratio" shall mean, for any fiscal period of the Company, the ratio of (a) Senior Funded Debt as of the last day of such fiscal period to (b) Annualized EBITDA. "Senior Debt Leverage Ratio" shall mean, for any fiscal period of the Company, the ratio of (a) Senior Funded Debt as of the last day of such fiscal period to (b) Total Capitalization as of the last day of such fiscal period. "Senior Funded Debt" shall mean all indebtedness for money borrowed, purchase money mortgages, capitalized leases, outstandings under asset securitization vehicles, conditional sales contracts and similar title retention debt instruments, including any current maturities of such indebtedness, which by its terms matures more than one year from the date of any calculation thereof and/or which is renewable or extendable at the option of the obligor to a date beyond one year from such date. "Senior Subordinated Debt" shall mean the senior Subordinated Debt in respect of the 12% Senior Subordinated Notes issued pursuant to the Senior Subordinated Note Purchase Agreement. "Senior Subordinated Note Purchase Agreement" shall mean that certain Senior Subordinated Note Purchase Agreement, dated as of October 31, 1997, between the Company and the Guarantors and the Investors listed therein, as amended by Amendment No. 1 to Senior Subordinated Note Purchase Agreement dated as of November 14, 1997, as further amended by Amendment No. 2 to Senior Subordinated Note Purchase Agreement, dated as of June 30, 1998, and as further amended by the Third Amendment to Senior Subordinated Debt, and as hereafter amended and in effect from time to time (subject, in the case of any amendment or modification entered into after the date hereof, to the consent of the Required Lenders to the extent required by Section 6.14). "Subordinated Debt" shall mean all Indebtedness of the Company subordinated to all obligations of the Company arising under this Agreement, the Notes and the Letter of Credit Obligations, on terms and conditions satisfactory in all material respects to the Agent and the Required Lenders, including without limitation, with respect to interest rates, payment terms, maturities, amortization schedules, covenants, defaults, remedies, and subordination provisions, as evidenced by the written approval of the Agent and Required Lenders. 16 "Subsidiary" of any Person shall mean any corporation, partnership or other Person of which a majority of all the outstanding capital stock (including director's qualifying shares) or other securities or ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions is, at the time as of which any such determination is being made, directly or indirectly owned by such Person, or by one or more of the Subsidiaries of such Person, and which corporation, partnership or other Person is consolidated with such Person for financial reporting purposes. Unless otherwise specified, "Subsidiaries" and "Subsidiary" shall mean the Subsidiaries and a Subsidiary, respectively, of the Company. "Supplemental Documents" shall mean the supplements to the following documents: the Guaranty Agreement, the Contribution Agreement, the Guarantor Security Agreement, the Guarantor Pledge Agreement and the Guarantor Trademark Security Agreement, as such supplements are more specifically described and shown in each respective document. "Swing Line" shall have the meaning assigned to such term in Section 2.03(a). "Swing Line Advance" shall mean a Borrowing pursuant to Section 2.03 consisting of a Swing Line Loan made by SunTrust to the Company on the same date and interest rate basis. "Swing Line Borrowing" shall mean a Borrowing consisting or to consist of a Swing Line Advance. "Swing Line Borrowing Notice" shall mean the notice given by the Company to SunTrust requesting a Swing Line Advance as provided in Section 2.03(b). "Swing Line Loans" shall mean, collectively, the loans made to the Company by SunTrust pursuant to Section 2.03. "Swing Line Note" shall mean the promissory note evidencing the Swing Line Loans substantially in the form of Exhibit B and duly completed in accordance with the terms hereof. "Swing Line Subcommitment" shall mean the commitment of SunTrust to make Swing Line Loans in an aggregate principal amount at any time outstanding not to exceed $2,000,000. "Swing Rate" shall have the meaning set forth in Section 2.17(c). "Swing Rate Advance" shall mean an Advance made or outstanding as a Swing Line Loan bearing interest based on the Swing Rate as provided in Section 2.17(c). 17 "Swing Rate Quote" shall mean an offer by SunTrust to make a Swing Line Loan to the Company at the Swing Rate specified therein for the interest period to be applicable to the Swing Line Loan as specified therein, pursuant to Section 2.03(b). "Tax" shall mean, with respect to any person or entity, any federal, state or foreign tax, assessment, customs duties, or other governmental charge, levy or assessment (including any withholding tax) upon such person or entity or upon such person's or entity's assets, revenues, income or profits, other than income and franchise taxes imposed upon any Lender by the jurisdictions (or any political subdivision thereof) in which such Lender has its principal office or office from which its Advances are made, or in which such Lender is incorporated. "Third Amendment to Senior Subordinated Debt" shall mean that certain Amendment No. 3 to Senior Subordinated Note Purchase Agreement, dated as of May 4, 1999, among the Company, the Guarantors and the Investors listed therein. "Total Capitalization" shall mean the sum of shareholders' equity plus Subordinated Debt plus Senior Funded Debt. "Total Commitments" shall mean, at any time, the sum of the Revolving Loan Commitments, including the Letter of Credit Subcommitment of each of the Lenders, and in the case of SunTrust, the Swing Line Subcommitment. "Total Revenues" shall mean, for any fiscal period of the Company, the total revenues of the Company as determined on a consolidated basis in accordance with GAAP. "Underwriting Fee" shall mean the underwriting fee described in the Fee Letter, payable on the Closing Date to SunTrust Equitable Securities Corporation. "United States" or "U.S." means the United States of America, its fifty (50) States and the District of Columbia. "U.S. Dollar" "Dollar" and "$" shall mean lawful money of the United States of America. "Year 2000 Compliant" shall have the meaning set forth in Section 4.23. SECTION 1.02 Calculations; Accounting Terms. Calculations of all financial data herein shall be on a consolidated basis for the Company and all Subsidiaries; and all accounting terms used herein shall, unless otherwise expressly indicated, be in reference to the Company and its Subsidiaries, if any, on a consolidated basis, which may be accounted for in accordance with the equity investment method (to the extent such method is in accordance with GAAP), and shall have the meanings ascribed thereto under and be interpreted in 18 accordance with GAAP. All calculations and determinations under Article VII shall be made in accordance with accounting principles consistent with those followed in the preparation of the annual or interim financial statements, as applicable, referred to in Section 5.02. SECTION 1.03 Other Definitional Provisions. (a) Except as otherwise specified herein, all references herein (A) to any Person, other than the Company or any Subsidiary, shall be deemed to include such Person's successors, transferees and assignees, (B) to the Company or any Subsidiary, shall be deemed to include such Person's successors, (C) to any Applicable Law specifically defined or referred to herein shall be deemed references to such Applicable Law as the same may be amended or supplemented from time to time, and (D) to any contract defined or referred to herein shall be deemed references to such contract (and, in the case of any instrument, any other instrument issued in substitution therefor) as the terms thereof may have been or may be amended, supplemented, waived or otherwise modified from time to time. (b) When used in this Agreement, the words "herein", "hereof" and "hereunder" and words of similar import shall refer to this Agreement as a whole and not to any provision of this Agreement, and "Section", "Subsection", "Schedule" and "Exhibit" shall refer to Sections and Subsections of, and Schedules and Exhibits to, this Agreement unless otherwise specified. (c) Whenever the context so requires, the neuter gender includes the masculine or feminine, and the singular number includes the plural, and vice versa. (d) All terms defined in this Agreement shall have the defined meanings when used in any Note or, except as otherwise expressly stated therein, any certificate, opinion or other Loan Document. SECTION 1.04 Captions. Article and Section captions in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. ARTICLE II AMOUNT AND TERMS OF LOANS SECTION 2.01 Revolving Loan Commitments and Revolving Notes. Subject to and upon the terms and conditions set forth in this Agreement, (i) each of the Lenders severally establishes until May 4, 2002, unless otherwise extended pursuant to Section 2.19 below (May 4, 2002, or such later date as the Commitments have been extended pursuant to Section 2.19, is hereinafter referred to as the "Commitment Termination Date") a revolving credit facility in favor of the Company in aggregate principal at any one time outstanding not to 19 exceed the sum set forth opposite such Lender's name below, as the same may be reduced from time to time pursuant to the terms hereof: SunTrust Bank, South Florida, $42,500,000.00 56.67% National Association Bank Austria Creditanstalt $15,000,000.00 20.00% Corporate Finance, Inc. The Provident Bank $10,000,000.00 13.33% Bank Leumi Le-Israel B.M. $7,500,000.00 10.00% TOTAL: $75,000,000.00 100.00% and (ii) each Lender agrees to purchase a participation interest in the Letters of Credit in accordance with this Article II; provided, however, that in no event may the aggregate principal amount of all outstanding Revolving Loans, Swing Line Loans and Letter of Credit Obligations outstanding exceed at any time the Total Commitments from time to time in effect. Within the limits of the Revolving Loan Commitments, the Company may borrow, repay and reborrow under the terms of this Agreement; provided, however, that (A) the aggregate principal amount of each Borrowing shall not be less than $500,000 and shall be in integral multiples of $100,000, (B) all of the Company's representations and warranties are true and correct on and as of the date of each Borrowing, (C) the Company may neither borrow nor reborrow should there exist a Default or an Event of Default, or such would result from the Borrowing, (D) the aggregate outstanding amount of Advances and Letter of Credit Obligations, after giving effect to each Borrowing and issuance of Letters of Credit, shall not exceed the Total Commitments, and (E) the aggregate outstanding amount of Advances and Letter of Credit Obligations, after giving effect to each Borrowing and issuance of Letters of Credit, shall not exceed the aggregate amount of the Borrowing Base. At no time shall the number of Borrowings outstanding under this Article II exceed six; provided that, for the purpose of determining the number of Borrowings outstanding, all Borrowings consisting of Base Rate Advances shall be considered as one Borrowing. Borrowings under the Commitments shall be made through simultaneous Advances by the Lenders, and the amount of each such Borrowing shall be prorated among such Lenders based on the percentages set forth above. All Advances by each Lender shall be evidenced by a single Revolving Note payable to such Lender in the form of Exhibit A attached hereto with appropriate insertions. Each Revolving Note shall be dated the date hereof, shall be payable to the order of the respective Lender in a principal amount equal to the amount set forth opposite such Lender's name above, shall bear interest as provided for in this Agreement and shall mature on the Commitment Termination Date or sooner should the principal and accrued interest thereon be declared immediately due and payable as provided for herein. No Lender shall have any obligation to advance funds in excess of an amount equal to the percentage set forth opposite such Lender's name above multiplied by the Total Commitments. 20 SECTION 2.02 Method of Borrowing Under the Commitments. (a) The Company shall give the Agent written or telephonic notice (promptly confirmed in writing) of any requested Borrowing under the Commitments, substantially in the form of Exhibit C attached hereto (a "Notice of Borrowing"), specifying (i) the amount of the Borrowing, and (ii) the date the proposed Borrowing is to be made (which shall be a Business Day). Each Notice of Borrowing shall be given to the Agent (x) in the case of Base Rate Advances, not later than 11:00 a.m. (Ft. Lauderdale, Florida time) the same Business Day of such requested Borrowing or (y) in the case of LIBOR Advances, at least three Business Days before the date such requested Borrowing is to be made (which shall be a Business Day). The Agent shall be entitled to rely on any telephonic Notice of Borrowing which it believes in good faith to have been given by an Executive Officer of the Company, and any Advances made by the Lenders based on such telephonic notice shall, when deposited by the Agent to the Company's Account No. 0128320009032 at SunTrust, be Advances for all purposes hereunder. (b) Whenever the Company desires to convert all or a portion of an outstanding Borrowing consisting of Base Rate Advances into one or more Borrowings consisting of LIBOR Advances, or to continue a Borrowing consisting of LIBOR Advances for a new Interest Period, it shall give the Agent written notice or telephonic notice (promptly confirmed in writing) at least three Business Days before the date of such conversion, specifying each such Borrowing to be converted into or continued as LIBOR Advances. Such notice (a "Notice of Interest Rate Conversion") shall be given prior to 11:00 a.m. (Ft. Lauderdale, Florida time) on the date specified. Each such Notice of Interest Rate Conversion shall be irrevocable and shall specify the aggregate principal amount of the Advances to be converted or continued, the date of such conversion or continuation and the Interest Period applicable thereto. If, upon the expiration of any Interest Period in respect of any Borrowing, the Company shall have failed to deliver the Notice of Interest Rate Conversion, the Company shall be deemed to have elected to convert or continue such Borrowing to a Borrowing consisting of Base Rate Advances. So long as any Default or Event of Default shall have occurred and be continuing, no Borrowing may be converted into or continued as (upon expiration of the current Interest Period) LIBOR Advances unless the Agent and each of the Lenders shall have otherwise consented in writing. No conversion of any Borrowing of LIBOR Advances shall be permitted except on the last day of the Interest Period in respect thereof. (c) Upon receipt of a Notice of Borrowing or a Notice of Interest Rate Conversion from the Company, the Agent shall notify the Lenders by telephone, which notice shall be promptly confirmed in writing (including by telecopier) by the Agent to such Lenders, of such Notice of Borrowing or Notice of Interest Rate Conversion and of each such Lender's Pro Rata Share of the requested Borrowing or Interest Rate Conversion. Not later than 1:00 p.m. (Ft. Lauderdale, Florida time) on the date specified for the Borrowing or Interest Rate Conversion in the Notice of Borrowing or Notice of Interest Rate Conversion and in the notice to such Lender provided by the Agent, each Lender shall promptly make its portion of the Borrowing available to the Agent in immediately available funds, and the Agent shall make available to the Company the amount so received by the Agent from the Lenders not later than 3:00 p.m. (Ft. Lauderdale, 21 Florida time) on such date. In the event any Lender shall fail to make any Advance available to the Agent in immediately available funds by 1:00 p.m. (Ft. Lauderdale, Florida time) on the date specified, and provided no Default or Event of Default shall have occurred and be continuing, the Agent may advance such Lender's portion of the Borrowing on behalf of such Lender, in which event such Lender shall promptly reimburse the Agent for the amount thereof plus (i) if the amount of such Lender's Advance is reimbursed to the Agent on or prior to the calendar day next succeeding the date of the Borrowing, interest on such amount at the rate equal to the Federal Funds Rate, or (ii) if the amount of such Lender's Advance is reimbursed to the Agent after the calendar day next succeeding the day of the Borrowing, interest on such amount at the Base Rate; provided, however, that any such reimbursement by the Company to the Agent shall not relieve such Lender who fails to make any Advance as provided above from liability to the Company for such failure. The amount of interest payable as a result of any Lender's failure to make any Advance available shall be calculated on the basis of a year of 360 days and paid for the actual number of days such failure has continued (including the date of payment). If the Company fails to reimburse the Agent as provided in this Section 2.02(c), then the Agent shall have the right to deduct any amounts owed to it hereunder from Advances it makes to the Company in subsequent Borrowings made by the Company. SECTION 2.03 Swing Line Subcommitment. (a) Notwithstanding anything contained herein to the contrary, SunTrust hereby establishes a subcommitment within its Revolving Loan Commitment of up to an aggregate of $2,000,000 (the "Swing Line") to accommodate the short term borrowing needs of the Company. Sections 3.01 and 3.02 shall apply equally to Borrowings made through the Swing Line and Borrowings or Interest Rate Conversions requested or made through Section 2.02. The aggregate amount of all Borrowings under the Swing Line shall not at any time exceed the Swing Line Subcommitment, and to the extent any Borrowing under the Swing Line would cause such a result after giving effect thereto, the Company shall be required to request such Borrowing under Section 2.02(a) hereof. Any Borrowing made by the Company under the Swing Line shall be for a period not to exceed 30 days. (b) Whenever the Company desires to make a Borrowing under the Swing Line, it shall give SunTrust prior written or telephonic notice (promptly confirmed in writing) of any requested Borrowing under the Swing Line (each a "Swing Line Borrowing Notice") prior to 11:00 a.m. (Ft. Lauderdale, Florida time) on the date of such Borrowing. Each Swing Line Borrowing Notice shall specify the aggregate principal amount of the Swing Line Borrowing, the date of such Swing Line Borrowing (which shall be a Business Day) and the interest period to be applicable thereto. SunTrust shall make available to the Company the amount of the Borrowing requested in the Swing Line Borrowing Notice not later than 3:00 p.m. (Ft. Lauderdale, Florida time) on such date, provided that (i) no Default or Event of Default shall have occurred and be continuing and (ii) the aggregated principle amount of the Swing Line Borrowings, including the requested Borrowing under such Swing Line Borrowing Notice, shall be no greater than the Swing Line Subcommitment. 22 (c) The Company's obligation to pay the principal of, and interest on, the Swing Line Loans shall be evidenced by the records of SunTrust and by the Swing Line Note payable to SunTrust (or its assignee) completed in conformity with this Agreement. (d) The outstanding principal amount under each Swing Line Loan shall be due and payable in full on the Commitment Termination Date. (e) Each Borrowing under the Swing Line shall deemed to be made under SunTrust's Commitment to the extent of any Availability thereunder on the date such Borrowing is made. SECTION 2.04 Letter of Credit Subcommitment. Subject to, and upon the terms and conditions, hereof (including the limitations of Section 2.01) the Company may request, in accordance with the provisions of this Section 2.04 and Section 2.05, that on and after the Closing Date, the Agent issue a Letter or Letters of Credit for the account of the Company; provided, that (i) no Letter of Credit shall have an expiration date that is later than ten days prior to the Commitment Termination Date; (ii) each Letter of Credit issued by the Agent shall be in a stated amount of at least $250,000; (iii) the Agent shall have no obligation to issue any Letter of Credit, if, after giving effect to such issuance, the aggregate Letter of Credit Obligations would exceed the Letter of Credit Subcommitment; and (iv) the Agent shall have no obligation to issue any Letter of Credit, if, after giving effect to such issuance, the sum of the outstanding Revolving Loans, Swing Line Loans and Letter of Credit Obligations would exceed the Total Commitments or the Borrowing Base. SECTION 2.05 Notice of Issuance of Letter of Credit; Agreement to Issue. (a) Whenever the Company desires the issuance of a Letter of Credit, it shall, in addition to any application and documentation procedures required by the Agent for the issuance of such Letter of Credit, deliver to the Agent a written notice no later than 11:00 A.M. (Atlanta, Georgia time) at least ten (10) days in advance of the proposed date of issuance. Each such notice shall specify (i) the proposed date of issuance (which shall be a Business Day); (ii) the face amount of the Letter of Credit; (iii) the expiration date of the Letter of Credit; and (iv) the name and address of the beneficiary with respect to such Letter of Credit and shall attach a precise description of the documentation and a verbatim text of any certificate to be presented by the beneficiary of such Letter of Credit which would require the Agent to make payment under the Letter of Credit, provided that the Agent may require changes in any such documents and certificates in accordance with its customary letter of credit practices, and provided further, that no Letter of Credit shall require payment against a conforming draft to be made thereunder on the same Business Day that such draft is presented if such presentation is made after 11:00 A.M. (Fort Lauderdale, Florida time). In determining whether to pay under any Letter of Credit, the Agent shall be responsible only to determine that the documents and certificate required to be delivered under its Letter of Credit have been delivered, and that they comply on their face with the requirements of the Letter of Credit. Promptly after receiving the notice of issuance of a Letter of Credit, the Agent shall notify each Lender of such Lender's respective participation therein, 23 determined in accordance with its respective Pro Rata Share of the Revolving Loan Commitments as determined on the date of the issuance of such Letter of Credit. (b) The Agent agrees, subject to the terms and conditions set forth in this Agreement, to issue for the account of the Company, a Letter of Credit in a face amount equal to the face amount requested under paragraph (a) above, following its receipt of a notice and the application and other documents required by Section 2.05(a). Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Agent a participation in such Letter of Credit and any drawing thereunder in an amount equal to such Lender's Pro Rata Share multiplied by the face amount of such Letter of Credit. SECTION 2.06 Payment of Amounts drawn under Letter of Credit. (a) In the event of any request for a drawing under any Letter of Credit by the beneficiary thereof, the Agent shall notify the Company and the Lenders on or before the date on which the Agent intends to honor such drawing, and the Company shall reimburse the Agent on the day on which such drawing is honored in an amount, in same day funds, equal to the amount of such drawing, provided that anything contained in this Agreement to the contrary notwithstanding, unless the Company shall have notified the Agent prior to 11:00 A.M. (Fort Lauderdale, Florida time) on the Business Day immediately prior to the date on which such drawing is honored, that the Company intends to reimburse the Agent for the amount of such drawing in funds other than the proceeds of Revolving Loans, the Company shall be deemed to have timely given a Notice of Borrowing to the Agent requesting Revolving Loans which are Base Rate Advances on the date on which such drawing is honored in an amount equal to the amount of such drawing, and the Lenders shall by 1:00 P.M. (Fort Lauderdale, Florida time) on the date of such drawing, make Revolving Loans which are Base Rate Advances in the amount of such drawing, the proceeds of which shall be applied directly by the Agent to reimburse the Agent for the amount of such drawing, provided that for the purposes solely of such Borrowing, the conditions and precedents set forth in Sections 3.01 and 3.02 hereof shall not be applicable, and provided further that if for any reason proceeds of the Revolving Loans are not received by the Agent on such date in the amount equal to the amount of such drawing, the Company shall reimburse the Agent on the Business Day immediately following the date of such drawing in an amount, in dollars and immediately available funds, equal to the excess of the amount of such drawing over the amount of such Revolving Loans, if any, which are so received, plus accrued interest on the amount at the applicable rate of interest for Base Rate Advances. (b) Notwithstanding any provision of this Agreement to the contrary, to the extent that any Letter of Credit or portion thereof remains outstanding on the Commitment Termination Date, the parties hereby agree that the beneficiary or beneficiaries thereof shall be deemed to have made a drawing of all available amounts pursuant to such Letters of Credit on the Commitment Termination Date, which amounts shall be reimbursed to the Agent as set forth above. 24 SECTION 2.07 Payment by Lenders. In the event that the Company shall fail to reimburse the Agent as provided in Section 2.06 by borrowing Revolving Loans, or otherwise providing an amount equal to the amount of any drawing honored by the Agent pursuant to any Letter of Credit issued by it, the Agent shall promptly notify each Lender of the unreimbursed amount of such drawing and of such Lender's respective participation therein. Each Lender shall make available to the Agent an amount equal to its respective participation, in dollars and in immediately available funds, at the office of the Agent specified in such notice not later than 1:00 P.M. (Fort Lauderdale, Florida time) on the Business Day after the date notified by the Agent. In the event that any such Lender fails to make available to the Agent the amount of such Lender's participation in such Letter of Credit, the Agent shall be entitled to recover such amount on demand from such Lender together with interest on such amount at the Base Rate. The Agent shall distribute to each other Lender which has paid all amounts payable under this Section with respect to any Letter of Credit, such Lender's Pro Rata Share of all payments received by the Agent from the Company in reimbursement of drawings honored by the Agent under such Letter of Credit when such payments are received. SECTION 2.08 Obligations Absolute. The obligation of the Company to reimburse the Agent for drawings made under Letters of Credit issued for the account of the Company and the Lenders' obligation to honor their participations purchased therein shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including without limitation, the following circumstances: (a) Any lack of validity or enforceability of any Letter of Credit; (b) The existence of any claim, set-off, defense or other right which the Company or any Subsidiary or Affiliate of the Company may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons or entities for whom any such beneficiary or transferee may be acting), any Lender or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including without limitation any underlying transaction between the Company or any of its Subsidiaries and Affiliates and the beneficiary for which such Letter of Credit was procured); provided that nothing in this Section shall affect the right of the Company to seek relief against any beneficiary, transferee, Lender or any other Person in any action or proceeding or to bring a counterclaim in any suit involving such Persons; (c) Any draft, demand, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect; (d) Payment by the Agent under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit; 25 (e) Any other circumstance or happening whatsoever which is similar to any of the foregoing; or (f) the fact that a Default or an Event of Default shall have occurred and be continuing. SECTION 2.09 Indemnification; Nature of Agent's Duties. (a) In addition to amounts payable elsewhere provided in this Agreement, without duplication, the Company hereby agrees to protect, indemnify, pay and save the Agent and each Lender harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and reasonable expenses (including reasonable attorney's fees and disbursements) which the Agent or any Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit for the account of the Company, other than as a result of the gross negligence or willful misconduct of the Agent; or (ii) the failure of the Agent to honor a drawing under any Letter of Credit due to any act or omission (whether rightful or wrongful) of any present or future de jure or de facto government or governmental authority. (b) Notwithstanding any other provision contained in this Agreement, the Agent shall not be obligated to issue any Letter of Credit, nor shall any Lender be obligated to purchase its participation in any Letter of Credit to be issued hereunder, if the issuance of such Letter of Credit or purchase of such participation shall have become unlawful or prohibited by compliance by Agent or such Lender in good faith with any law, governmental rule, guideline, request, order, injunction, judgment or decree (whether or not having the force of law); provided that in the case of the obligation of a Lender to purchase such participation, such Lender shall have notified the Agent to such effect in writing at least ten (10) Business Days' prior to the issuance thereof by the Agent, which notice shall relieve the Agent of its obligation to issue such Letter of Credit pursuant to Section 2.04 and Section 2.05 hereof. SECTION 2.10 Prepayment of Borrowings Under the Commitments. The Company shall have the right to prepay Borrowings under the Commitments, in whole at any time or in part from time to time, without premium or penalty (but, in the case of LIBOR Advances, subject to the funding indemnification provisions of Section 2.22), provided that (i) the Company gives the Agent prior written notice of such prepayment, specifying the date such prepayment will occur (which shall be a Business Day), (x) in the case of any Base Rate Advance, at least one Business Day in advance of such date or (y) in the case of any LIBOR Advance during an Interest Period, at least three Business Days in advance of such date, (ii) each partial prepayment shall be in an amount of at least $500,000 and integral multiples of $100,000, (iii) prepayments shall be applied to repay Borrowings under the Commitments in the order set forth in Section 2.13 hereof, and (iv) such prepayments include interest accrued, on the principal amount prepaid, to the prepayment date. 26 SECTION 2.11 Mandatory Prepayments. (a) If the sum of the (i) aggregate outstanding principal amount of the Revolving Loans, (ii) aggregate outstanding principal amount of the Swing Line Loans, and (iii) Letter of Credit Obligations exceed at any time the Total Commitments, as reduced pursuant to Section 2.10 or otherwise, the Company shall immediately repay the Revolving Loans, Swing Line Loans or Letter of Credit Obligations by an amount equal to such excess. Each prepayment of Revolving Loans shall be applied first to Base Rate Advances to the full extent thereof before application to LIBOR Advances. (b) The Company shall make a mandatory prepayment from 100 percent of the after-tax net proceeds received by the Company from any sale or other disposition by the Company of any of its assets, provided, however, that such prepayment provision shall not apply to the sales of inventory by the Company in the ordinary course of business or assets disposed of as part of the Company's standard acquisition procedures (such assets to include high-pressure tanks, motorized vehicles, including cars and trucks, and lines of business other than carbon dioxide that may be obtained by the Company as part of the group of assets of any corporation or other business entity the Company may acquire), and certain other sales to be agreed upon in writing by the Company and the Required Lenders. (c) The Company shall make a mandatory prepayment from 100 percent of net proceeds of any offering of debt; provided, however, that this provision shall not include (i) fifty percent (50%) of the proceeds of the new Subordinated Debt issued pursuant to the Third Amendment to Senior Subordinated Debt, and (ii) any purchase money obligations paid to the Company. (d) Notwithstanding anything in this Agreement to the contrary, no reduction in the Commitments shall be required hereunder as a result of any mandatory prepayment under this Section 2.11. SECTION 2.12 Voluntary Reduction of Commitments. Upon at least five (5) Business Days' prior written notice (or telephonic notice promptly confirmed in writing) to the Agent, which notice shall specify (1) the amount by which such Commitments are to be terminated and (2) the date such termination is to occur, the Company shall have the right, without premium or penalty, to terminate the Commitments, in whole or in part, provided that (a) any partial termination pursuant to this Section 2.12 shall be in an amount of at least $5,000,000 and integral multiples of $5,000,000 and (b) any such termination shall apply to reduce proportionately and permanently the Commitments. If the aggregate principal amount of Advances exceeds the amount of the Commitments as so reduced, the Company shall immediately repay Borrowings under such Commitments by an amount equal to such excess, together with accrued but unpaid interest on such excess. 27 SECTION 2.13 Allocation of Payments. (a) All principal and interest payments and prepayments made with respect to Advances and payments in respect of Commitment Fees shall be allocated among all outstanding Commitments and Advances to which such payments relate, proportionately based on the Lenders' Pro Rata Shares of the Commitments. (b) All payments made to the Agent by the Company shall be applied in the following order: (a) first, to the reimbursement of any fees which are due and payable, and expenses incurred by and then due and payable to, the Agent, in accordance with the terms of this Agreement, in connection with the administration of the Commitments and otherwise (to the extent any such fees are payable by the Company pursuant to the terms of this Agreement); (b) second, to the payment of any accrued and unpaid interest and Fees which are due and payable, pro rata to the Lenders based upon their respective Pro Rata Shares of the Commitments; and (c) finally, to the payment of outstanding Advances. SECTION 2.14 Termination of Commitments. The unpaid principal balance and all accrued and unpaid interest on the Notes will be due and payable upon the first of the following dates or events to occur: (i) acceleration of the maturity of any Note in accordance with the remedies contained in Section 8.02 of this Agreement; or (ii) upon the expiration of the Commitments on the Commitment Termination Date. SECTION 2.15 Use of Proceeds. The proceeds of each Borrowing under the Commitments will be used by the Company solely to make Capital Expenditures and to provide for the working capital and general corporate needs of the Company. SECTION 2.16 Fees. (a) On the Closing Date, the Company shall pay to SunTrust Equitable Securities Corporation, the Underwriting Fee, which shall be fully earned and nonrefundable when paid. (b) On the Closing Date and on each anniversary thereof, if the Commitments are extended pursuant to Section 2.19, the Company shall pay to the Agent the Agent Fee, which fee shall be nonrefundable when paid. (c) The Company shall pay to the Agent, for the account of and distribution of the respective Pro Rata Share to each Lender (subject to the last sentence hereof), a commitment fee (the "Commitment Fee") for the period commencing on the Closing Date to and including the Commitment Termination Date, computed at a rate equal to the Applicable Commitment Fee Percentage multiplied by the average daily unused portion of the Commitments of the Lenders, such fee being payable quarterly in arrears on the last day of each calendar quarter, commencing on June 30, 1999, and on the Commitment Termination Date. The Commitment Fee will be calculated on the basis of a 360-day year for the actual number of days elapsed. 28 (d) The Company shall pay, quarterly in arrears on the last day of each calendar quarter, commencing on June 30, 1999, and on the Commitment Termination Date, (i) to the Agent, for the account of and distribution of the respective Pro Rata Share to each Lender, a letter of credit fee equal to the Applicable Margin for LIBOR Advances multiplied by the average daily aggregate Letter of Credit Obligations, and (ii) to the Agent, for its own account, a letter of credit fronting fee equal to one-quarter of one percent (0.25%) multiplied by the stated face amount of such Letter of Credit (collectively, the "Letter of Credit Fee"). (e) The Company hereby authorizes the Agent to withdraw an amount equal to the fees which are due and payable under clauses (a), (b) or (c) above from any of its accounts with the Agent if not paid on the due date for such fees. The Agent shall give the Company notice of any such withdrawals, provided, however, that failure by the Agent to give the Company notice shall not prevent the Agent from making any such withdrawals under this Section. SECTION 2.17 Interest. (a) For Borrowings other than those made under the Swing Line, the Company shall be entitled to select between the following two options to establish the rate of interest at which the unpaid principal amount of the Revolving Notes shall accrue: (i) Base Rate Advances - interest shall accrue at the Base Rate plus the Applicable Margin; or (ii) LIBOR Advances - interest shall accrue at LIBOR plus the Applicable Margin. (b) Interest on the Revolving Notes for Borrowings other than those made under the Swing Line shall be calculated on the basis of a 360-day year and shall be payable to the Lenders as follows: (i) Base Rate Advances -- on the last day of every quarter in arrears; and (ii) LIBOR Advances -- at the expiration of each Interest Period and, with respect to advances made for an Interest Period longer than three months, also on the last day of each three-month period prior to the expiration of the Interest Period. (c) For Borrowings made under the Swing Line, the rate of interest at which the unpaid principal shall accrue on the Swing Line Note shall be equal to the Base Rate on the applicable day of the Swing Line Borrowing Notice (the "Swing Rate"). 29 SECTION 2.18 Interest Periods. (a) In connection with the making or continuation of, or conversion into, each Borrowing of LIBOR Advances, the Company shall select an Interest Period to be applicable to such LIBOR Advance, which Interest Period shall be either a 1, 2, 3 or 6 month period. (b) In connection with the making of each Base Rate Advance, the Company and the Lenders shall agree on an Interest Period acceptable to both sides. (c) Notwithstanding paragraphs (a) or (b) above: (i) The initial Interest Period for any Borrowing of LIBOR Advances shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing consisting of Base Rate Advances) and each Interest Period occurring thereafter in respect of a continuation of such Borrowing shall commence on the day on which the immediately preceding Interest Period expires; (ii) If any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided that if any Interest Period in respect of LIBOR Advances would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iii) Any Interest Period in respect of LIBOR Advances which begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall, subject to part (iv) below, expire on the last Business Day of such calendar month; and (iv) No Interest Period with respect to the Advances shall extend beyond the Commitment Termination Date. SECTION 2.19 Extension of Commitments. No earlier than 120 days but no later than 90 days prior to the then applicable Commitment Termination Date, the Company may request that the Commitment Termination Date be extended by the Lenders for an additional 364-day or longer period. The Lenders may agree or not agree to such extension in the exercise of their sole discretion; provided, however, that the Agent shall inform the Company no later than 60 days prior to the then applicable Commitment Termination Date of the Lenders' decision as to whether to extend the Commitment Termination Date. Notwithstanding anything herein to the contrary, the Commitment Termination Date may only be extended, in the aggregate, for up to an additional two-year period pursuant to this Section 2.19. If the Lenders agree, in their sole discretion, to extend the Commitment Termination Date, then the applicable Commitment Termination Date shall automatically be so extended upon written notice thereof being delivered by the Lenders to the Company and completion by the Company and its Subsidiaries of any conditions to such extension required by the Lenders. 30 SECTION 2.20 Increased Costs. (a) If, by reason of (x) after the date hereof, the introduction of or any change (including, without limitation, any change by way of imposition or increase of reserve requirements) in or in the interpretation of any law or regulation, or (y) the compliance with any guideline or request from any central bank or other governmental authority or quasi-governmental authority exercising control over banks or financial institutions generally (whether or not having the force of law): (i) any Lender (or its applicable Lending Office) shall be subject to any tax, duty or other charge with respect to its LIBOR Advances or its obligation to make LIBOR Advances, or the basis of taxation of payments to any Lender of the principal of or interest on its LIBOR Advances or its obligation to make LIBOR Advances shall have changed (except for changes in the tax on the overall net income of, or any franchise tax on, such Lender or its applicable Lending Office imposed by the jurisdiction in which such Lender's principal executive office or applicable Lending Office is located); or (ii) any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender's applicable Lending Office shall be imposed or deemed applicable or any other condition affecting its LIBOR Advances or its obligation to make LIBOR Advances shall be imposed on any Lender or its applicable Lending Office or the London interbank market; and as a result thereof there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining LIBOR Advances (except to the extent already included in the determination of LIBOR for LIBOR Advances), or there shall be a reduction in the amount received or receivable by such Lender or its applicable Lending Office, then the Company shall from time to time, upon written notice from and demand by such Lender on the Company (with a copy of such notice and demand to the Agent), pay to the Agent for the account of such Lender within five Business Days after the date of such notice and demand, additional amounts sufficient to indemnify such Lender against such increased cost. A certificate as to the amount of such increased cost, submitted to the Company and the Agent by such Lender in good faith and accompanied by a statement prepared by such Lender describing in reasonable detail the basis for and calculation of such increased cost, shall, except for manifest error, be final, conclusive and binding for all purposes. In the event that the Company shall pay the increased costs accrued through the date of payment as required under this Section 2.20(a), plus any funding losses as described in Section 2.22, then the Company shall have the right to convert the relevant LIBOR Advance to a Base Rate Advance, as provided in Section 2.02, and the Agent and each of the Lenders shall be deemed to have given their consent thereto, as required thereunder. 31 (b) If any Lender shall advise the Agent that at any time, because of the circumstances described in clauses (x) or (y) in Subsection 2.20(a) or any other circumstances beyond such Lender's reasonable control arising after the date of this Agreement affecting such Lender or the London interbank market or the United States secondary certificate of deposit market or such Lender's position in such markets, LIBOR, as determined by the Agent, will not adequately and fairly reflect the cost to such Lender of funding its LIBOR Advances, then, and in any such event: (i) the Agent shall forthwith give notice (by telephone confirmed in writing) to the Company and to the other Lenders of such advice; (ii) the Company's right to request and such Lender's obligation to make or permit portions of the Loans to remain outstanding past the last day of the then current Interest Periods as LIBOR Advances shall be immediately suspended; and (iii) such Lender shall make a Loan as part of the requested Borrowing of LIBOR Advances, as the case may be, as a Base Rate Advance, which such Base Rate Advance shall, for all other purposes, be considered part of such Borrowing. SECTION 2.21 Capital Adequacy. If, after the date of this Agreement, any Lender shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender with any request or directive regarding capital adequacy not currently in effect or fully applicable as of the Closing Date (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then, from time to time, promptly upon demand by such Lender (with a copy to the Agent), the Company shall pay such Lender such additional amount or amounts as will compensate such Lender for such reduction. A certificate of any Lender claiming compensation under this Section 2.21 and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive absent manifest error. In determining any such amount, such Lender may use any reasonable averaging and attribution methods. Each Lender will promptly notify the Company of any such adoption, change or compliance of which it has knowledge which will entitle such Lender to compensation pursuant to this Section, but the failure to give such notice shall not affect such Lender's right to such compensation provided such Lender gives such notice within 90 days after an officer of such Lender having responsibility for the administration of this Agreement shall have received actual notice of such adoption, change or compliance. 32 SECTION 2.22 Funding Losses. The Company shall compensate each Lender, upon its written request to the Company (which request shall set forth the basis for requesting such amounts in reasonable detail and which request shall be made in good faith and, absent manifest error, shall be final, conclusive and binding upon all of the parties hereto), for all losses, expenses and liabilities (including, without limitation, any interest paid by such Lender to lenders of funds borrowed by it to make or carry its LIBOR Advances, in either case to the extent not recoverable by such Lender in connection with a re-employment of such funds and including loss of anticipated profits, which the Lender may sustain): (i) if for any reason (other than a default by such Lender) a borrowing of, or conversion to or continuation of, LIBOR Advances to the Company does not occur on the date specified therefor in a Notice of Borrowing or Notice of Interest Rate Conversion (whether or not withdrawn), (ii) if any repayment (including mandatory prepayments and any conversions) of any LIBOR Advances by the Company occurs on a date which is not the last day of an Interest Period applicable thereto, or (iii) if, for any reason, the Company defaults in its obligation to repay its LIBOR Advances when required by the terms of this Agreement. SECTION 2.23 Making of Payments. (a) The Fees and all payments of principal of, or interest on, the Notes, and payments in respect of the Letters of Credit, shall be made in immediately available funds free and clear of any defenses, set-offs, counterclaims or withholdings or deductions for taxes to the Agent at its principal office in Ft. Lauderdale, Florida, for the accounts of the respective Lenders. All such payments shall be made not later than 1:00 p.m. (Ft. Lauderdale, Florida time) and funds received after that hour shall be deemed to have been received by the Agent on the next following Business Day. Payments to the Agent shall, as to the Company, constitute payment to the applicable Lenders hereunder, other than Swing Line Loans. (b) Subject to Subsection 2.18(c)(ii), whenever any payment to be made hereunder or under any Revolving Note or the Swing Line Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the applicable rate during such extension. (c) On the Business Day that a payment is received or deemed to have been received hereunder, the Agent shall remit in immediately available funds to each Lender its share, based on the percentages set forth in Section 2.01, of all payments received by the Agent on the Revolving Notes. SECTION 2.24 Default Rate of Interest. Upon the occurrence and during the continuance of an Event of Default set forth in Section 8.01, to the extent permitted by law, all unpaid amounts hereunder shall, on such date and thereafter, accrue at the then applicable interest rate plus an additional two percent (2.0%) per annum until payment in full, provided, that, for any LIBOR Advance, at the end of the applicable Interest Period, interest shall accrue at 33 the Base Rate plus two percent (2.0%) per annum. Interest accruing pursuant to this Section 2.24 will be due and payable upon demand. SECTION 2.25 Proration of Payments. If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, through exercise of any right of set-off or otherwise) after the occurrence and during the continuance of an Event of Default on account of the principal of or interest on any Revolving Note or any fees in respect of this Agreement in excess of its Pro Rata Share of payments and other recoveries obtained by all the Lenders on account of the principal of and interest on the Revolving Notes then held by them or any fees due to them in respect of this Agreement, such Lender shall notify the Agent thereof and forthwith purchase from the other Lenders such participation in the Revolving Notes held by them or in such fees owed to them as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase from such Lender shall be rescinded and the purchase price restored by each selling Lender to the extent of such recovery, but without interest, unless the purchasing Lender is required to pay interest on the amount so recovered, in which case each selling Lender shall pay its Pro Rata Share of such interest. After the occurrence and during the continuance of an Event of Default, disproportionate payments of interest shall be shared by the purchase of separate participations in unpaid interest obligations, disproportionate payments of fees shall be shared by the purchase of separate participations in unpaid fee obligations, and disproportionate payments of principal shall be shared by the purchase of separate participations in unpaid principal obligations. The Company agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.25 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Company in the amount of such participation. Each Lender shall give the Agent notice within five (5) days of any payments or other recoveries described above which it obtains. SECTION 2.26 Lenders' Obligations Several. The obligation of each Lender to make any Advance is several, and not joint or joint and several, and is not conditioned upon the performance by all other Lenders of their obligations to make Advances. SECTION 2.27 Calculation of Interest. Interest payable on the Notes, including interest payable as provided in Section 2.24, shall be calculated on the basis of a year of 360 days and paid for the actual number of days elapsed. SECTION 2.28 Payments Free of Taxes. (a) All payments made by the Company under this Agreement, the Notes shall be made free and clear of, and without deduction for, any Tax. To the extent that the Company is obligated by Applicable Law to make any deduction or withholding on account of any Tax from any amount payable to any Lender under this Agreement, the Notes, the Company shall (1) make such deduction or withholding and pay the same to the relevant governmental authority and (2) pay 34 such additional amount to such Lender as is necessary to result in that Lender's receiving a net after-tax (or after-assessment or after-charge) amount equal to the amount to which such Lender would have been entitled under this Agreement, the Notes absent such deduction or withholding. (b) Each Lender that is organized under the laws of any jurisdiction other than the United States of America or any State thereof (including the District of Columbia) agrees to furnish to the Company and the Agent, on the Closing Date and otherwise prior to the time it becomes a Lender hereunder, two copies of either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 or any successor forms thereto (wherein such Lender claims entitlement to complete exemption from or reduced rate of U.S. Federal withholding tax on interest paid by the Company hereunder) and to provide to the Company and the Agent a new Form 4224 or Form 1001 or any successor forms thereto if any previously delivered form is found to be incomplete or incorrect in any material respect or upon the obsolescence of any previously delivered form. SECTION 2.29 Interest Rate Not Ascertainable, etc. In the event that the Agent, in the case of LIBOR, shall have determined (which determination shall be made in good faith and, absent manifest error, shall be final, conclusive and binding upon all parties) that on any date for determining LIBOR for any Interest Period, by reason of any changes arising after the date of this Agreement affecting the London interbank market or the Agent's position in such market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of LIBOR then, and in any such event, the Agent shall forthwith give notice (by telephone confirmed in writing) to the Company and to the Lenders of such determination and a summary of the basis for such determination. Until the Agent notifies the Company that the circumstances giving rise to the suspension described herein no longer exist, the obligations of the Lenders to make or permit portions of the Advances to remain outstanding past the last day of the then current Interest Periods as LIBOR Advances shall be suspended, and such affected Advances shall bear the same interest as Base Rate Advances. SECTION 2.30 Illegality. (a) In the event that any Lender shall have determined (which determination shall be made in good faith and, absent manifest error, shall be final, conclusive and binding upon all parties) at any time that the making or continuance of any LIBOR Advance has become unlawful by compliance by such Lender in good faith with any applicable law, governmental rule, regulation, guideline or order (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), then, in any such event, the Lender shall give prompt notice (by telephone confirmed in writing) to the Company and to the Agent of such determination and a summary of the basis for such determination (which notice the Agent shall promptly transmit to the other Lenders). (b) Upon the giving of the notice to the Company referred to in subsection (a) above, (i) the Company's right to request and such Lender's obligation to make LIBOR 35 Advances shall be immediately suspended, and such Lender shall make an Advance as part of the requested Borrowing of LIBOR Advances as a Base Rate Advance, and (ii) if the affected LIBOR Advance or Advances are then outstanding, the Company shall immediately, or if permitted by applicable law, no later than the date permitted thereby, upon at least one Business Day's written notice to the Agent and the affected Lender, convert each such Advance into an Advance or Advances to a Base Rate Advance with an Interest Period ending on the date on which the Interest Period applicable to the affected LIBOR Advances expires, provided that if more than one Lender is affected at any time, then all affected Lenders must be treated the same pursuant to this Subsection 2.30(b). ARTICLE III CONDITIONS TO BORROWINGS The obligation of each Lender to make an Advance to the Company and the obligation of the Agent to issue Letters of Credit hereunder is subject to the satisfaction of the following conditions: SECTION 3.01 Conditions Precedent to Initial Advances. At the time of the making by each Lender of its initial Advance hereunder, unless otherwise waived or consented to by the Required Lenders, (a) all obligations of the Company to the Agent or any Lender incurred prior thereto (including, without limitation, the Company's obligation to reimburse the fees and disbursements of counsel to the Agent and the Lenders in accordance with this Agreement), together with the Fees, shall have been paid in full; (b) the Agent shall have received the following, each dated as of the Closing Date, if applicable, in form and substance satisfactory to the Lenders and (except for the Notes) in sufficient copies for each Lender: (i) A duly executed original of this Agreement. (ii) A duly completed and executed original of a Revolving Note payable to the order of each Lender in the principal amount of such Lender's Commitment. (iii) A duly completed and executed original of the Swing Line Note payable to the order of SunTrust in the principal amount of $2,000,000. (iv) A duly executed original of the Guaranty Agreement and the Contribution Agreement. 36 (v) A duly executed original of the amendments to the Company Security Agreement and the Guarantor Security Agreement, together with such UCC financing statements and UCC amendments recorded in such jurisdictions as the Required Lenders deem necessary or desirable to perfect the security interests granted thereunder and under the Company Pledge Agreement, the Guarantor Pledge Agreement, the Company Trademark Security Agreement, and the Guarantor Trademark Security Agreement. (vi) Lien searches in all relevant jurisdictions listing all effective financing statements which name the Company or any of its Subsidiaries as debtor, together with copies of such other financing statements (none of which shall cover the Collateral purported to be covered by the Company Security Agreement, the Guarantor Security Agreement, the Company Pledge Agreement, the Guarantor Pledge Agreement, the Company Trademark Security Agreement or the Guarantor Trademark Security Agreement), other than financing statements in favor of the Agent. (vii) A duly executed original of the amendment to Company Pledge Agreement and the Guarantor Pledge Agreement, together with stock certificates evidencing the shares of stock of all Subsidiaries of the Company pledged to the Agent thereunder and an undated stock power for each such stock certificate, executed in blank by the pledgor of such stock. (viii) A duly executed original of the amendments to Company Trademark Security Agreement and the Guarantor Trademark Security Agreement, together with such filings in the United States Patent and Trademark Office as the Required Lenders deem necessary or desirable to perfect the security interests granted under the Company Trademark Security Agreement and the Guarantor Trademark Security Agreement. (ix) Duly executed originals of any amendments to Mortgages and Assignments of Leases to be recorded in the real estate records of the jurisdiction in which the Mortgaged Property related thereto is located, together with such fixture filings and amendments to existing fixture filings recorded in such jurisdictions as the Required Lenders deem necessary or desirable to perfect the security interests granted thereunder, and endorsements to the existing title insurance policies for such Mortgage or Assignment of Leases showing that the Agent has a valid first priority Lien with respect to such Mortgaged Property subject to no encumbrances other than such Mortgage or such Assignment of Leases, and Liens permitted pursuant to Section 6.01 hereof. (x) Evidence satisfactory to the Required Lenders that all other actions necessary or desirable to perfect and protect the security interests created by the Security Documents have been taken. 37 (xi) Certificates of insurance issued by the Company's insurers, describing in reasonable detail the insurance maintained by the Company, together with appropriate evidence showing that the Agent has been named as loss payee or additional insured, as its interest may appear, on all insurance policies insuring property of the Company and its Subsidiaries. (xii) Certificates signed by the Chief Executive Officer or the Chief Financial Officer of each of the Company and the Guarantors as to the solvency of such Company or Guarantor. (xiii) A duly executed original of the Closing Certificate, in the form attached hereto as Exhibit F. (xiv) Copies of the organizational papers of each of the Company and the Subsidiaries, certified as true and correct by the Secretary of State of the State in which the Company or such Subsidiary is incorporated, and certificates from the Secretaries of State of the States in which the Company or such Subsidiary is incorporated and of each state in which the Company or such Subsidiary is legally required to qualify to transact business as a foreign corporation, certifying the Company's or Subsidiaries' good standing as a corporation in such States. (xv) Copies of the bylaws of each of the Company and the Guarantors of resolutions of the Board of Directors of each of the Company and the Guarantors approving this Agreement, the Notes, the Borrowings hereunder, the Security Documents and all other Loan Documents to which the Company or such Guarantor is a party and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, the Notes, the Security Documents and all other Loan Documents to which the Company or such Guarantor is a party, in each case certified as true and correct by the Secretary or an Assistant Secretary of the Company or such Guarantor. (xvi) A favorable written opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP, General Counsel for the Company and the Guarantors, substantially in the form of Exhibit G attached hereto, and covering such additional matters relating to the transactions contemplated hereby as the Required Lenders may reasonably request, addressed to the Agent and the Lenders. (xvii) A favorable written opinion of Holland & Knight LLP, counsel for the Company and the Guarantors, substantially in the form of Exhibit H attached hereto, and covering such additional matters relating to the transactions contemplated hereby as the Required Lenders may reasonably request, addressed to the Agent and the Lenders. (xviii) Certified copies of all consents, approvals, authorizations, registrations or filings required to be made or obtained by the Company or the Guarantors 38 in connection with the transactions contemplated hereby and by the other Loan Documents. (c) Since December 31, 1998, there shall have been no change which has had or could reasonably be expected to have a Materially Adverse Effect; (d) Issuance and funding of at least $10,000,000 in additional Subordinated Debt pursuant to the Third Amendment to Senior Subordinated Debt, in form and substance satisfactory to the Lenders; (e) Receipt by the Agent of the interest rate protection agreement required by Section 5.15, in form and substance satisfactory to Agent; and (f) All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all Loan Documents and other documents incident thereto or delivered in connection therewith shall be satisfactory in form and substance to each Lender. SECTION 3.02 Conditions Precedent to Each Advance and Letters of Credit. At the time of the making by the Lenders of each Advance hereunder (including the initial Advances) and the issuance of all Letters of Credit (before as well as after giving effect to such Advances and the proposed use of the proceeds thereof and the issuance of Letters of Credit), the following statements shall be true: (a) The representations and warranties contained in Article IV hereof are true and correct in all material respects on and as of the date of such Borrowing or the issuance of such Letters of Credit as though made on and as of such date, except insofar as such representations and warranties speak only as of a prior date or reflect transactions and events after the Closing Date, as permitted by the Loan Documents; (b) No Default or Event of Default exists or would result from such Borrowing or from the application of the proceeds therefrom; (c) Since the date of the most recent consolidated financial statements of the Company described in Section 4.14 or delivered to the Lenders pursuant to Section 5.02, there shall have been no change which has had or could reasonably be expected to have a Materially Adverse Effect; (d) There shall be no action or proceeding instituted or pending before any court or other governmental authority or, to the knowledge of the Company, threatened (i) which reasonably could be expected to have a Materially Adverse Effect, or (ii) seeking to prohibit or restrict the ownership or operation of any portion of the business or assets of the Company or any of its Subsidiaries, or to compel the Company or any of its Subsidiaries to dispose of or hold separate all or any portion of its businesses or assets, where such portion or portions of such 39 business(es) or assets, as the case may be, constitute a material portion of the total businesses or assets of the Company or its Subsidiaries; and (e) The Advances to be made and the use of proceeds or the issuance of such Letters of Credit thereof shall not contravene, violate or conflict with, or involve the Agent or any Lender in a violation of, any Applicable Law. (f) each Notice of Borrowing given by the Company in accordance with Section 2.02(a) hereof or issuance of a Letter of Credit and the acceptance by the Company of the proceeds of any Borrowing shall constitute a representation and warranty by the Company, made as of the time of the making of such Borrowing or the issuance of such Letter of Credit that the conditions specified in Section 3.02(a) have been fulfilled as of such time unless a notice to the contrary specifically captioned "Disclosure Statement" is received by each of the Lenders from the Company prior to 5:00 p.m. (Ft. Lauderdale, Florida time) on the Business Day immediately preceding the date of the making of such Borrowing. To the extent that the Lenders agree to make such Borrowing after receipt of a Disclosure Statement in accordance with the preceding sentence, the representations and warranties pursuant to the preceding sentence will be deemed made as modified by the contents of such Disclosure Statement and repeated, as so modified, as at the time of the making of such Borrowing. Any such modification shall be effective only for the occasion on which the Lenders elect to make an Advance on such Borrowing, and unless expressly agreed by the Required Lenders in writing to the contrary in accordance with Section 10.02, shall not be deemed a waiver or modification of any condition to the making of any future Borrowing. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Company and the Subsidiaries represent and warrant as follows: SECTION 4.01 Corporate Status of Company; Status of Subsidiaries. The Company and each Subsidiary that is a corporation are duly organized, validly existing and in good standing under the laws of the jurisdictions of their respective incorporation and have the corporate power and authority to own their respective property and assets and to transact the businesses in which they respectively are engaged or presently propose to engage and are duly qualified and in good standing as foreign corporations in all states where failure to be so qualified and in good standing could have a Materially Adverse Effect. Each Subsidiary that is a partnership is duly constituted, existing and in good standing under the laws of the jurisdiction of its constitution and has all requisite power, authority and legal right to own its property and assets and to transact the businesses in which it is engaged or presently proposes to engage and is duly qualified and in good standing as a foreign partnership wherever failure to be so qualified and in good standing could have a Materially Adverse Effect. The Company and each of its Subsidiaries have the power to own their respective properties and to carry on their respective businesses as now being conducted. The Company is adequately capitalized for the purpose of conducting its business, was not formed solely for the purpose of acting as agent for, or as an instrumentality of, any Subsidiary. SECTION 4.02 Corporate Power and Authority. Each of the Company and the Guarantors has the corporate power and has taken all necessary corporate action (including, without limitation, any consent of stockholders required by law or by its certificate of incorporation or bylaws) to authorize it, to execute, deliver and carry out the terms and provisions of and to incur its obligations under this Agreement, the Notes, the Security Documents and the other Loan Documents to which it is a party. This Agreement, the Notes, the Security Documents and the other Loan Documents have been duly authorized, executed and delivered by the Company and the Guarantors party thereto. SECTION 4.03 Compliance with Other Instruments. The execution, delivery and performance by the Company and any Guarantors party thereto, as the case may be, of this Agreement, the Notes, the Security Documents and the other Loan Documents to which it is a party, (a) will not contravene any provision of Applicable Law, rule, regulation, judgment, order or ruling, (b) will not conflict with, be inconsistent with, or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of any Lien upon any of the property or assets of the Company or any of its Subsidiaries pursuant to the terms of any indenture, mortgage, deed to secure debt, deed of trust, or any other material agreement or instrument to which the Company or any of its Subsidiaries is a signatory or by which it is bound or to which it may be subject, (c) will not violate any provision of the certificate of incorporation (or equivalent thereof) or bylaws (or equivalent thereof) of the Company or any corporate Subsidiary of the Company or the certificate of partnership or other document governing the constitution or conduct of affairs of any Subsidiary of the Company that is not a corporation, (d) will not require any Governmental Approval and (e) will not result in the creation of any Lien upon the assets or properties of the Company and its Subsidiaries except as contemplated by the Security Documents. Neither the Company nor any of its Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing Indebtedness of the Company or any of its Subsidiaries, any agreement relating thereto or any other contract or agreement (including its charter) which limits the amount of, or otherwise imposes restrictions on the incurring of, Indebtedness of the type to be evidenced by the Notes, other than the Senior Subordinated Debt. SECTION 4.04 Enforceable Obligations. This Agreement, the Notes, the Security Documents and the other Loan Documents constitute the legal, valid and binding obligation of the Company and the Guarantors party thereto, enforceable in accordance with their terms, except as the enforceability thereof may be limited by Bankruptcy Law and by general principles of equity. SECTION 4.05 Governmental Authorizations. The Company and its Subsidiaries are in good standing with respect to all governmental authorizations, consents, 41 approvals, orders, licenses and other actions required by any governmental or non-governmental authority or Person, except where the failure to maintain such good standing will not have a Materially Adverse Effect on the Company and its Subsidiaries. SECTION 4.06 Intellectual Property. Each of the Company and its Subsidiaries owns or has the right to use all patents, trademarks, service marks, trade names, copyrights, licenses and other rights, free from burdensome restrictions, which are material for the operation of its business as presently conducted. Nothing has come to the attention of the Company, any of its Subsidiaries or any of their respective directors and officers to the effect that (i) any product, process, method, substance, part or other material presently contemplated to be sold by or employed by Company or any of its Subsidiaries in connection with its business may infringe any patent, trademark, service mark, trade name, copyright, license or other right owned by any other Person, (ii) there is pending or threatened any claim or litigation against or affecting the Company or any of its Subsidiaries contesting its right to sell or use any such product, process, method, substance, part or other material or (iii) there is, or there is pending or proposed, any patent, invention, device, application or principle or any statute, law, rule, regulation, standard or code which would prevent, inhibit or render obsolete the production or sale of any products of, or substantially reduce the projected revenues of, or otherwise have a Materially Adverse Effect on the Company or any of its Subsidiaries. SECTION 4.07 Outstanding Indebtedness. Neither the Company nor any of its Subsidiaries, on a consolidated basis, has outstanding any Indebtedness, except as described on Schedule 4.07 hereto. There exists no default under the provisions of any instrument evidencing or securing any Indebtedness of the Company or any of its Subsidiaries or of any agreement otherwise relating thereto which has had or would reasonably be expected to have a Materially Adverse Effect. SECTION 4.08 Insurance Coverage. Each property of the Company or any of its Subsidiaries is insured within terms reasonably acceptable to the Lenders for the benefit of the Company or a Subsidiary of the Company in amounts deemed adequate by the Company's management in its reasonable business judgment and not materially less than those amounts customary in the industry in which the Company and its Subsidiaries operate against risks usually insured against by Persons operating businesses similar to those of the Company or its Subsidiaries in the localities where such properties are located, and the Agent has been named loss payee or additional insured, as its interest may appear, on all such policies. Attached as Schedule 4.08 hereto are certificates evidencing such insurance. SECTION 4.09 Title to Properties. Each of the Company and its Subsidiaries has (i) good and marketable fee simple title to its respective real properties (other than real properties it leases from others), including such real properties reflected in the financial statements referred to in Section 4.14, subject to no Lien of any kind except Liens permitted by Section 6.01, and (ii) good title to all of its other respective properties and assets (other than properties and assets which it leases from others), including the other properties and assets reflected in the financial statements referred to in Section 4.14, subject to no Lien of any kind 42 except Liens permitted by Section 6.01. Each of the Company and its Subsidiaries enjoys peaceful and undisturbed possession in all material leases necessary for the operation of its respective properties and assets, none of which contains any unusual or burdensome provisions that would adversely affect or impair the operation of such properties and assets, and all such leases are valid and subsisting and in full force and effect. SECTION 4.10 No Burdensome Restrictions. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement that would result in any burdensome restrictions that might reasonably be expected to have a Materially Adverse Effect on the Company or any of its Subsidiaries, including, but not limited to, any collective bargaining agreements. SECTION 4.11 No Material Violation of Law. Neither the Company nor any of its Subsidiaries has any notice of any violation of any law, statute, order, regulation or judgment entered against it by any court that may reasonably be expected to have a Materially Adverse Effect on the Company. SECTION 4.12 No Default Under Other Agreements. Neither the Company nor any of its Subsidiaries is in default under any material agreement to which it is a party. SECTION 4.13 No Equity Investments. Neither the Company nor any of its Subsidiaries possesses investments in any equity or other long-term investments in any person, except permitted investments, including any wholly-owned Subsidiaries of the Company and the Subsidiaries. SECTION 4.14 Financial Statements. The audited consolidated financial statements of the Company dated June 30, 1998, and the related consolidated statements of income (including supporting footnote disclosures), with opinion of Margolin, Winer & Evens LLP, the unaudited consolidated quarterly financial statements of the Company dated December 31, 1998, and the related consolidated statements of income (including supporting footnote disclosures), and the unaudited consolidated monthly financial statements of the Company dated February 28, 1999, all heretofore furnished to the Lenders, are all true and correct in all material respects and present fairly the consolidated financial condition at the date of said financial statements and the results of operations for the fiscal period then ending of the Company. The Company as of such date did not have any significant liabilities, contingent or otherwise, including liabilities for Taxes or any unusual forward or long-term commitments which were not disclosed by or reserved against in the financial statements referred to above or in the notes thereto, and at the present time there are no material unrealized or anticipated losses from any unfavorable commitments of the Company or any of its Subsidiaries. All such financial statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods involved. Since December 31, 1998, there has been no change which has had or could reasonably be expected to have a Materially Adverse Effect. 43 SECTION 4.15 Litigation. Except as disclosed on Schedule 4.15 attached hereto, there are no actions, suits, investigations or proceedings pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries or any of their properties or rights by or before any court, arbitrator or administrative or governmental body that would have a Materially Adverse Effect on the Company or any of its Subsidiaries. SECTION 4.16 Taxes. Each of the Company and its Subsidiaries has filed or caused to be filed all declarations, reports and tax returns including, in the case of the Company and each Subsidiary located in the United States, all federal and state income tax returns which it is required by law to file, and has paid all Taxes which are shown as being due and payable on such returns or on any assessments made against it or any of its properties. The accruals and reserves on the books of the Company and its Subsidiaries in respect of Taxes are adequate in all material respects for all periods. Neither the Company nor any of its Subsidiaries has any knowledge of any unpaid adjustment, assessment or any penalties or interest of significance, or any basis therefor, by any taxing authority for any period, except those being contested in good faith and by appropriate proceedings which effectively stay the enforcement of any Lien and the attachment of a penalty. SECTION 4.17 Margin Regulations. No part of the proceeds of any of the Advances will be used for any purpose which violates, or which would be inconsistent or not in compliance with, the provisions of the applicable Margin Regulations. SECTION 4.18 ERISA. Except as disclosed on Schedule 4.18 attached hereto: (a) Identification of Plans. (i) Neither the Company nor any ERISA Affiliate maintains or contributes to, or has maintained or contributed to, any Plan that is an ERISA Plan, and (ii) neither the Company nor any of its Subsidiaries maintains or contributes to, or has maintained or contributed to, any Plan that is an Executive Arrangement; (b) Compliance. Each Plan has at all times been maintained, by its terms and in operation, in accordance with all Applicable Laws, except such noncompliance (when taken as a whole) that will not have a Materially Adverse Effect; (c) Liabilities. Neither the Company nor any of its Subsidiaries is currently nor has in the last 6 years been obligated to make contributions (directly or indirectly) to a Multiemployer Plan, nor is it currently nor will it become subject to any liability (including withdrawal liability), tax or penalty whatsoever to any Person whomsoever with respect to any Plan including, but not limited to, any tax, penalty or liability arising under Title I or Title IV or ERISA or Chapter 43 of the Code, except such liabilities (when taken as a whole) as will not have a Materially Adverse Effect; and 44 (d) Funding. The Company and each ERISA Affiliate has made full and timely payment of all amounts (i) required to be contributed under the terms of each Plan and Applicable Law and (ii) required to be paid as expenses of each Plan. No Plan has an "amount of unfunded benefit liabilities" (as defined in Section 4001(a)(18) of ERISA). SECTION 4.19 Compliance With Environmental Laws. (a) The Company and its Subsidiaries are not in violation of, and do not presently have outstanding any liability under, have not been notified that they are or may be liable under and do not have knowledge of any liability or potential liability (including any liability relating to matters set forth in Part A. of Schedule 4.19) except as set forth in Part A. of Schedule 4.19, under any applicable Environmental Laws which violation, liability or potential liability could reasonably be expected to have a Materially Adverse Effect. (b) Except as set forth in Part B. of Schedule 4.19, neither the Company nor any of its Subsidiaries has received a written request for information under any Environmental Laws stating or suggesting that the Company or any of its Subsidiaries has or may have liability thereunder or written notice that any such entity has been identified as a potentially responsible party under any Environmental Laws, or any comparable state law, or any public health or safety or welfare law, nor has any such entity received any written notification that any Hazardous Substance that it or any of its respective predecessors in interest has generated, stored, treated, handled, transported, or disposed of, has been released or is threatened to be released at any site at which any Person intends to conduct or is conducting a remedial investigation or other action pursuant to any Environmental Laws. (c) Except as set forth in Part C. of Schedule 4.19, each of the Company and its Subsidiaries has obtained all material permits, licenses or other authorizations required for the conduct of their respective operations under all applicable Environmental and Asbestos Laws and each such authorization is in full force and effect. (d) Except as set forth in Part D. of Schedule 4.19, each of Company and its Subsidiaries complies in all material respects with all laws and regulations relating to equal employment opportunity and employee safety in all jurisdictions in which it is presently doing business, and Company will use its reasonable best efforts to comply, and to cause each of its Subsidiaries to comply, with all such laws and regulations which may be legally imposed in the future in jurisdictions in which Company or any of its Subsidiaries may then be doing business. SECTION 4.20 Possession of Material Patents, Trademarks, Etc. Each of the Company and its Subsidiaries possesses all patents, trademarks, licenses, and other intellectual property rights that are necessary in any material respect for the ownership, maintenance and operation of its properties and assets and they are possessed free from any burdensome restrictions. To the Company's knowledge, there are no infringements of such patents, trademarks, licenses, and other intellectual property rights that could have a Materially Adverse Effect on the Company or any of its Subsidiaries. 45 SECTION 4.21 Subsidiaries. Schedule 4.21 attached hereto correctly sets forth the name of each Subsidiary of the Company, the jurisdiction of such Subsidiary's incorporation or organization and the ownership of all issued and outstanding capital stock of such Subsidiary. All the outstanding shares of the capital stock of each such Subsidiary have been validly issued and are fully paid and nonassessable and all such outstanding shares, except as noted on such Schedule 4.21, are owned of record and beneficially by the Company or a wholly-owned Subsidiary of the Company free of any Lien or claim, except for Liens in favor of the Agent. SECTION 4.22 Disclosure. Neither this Agreement, any Loan Document nor any other document, certificate or statement furnished to the Lenders or the Agent by or on behalf of the Company or any Guarantor in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading, if, in either case, such fact is material to an understanding of the financial condition, business, prospects or property of the Company, or the ability of the Company to fulfill its obligations under any Loan Documents to which it is a party. SECTION 4.23 Year 2000 Compliance. The Company has taken all action reasonably determined to be necessary to ensure that the operating systems for the Company's and its Subsidiaries' computers and all software applications that run on such computers are Year 2000 Compliant or will be Year 2000 Compliant no later than December 31, 1999, except where a failure to be Year 2000 Compliant will not have a Materially Adverse Effect. "Year 2000 Compliant" means that neither the performance nor functionality of the operating systems for the Company's and its Subsidiaries' computers, embedded microchips and all software applications that run on such computers is affected by dates prior to, during, spanning or after January 1, 2000, and shall include, but not be limited to (a) accurately processing (including, but not limited to calculating, comparing and sequencing) date and time data from, into, and between the years 1999 and 2000 and leap year calculations, (b) functioning without error, interruption or decreased performance relating to such date and time data, (c) accurately processing such date and time data when used in combination with other technology, if the other technology properly exchanges date and time data, (d) accurate date and time data century recognition, (e) accurately calculating, using same-century and multi-century formulas and date and time values, (f) reflecting the correct century in date and time data interface values, and (g) processing, storing, receiving and outputting all date and time data in a format that accurately indicates the century of the date and time data. SECTION 4.24 Projections. In the good faith judgment of the Chief Financial Officer and Chief Executive Officer of the Company the projections, a copy of which are attached hereto as Exhibit M, constitute the prospects of financial performance of the Company for the periods indicated in such projections, absent unanticipated changed circumstances or events, many of which are beyond the Company's control. 46 ARTICLE V AFFIRMATIVE COVENANTS So long as any Note shall remain unpaid or any Lender shall have any Commitment hereunder, unless the Required Lenders shall otherwise consent in writing: SECTION 5.01 Use of Proceeds. The proceeds of all Borrowings will be used by the Company as provided in Section 2.15. None of the proceeds of any Borrowing shall be used, directly or indirectly, to purchase or carry, or to reduce or retire or refinance any credit incurred to purchase or carry, any "margin security" or "margin stock" (within the meaning of the regulations of the Board of Governors of the Federal Reserve System) or to extend credit to others for the purpose of purchasing or carrying any such "margin security" or "margin stock" or for any other purpose that might deem this transaction as a "purpose credit" (within the meaning of the regulations of the Board of Governors of the Federal Reserve System). If requested by any Lender, the Company will furnish to such Lender statements in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U. SECTION 5.02 Reporting Covenants. (a) The Company will furnish to the Agent for distribution to each of the Lenders: (i) as soon as available and in any event no later than 90 days after the end of each fiscal year of the Company, an audited consolidated balance sheet of the Company and its Subsidiaries as of the close of such fiscal year, and the related audited consolidated statements of income and cash flow of the Company and its Subsidiaries for such fiscal year, all in reasonable detail and with (1) an unqualified opinion of Margolin, Winer & Evens LLP, or such other independent certified public accountant of recognized standing selected by the Company and satisfactory to the Required Lenders, and (2) a certificate (with supporting details and calculations of financial covenants) from the Chief Financial Officer of the Company stating whether a Default or Event of Default exists; (ii) as soon as available and in any event within 45 days after the end of each fiscal quarter of the Company, its quarterly unaudited financial statements, together with a certificate in the form of Exhibit I hereto (the "Compliance Certificate") by the Chief Financial Officer of the Company (with supporting details and calculations of financial covenants) stating that (x) the financials were prepared in accordance with GAAP (subject to customary year-end audit adjustments) and that the covenants described in Article VII have been met and (y) whether a Default or Event of Default exists; 47 (iii) as soon as available and in any event within 30 days after the end of each month, the monthly unaudited financial statements of the Company; (iv) as soon as available and in any event within 30 days after the end of each month, a completed Borrowing Base Certificate in the form of Exhibit K hereto (the "Borrowing Base Certificate"); (v) as soon as available and in any event not later than 30 days after the end of each fiscal year of the Company, financial projections for the following fiscal year, in a form satisfactory to Agent; (vi) until the Company is Year 2000 Compliant, within 45 days after the end of each fiscal quarter of the Company, a report evidencing and outlining the Company's progress toward becoming Year 2000 Complaint; and (vii) as soon as available and in any event within 45 days after the end of each month, a completed Depot by Depot Report in the form of Exhibit L hereto (the "Depot by Depot Report"), including revenues and gross profits for each Depot, calculated on a trailing three month basis. In each case, such financial statements shall include balance sheets, income statements, and statements of cash flows for the Company, provided, however, that the monthly financial statements provided by the Company to the Lenders shall not include a statement of cash flows. (b) The Company will furnish to each of the Lenders, with reasonable promptness, notice of certain other events, including the occurrence or existence of any Default or Event of Default, any citation for a material violation of environmental laws or regulations, important matters relating to funding of employee benefit plans, or such other information as any Lender or the Agent may reasonably request. SECTION 5.03 Maintenance of Properties. The Company shall, and shall cause each of its Subsidiaries to, maintain, preserve, protect and keep, or cause to be maintained, preserved, protected and kept, its properties and every part thereof in good repair, working order and condition, and from time to time will make or cause to be made all needful and proper repairs, renewals, replacements, extensions, additions, betterments, and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times other than those which the failure to maintain would in the aggregate, have no Materially Adverse Effect; provided, however, that the Company and each Subsidiary shall not be under any obligation to repair or replace any such properties which have become obsolete or have become unsuitable or inadequate for the purpose for which they are used. SECTION 5.04 Maintenance of Insurance. The Company shall, and shall cause each of its Subsidiaries to, (i) maintain liability and worker's compensation insurance with financially sound and reputable insurers (or maintain a legally sufficient, fully funded, program 48 of self insurance against worker's compensation liabilities), and also maintain adequate insurance on its properties against such hazards and in at least such amounts as is customary in the business, and (ii) name the Agent as loss payee or additional insured, as its interest may appear, on each of such insurance policies. At the request of any Lender, the Company will forthwith deliver an officer's certificate specifying the material details of such insurance in effect. SECTION 5.05 Maintenance of Books; Inspection of Property and Records. The Company shall, and shall cause each of its Subsidiaries to, keep proper books of record and account containing complete and accurate entries in all material respects of all of their respective financial and business transactions and prepare or cause to be prepared its annual statements and reports in accordance with GAAP. The Company shall, and shall cause each of its Subsidiaries to, permit any person designated by any Lender to visit and inspect any of its properties, corporate books and financial records, to make copies and take extracts therefrom, and to discuss its accounts, affairs, and finances with the principal officers of the Company and such Subsidiary during reasonable business hours, all at such times as the Lenders may reasonably request; provided, however, that any time following the occurrence and continuance of an Event of Default, no prior notice to the Company and such Subsidiary shall be required. The Company shall, and shall cause each of its Subsidiaries to, prepare or cause to be prepared its interim statements and reports in accordance with GAAP, subject to usual and customary year end audit and adjustments and footnote disclosures. SECTION 5.06 Existence and Status. The Company shall, and shall cause each of its Subsidiaries that is a corporation to, maintain its corporate existence, its material rights, franchises and licenses (for the scheduled duration thereof), its patents, trademarks, trade names, service marks and other intellectual property rights necessary or desirable in the normal conduct of its business, its good standing in its state of incorporation and its qualification and good standing as a foreign corporation in all jurisdictions where its ownership of property or its business activities cause such qualification to be required and the failure to do so could have a Materially Adverse Effect. The Company shall cause each Subsidiary that is not a corporation to maintain its present form of existence, its material rights, franchises and licenses (for the scheduled duration thereof), its patents, trademarks, tradenames, service marks and other intellectual property rights necessary or desirable in the normal conduct of its business, its good standing in the jurisdiction of its constitution and its qualification and good standing as a foreign entity in all jurisdictions where its ownership of property or its business activities cause such qualification to be required and the failure to do so could have a Materially Adverse Effect. SECTION 5.07 Taxes and Claims. The Company shall, and shall cause each of its Subsidiaries to, pay and discharge (i) all Taxes prior to the date on which penalties attach thereto, and (ii) all claims (including, without limitation, claims for labor, materials, supplies or services) (collectively "Other Claims") which, if unpaid, might become a Lien upon any of its property; provided, however, that the Company and its Subsidiaries shall not be required to pay and discharge any such Tax or Other Claim so long as the legality or amount thereof shall be promptly contested in good faith and by appropriate proceedings which 49 effectively stay the enforcement of any Lien and the attachment of a penalty and the Company or such Subsidiary, as the case may be, shall have set aside appropriate reserves therefor in accordance with GAAP. SECTION 5.08 Compliance with Laws, Etc. The Company shall, and shall cause each of its Subsidiaries to, comply with all Applicable Law (including, without limitation, the Environmental Laws and Employee Benefit Laws) and Contractual Obligations applicable to or binding on any of them where the failure to comply with such Applicable Law and Contractual Obligations would reasonably be expected to have a Materially Adverse Effect. SECTION 5.09 ERISA. The Company shall, and shall cause each of its Subsidiaries to, deliver to each of the Lenders: (a) Promptly after the discovery of the occurrence thereof with respect to any Plan, or any trust established thereunder, notice of (A) a "reportable event" described in Section 4043 of ERISA and the regulations issued from time to time thereunder (other than a "reportable event" not subject to the provisions for 30-day notice to the PBGC under such regulations), or (B) any other event which could subject the Company or any ERISA Affiliate to any material tax, penalty or liability under Title I or Title IV of ERISA or Chapter 43 of the Code; (b) At the same time and in the same manner as such notice must be provided to the PBGC, or to a Plan participant, beneficiary or alternative payee, any notice required under Section 101(d), 302(f)(4), 303(e), 307(e), 4041(b)(1)(A) or 4041(c)(1)(A) of ERISA or Section 412(f) of the Code with respect to any Plan; and (c) Upon the request of any Lender, (A) true and complete copies of any and all documents, government reports and determination or opinion letters (if any) for any Plan, or (B) a current statement of withdrawal liability for each Multiemployer Plan. SECTION 5.10 Litigation. The Company shall give prompt written notice to each of the Lenders of (a) any judgment entered by a court, tribunal, administrative agency or arbitration panel in which the amount of liability is $250,000 or more in excess of insurance coverage, or in which the aggregate amount of liability is $500,000 or more in excess of insurance coverage, and (b) any disputes which may exist between the Company or any of its Subsidiaries and any governmental or regulatory body, in which the amount in controversy is $250,000 or more and which may materially and adversely affect the normal business operations of the Company or any of its Subsidiaries or any of their respective properties and assets. The Company shall provide each of the Lenders, on a quarterly basis, concurrently with the delivery of the Compliance Certificate as provided under Section 5.02(a)(ii), a report which shall set forth each action, proceeding or claim, of which the Company or any of its Subsidiaries has notice, which is commenced or asserted against the Company, and in which the amount claimed or the potential liability is $250,000 or more. 50 SECTION 5.11 Notice of Events of Default. The Company shall deliver to each of the Lenders within five (5) days after any Executive Officer obtains any knowledge of any condition, event or act which creates or causes a Default or an Event of Default, a certificate signed by an officer of the Company specifying the nature thereof, the period of existence thereof and what action the Company or such Subsidiary proposes to take with respect thereto. SECTION 5.12 Stockholder Reports, etc. Contemporaneously with the sending or filing thereof, the Company will provide to the Agent for distribution to each of the Lenders copies of all proxy statements, financial statements, and reports which the Company sends to its stockholders, and copies of all regular, periodic, and special reports, and all statements which the Company files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or with any national securities exchange. SECTION 5.13 Future Guarantors. (a) Subject to any prohibitions or limitations as to power or authority imposed by law applicable to any such Subsidiary, the Company shall cause (1) each Person incorporated or otherwise organized in the United States that hereafter becomes a Subsidiary (an "Additional Guarantor") to become a Guarantor under the Guaranty Agreement and to create a security interest in favor of the Lenders in all of its assets, including, to the extent owned by such Guarantor, 100% of the stock of other Subsidiaries, to the Agent upon the creation of such Additional Guarantor by executing and delivering to the Agent the Supplemental Documents; and (2) each Person that owns the stock of the Additional Guarantor to pledge and deliver such stock to the Agent, together with a supplement to the Company Pledge Agreement or Guarantor Pledge Agreement, as the case may be, and with stock powers or other appropriate instruments of transfer executed by such Person in blank. (b) The Additional Guarantor shall also deliver to the Agent and the Lenders, simultaneously with the Supplemental Documents, (1) Certified Requests for Information or Copies (Form UCC-11) or equivalent reports, showing that there are no effective financing statements which name the Additional Guarantor as debtor and (2) an opinion rendered by legal counsel to such Additional Guarantor and the Person required to pledge the shares of stock of the Additional Guarantor under the Security Documents to the Agent, addressing the types of matters set forth in Exhibit G and Exhibit H hereof and such other matters as the Lenders may reasonably request, addressed to the Agent and the Lenders. SECTION 5.14 Ownership of Guarantors. The Company and its Subsidiaries that own Guarantors shall maintain their percentage ownership of such Guarantors existing as of the date hereof and shall not decrease its ownership percentage in each Additional Guarantor pursuant to Section 5.13 after the date hereof, as such ownership exists at the time such Additional Guarantor becomes a Guarantor hereunder. 51 SECTION 5.15 Interest Rate Protection. The Company shall enter into and maintain until the Commitment Termination Date an agreement providing for payments which are related to fluctuations of interest rates by which the Company is protected against changes in the variable rates of interest payable on its indebtedness as to a notional amount of approximately fifty percent (50%) of Senior Funded Debt less the aggregate outstanding amount of Subordinated Debt with one or more Lenders. SECTION 5.16 Cost of Products Sold. The Company shall calculate Cost of Products Sold in a manner consistent with its calculations prior to the Closing Date and shall include in such calculation all of the line items set forth on Schedule 1.01. ARTICLE VI NEGATIVE COVENANTS So long as any Note shall remain unpaid or any Lender shall have any Commitment hereunder, without the written consent of the Required Lenders (unless otherwise provided herein): SECTION 6.01 Limitation on Liens and Security Interests. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist, any Lien or other encumbrance of any kind on any of its properties or assets, real or personal, wherever located, including assets hereafter acquired, except (a) Liens existing on the date hereof and described on Schedule 6.01; (b) Liens in favor of the Agent; (c) Liens for Taxes not yet payable or being contested in good faith and by appropriate proceedings; (d) deposits or pledges to secure payments of workmen's compensation, unemployment insurance, old age pension and other social security obligations; (e) mechanics', carriers', workmen's, repairmen's, landlord's, or other Liens arising in the ordinary course of business securing obligations which are not overdue for a period longer than 60 days, or which are being contested in good faith by appropriate proceedings; (f) pledges or deposits to secure performance in connection with bids, tenders, contracts (other than contracts for the payment of money) or leases made in the ordinary course of the business of the Company or any of its Subsidiaries; 52 (g) deposits to secure, or in lieu of, surety and appeal bonds to which the Company or a Subsidiary of the Company is a party; (h) deposits in connection with the prosecution or defense of any claim in any court or before any administrative commission or agency; (i) Liens arising out of judgments or awards with respect to which the Company or a Subsidiary of the Company at the time shall in good faith be diligently prosecuting an appeal or proceedings for review and with respect to which it shall have secured a stay of execution pending such appeal or proceedings for review; (j) purchase money security interests, and leases in the nature thereof, for equipment and machinery or mortgages for real estate, in each case purchased in the ordinary course of business and to be used in the conduct of its business, provided that any such security interest or mortgage secures only the repayment of the purchase price of such machinery, equipment or real estate and any such lease obligations do not exceed the purchase price of such machinery, equipment or real estate; (k) Liens on fixtures in connection with existing mortgages on real property or mortgages permitted hereunder; (l) zoning restrictions, easements, licenses, reservations and restrictions on the use of real property or minor irregularities thereto that do not materially detract from the use thereof or the assets of the Company; and (m) Liens incurred on pledges or deposits in connection with workers' compensation, unemployment insurance, old age or Social Security benefits. SECTION 6.02 Indebtedness. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Indebtedness, other than: (a) Indebtedness evidenced by this Agreement and by the Notes; (b) Indebtedness outstanding on the date hereof which is set forth on Schedule 4.07 hereto and any refinancings thereof in a principal amount equal to, and on terms and conditions substantially similar to, such Indebtedness, as reasonably determined by the Agent and Indebtedness to be issued after the Closing Date pursuant to the Third Amendment to Senior Subordinated Debt in aggregate amount not to exceed $5,000,000; (c) secured Indebtedness to the extent permitted by clause (j) of Section 6.01 above; 53 (d) unsecured current liabilities (not resulting from any borrowing) incurred in the ordinary course of business for current purposes and not represented by a promissory note or other evidence of indebtedness; (e) Indebtedness related to interest rate swaps or hedges, or to hedge the Company's variable interest rate exposure; (f) Indebtedness incurred and consented to in writing by the Lenders; or (g) Indebtedness incurred by the Company to make acquisitions that are permitted by Section 6.08(b), in the form of notes issued to the seller of the stock or assets, which notes shall be subordinated to the Obligations on terms and conditions satisfactory to the Lenders. SECTION 6.03 Compliance with ERISA. The Company shall not take or fail to take, or permit any of its Subsidiaries or ERISA Affiliates to take or fail to take, any action with respect to a Plan including, but not limited to, (i) establishing any Plan, (ii) amending any Plan, (iii) terminating or withdrawing from any Plan, or (iv) incurring an "amount of unfunded benefit liabilities", as defined in Section 4001(a)(18) of ERISA, or any withdrawal liability under Title IV of ERISA, where such action or failure could have a Materially Adverse Effect, result in a Lien on the property of the Company or any of its Subsidiaries or require the Company or any of its Subsidiaries to provide any security, except to the extent permitted pursuant to Section 6.01 hereof. SECTION 6.04 Sale and Leaseback. The Company shall not, and shall not permit any of its Subsidiaries to, enter into any transaction with any other entity whereby such other entity leases assets sold or otherwise transferred to it by the Company or such Subsidiary. SECTION 6.05 Transactions with Affiliates. The Company shall not, and shall not permit any of its Subsidiaries to: (a) Enter into any material transaction or series of related transactions which in the aggregate would be material, whether or not in the ordinary course of business, with any affiliate of the Company or any of its Subsidiaries (but excluding any affiliate which is the Company or any of its Subsidiaries), other than on terms and conditions substantially as favorable to the Company or such Subsidiary as would be obtained by the Company or such Subsidiary at the time in a comparable arm's-length transaction with a Person other than an affiliate. (b) Convey or transfer to any other Person (including the Company or any of its Subsidiaries) any real property, buildings, or fixtures used in the manufacturing or production operations of the Company or any of its Subsidiaries, or convey or transfer to the Company or any of its Subsidiaries any other assets (excluding conveyances or transfers in the ordinary 54 course of business) if at the time of such conveyance or transfer any Default or Event of Default exists or would exist as a result of such conveyance or transfer. SECTION 6.06 Guaranties. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume, guarantee, suffer to exist or otherwise become liable on or with respect to, directly or indirectly, any guaranties other than: (a) endorsements of instruments for deposit or collection in the ordinary course of business; or (b) guarantees of Indebtedness owed by any Consolidated Company to another Consolidated Company. SECTION 6.07 Limitations on Payment Restrictions. Except as provided under the Senior Subordinated Debt, the Company shall not, and shall not permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective, any consensual encumbrance or restriction on the ability of the Company or any of its Subsidiaries to (i) pay dividends or make any other distributions on stock of the Company or any of its Subsidiaries, (ii) pay any indebtedness owed to the Company or any of its Subsidiaries, or (iii) transfer any of its property or assets to the Company or any of its Subsidiaries except any consensual encumbrance or restriction existing under the Loan Documents. SECTION 6.08 Merger; Joint Ventures; Sale of Assets; Acquisitions. The Company shall not, and shall not permit any of its Subsidiaries to: (a) merge or consolidate with any other entity, except the foregoing restrictions shall not be applicable to: (i) mergers or consolidations of (x) any Subsidiary with any other Subsidiary which is a Guarantor or (y) any Subsidiary with the Company; or (ii) mergers or consolidations in which any Person engaged in business in which the Company is engaged as of the Closing Date or substantially related thereto merges or consolidates with the Company or any of its Subsidiaries where the surviving corporation is the Company or such Subsidiary; (b) purchase, lease or otherwise acquire for cash, stock or other consideration, the stock of any Person or all or any substantial portion of the assets of any Person, provided, that the Company may acquire stock or all or a substantial portion of the assets of a Person if the purchase price for all such acquisitions, whether in cash, stock or other consideration, does not exceed $1,000,000 in the aggregate; or (c) enter into a partnership or joint venture with any other entity; provided, however, that so long as no Event of Default has occurred, the Company or any of its 55 Subsidiaries may request that the Required Lenders consent to its entering into a partnership or joint venture for the purposes of carrying on its business; or (d) sell, lease, transfer or otherwise dispose of any assets, except that this Section 6.08 shall not prohibit any disposition of (i) any asset if on the date such asset is sold, the Asset Value of all asset sales occurring after the Closing Date, taking into account the Asset Value of the proposed asset sale, would not exceed on an aggregate basis five percent (5%) of the Consolidated Net Worth of the Company and its Subsidiaries on the Closing Date and such sale is in the ordinary course of business, (ii) any obsolete or retired property not used or useful in its business (such assets to include high-pressure tanks, motorized vehicles, including cars and trucks, and lines of business other than carbon dioxide that may be obtained by the Company as part of the group of assets of any corporation or other business entity the Company may acquire) or (iii) certain other sales to be agreed upon in writing by the Company and the Required Lenders. SECTION 6.09 Dividends; Loans, Advances. (a) In any fiscal year of the Company, the Company shall not pay or declare any cash dividends on any of its capital stock. (b) The Company shall not, and shall not permit any of its Subsidiaries to, make, permit or hold any loans or advances (not including accounts receivable) to any Person, other than: (i) Investments in Subsidiaries existing on the Closing Date; (ii) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, in each case supported by the full faith and credit of the United States and maturing within one year from the date of creation thereof; (iii) commercial paper maturing within one year from the date of creation thereof rated in the highest grade by a nationally recognized credit rating agency; (iv) time deposits maturing within one year from the date of creation thereof with, including certificates of deposit issued by any Lender and any office located in the United States of any bank or trust company which is organized under the laws of the United States or any state thereof and has total assets aggregating at least $500,000,000, including without limitation, any such deposits in Eurodollars issued by a foreign branch of any such bank or trust company; (v) Investments made by Plans; (vi) advances made by the Company or any of its Subsidiaries to its 56 employees during the ordinary course of business, and loans made by the Company to its employees to allow such employees to purchase stock of the Company (such loans to be evidenced by a promissory note and pledged to the Agent pursuant to the terms of the Security Documents); provided that the aggregate total of such advances made by the Company to its employees under this Subsection shall not exceed $1,000,000 at any time; and (vii) deposits made by the Company in connection with acquisitions of other business entities. SECTION 6.10 Nature of Business. The Company shall not, and shall not permit any of its Subsidiaries to, engage in any business or businesses other than those engaged in by the Company or such Subsidiary on the date hereof; provided, however, that nothing herein contained shall prevent the Company or any of its Subsidiaries (i) from expanding the location of its business or businesses in the United States, (ii) from ceasing or omitting to exercise any rights, licenses, permits, or franchises which in good faith in the judgment of the Company or such Subsidiary can no longer be profitably exercised, or (iii) from engaging in a business or businesses that are ancillary to those engaged in by the Company or such Subsidiary on the date hereof. SECTION 6.11 Sale of Subsidiaries. The Company shall not, and shall not permit any of its Subsidiaries to, sell or otherwise dispose of any shares of capital stock of or other ownership interest in any Subsidiary of the Company (except in connection with any acquisition, merger or consolidation permitted by Section 6.08), or permit any Subsidiary of the Company to issue any additional shares of its capital stock or other incidents of ownership, except on a pro rata basis to all its stockholders, partners or owners, as the case may be and provided that any such additional shares of capital stock or other incidents of ownership issued to the Company, any Guarantor or Additional Guarantor are pledged to the Agent. SECTION 6.12 Negative Pledges. The Company shall not, and shall not permit any of its Subsidiaries to, agree or covenant with any Person to restrict in any way its ability to grant any Lien on its assets in favor of the Lenders, except that this Section 6.12 shall not apply to (i) any covenants contained in this Agreement or the Security Documents, (ii) the covenants contained in Section 8.02 of the Senior Subordinated Note Purchase Agreement, and (iii) covenants and agreements made in connection with Liens described in Section 6.01(j) but only if such covenant or agreement applies solely to the specific machinery, equipment or real estate to which such Lien relates. SECTION 6.13 Creation of Subsidiaries. Neither the Company nor any of its Subsidiaries shall create or acquire any other Subsidiary or any other affiliate after the Closing Date. SECTION 6.14 Prepayments Under and Amendment of Other Agreements. The Company shall not, and shall not permit any of its Subsidiaries to, make any prepayments 57 under any Subordinated Debt document or amend or waive any material terms or conditions under any Subordinated Debt document, or repurchase any notes issued in connection with any Subordinated Debt without the written consent of the Required Lenders, provided that no such consent shall be required with respect to the cancellation or reduction by the Company of any Commitment of the investors party to the Senior Subordinated Note Purchase Agreement to purchase additional Senior Subordinated Debt in excess of the $10,000,000 pursuant to the Third Amendment to Senior Subordinated Debt, after the date hereof. SECTION 6.15 Capital Expenditures. The Company shall not, and shall not permit any of its Subsidiaries to, make Capital Expenditures during any period in excess of the amount listed for such period on Annex B attached hereto. ARTICLE VII FINANCIAL COVENANTS So long as any Note shall remain unpaid or any Lender shall have any Commitment hereunder, without the consent of the Required Lenders: SECTION 7.01 Senior Debt Coverage Ratio. The Company shall not permit the Senior Debt Coverage Ratio as of the last day of each fiscal quarter to be greater than (i) 3.65 to 1.00 for the period beginning on the Closing Date through and including June 30, 1999; (ii) 3.35 to 1.00 for the period beginning July 1, 1999 through and including September 30, 1999; (iii) 3.00 to 1.00 for the period beginning October 1, 1999 through and including March 31, 2000; (iv) 2.75 to 1.00 for the period beginning April 1, 2000 through and including June 30, 2000; and (v) 2.50 to 1.00 thereafter. SECTION 7.02 Interest Coverage Ratio. The Company shall not permit the Interest Coverage Ratio as of the last day of any fiscal quarter of the Company to be less than (i) 1.30 to 1.00 for the period beginning on the Closing Date through and including June 30, 1999; (ii) 1.50 to 1.00 for the period beginning July 1, 1999 through and including September 30, 1999; (iii) 1.75 to 1.00, for the period beginning October 1, 1999 through and including December 31, 1999; (iv) 2.25 to 1.00 for the period beginning January 1, 2000 through and including March 31, 2000; (v) 2.50 to 1.00 for the period beginning April 1, 2000 through and including June 30, 2000; and (vi) 2.75 to 1.00 thereafter. SECTION 7.03 Senior Debt Leverage Ratio. The Company shall not permit the Senior Debt Leverage Ratio as of the last day of any fiscal quarter to be greater than 0.50 to 1.00. SECTION 7.04 Minimum Net Worth. The Company shall at all times maintain its Net Worth greater than the Minimum Net Worth, equal to (i) $45,000,000, plus (ii) fifty percent (50%) of the cumulative Consolidated Net Income for each fiscal quarter beginning after the fiscal quarter 58 ending on March 31, 1999 (specifically not including any Consolidated Net Loss for any fiscal quarter), plus (iii) the cumulative net proceeds of all equity offerings made by the Company after the Closing Date. ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES SECTION 8.01 Events of Default. Any one or more of the following shall constitute an Event of Default hereunder: (a) The Company shall fail to pay any principal amount owing when due pursuant to this Agreement or the Notes; or (b) The Company shall fail to pay any interest, fees, or any other amounts owing pursuant to this Agreement or the Notes within three (3) Business Days of the due date thereof; or (c) The Company shall fail to perform or observe any covenant or agreement contained in Section 5.02 , Section 5.04 or Section 6.03, if remaining unremedied for a period of ten (10) days after (x) an Executive Officer becomes aware of such failure or (y) the Agent or any Lender gives notice to the Company as provided under Section 10.03; or (d) The Company shall fail to perform or observe any covenant or agreement contained in Section 5.11, Article VI (other than Section 6.03) and Article VII; or (e) The Company shall fail to perform or observe any other covenant or agreement set forth in this Agreement, other than those referred to in clauses (a), (b), (c) and (d) above, and (to the extent such failure can be remedied) such failure of performance shall not be remedied within thirty (30) days after the earlier of the date on which (1) the Company obtains knowledge thereof and (2) written notice thereof has been given by the Agent to the Company; or (f) Any representation, warranty or statement made by or on behalf of the Company or any Guarantor to the Agent or any Lender in this Agreement, the Company Security Agreement, the Company Pledge Agreement, the Company Trademark Security Agreement, the Guarantor Security Agreement, the Guarantor Pledge Agreement, the Guarantor Trademark Security Agreement, the Mortgage and the Assignment of Leases shall be in any respect incorrect, false or misleading as of the time at which such representation or warranty was given, or any representation, warranty or statement made by or on behalf of the Company or any Guarantor to the Agent or any Lender in any other Loan Documents or in any financial statement, report or certificate furnished pursuant to this Agreement shall be in any material 59 respect incorrect, false or misleading as of the time at which such representation, warranty or statement was made; or (g) The Company or any of its Subsidiaries fails to make any payment as and when such payment is due upon any Indebtedness having an aggregate unpaid principal balance in excess of $250,000, other than Indebtedness owing or arising pursuant to this Agreement and the Notes, or any other default, event or condition shall have occurred or exist with respect to any such other Indebtedness, or under any agreement or instrument evidencing, securing or related to such other Indebtedness, the effect of which is to cause, or to permit the holder or owner of such Indebtedness to cause, such Indebtedness or any portion thereof, to become due prior to its stated maturity date or prior to its regularly scheduled dates of payment; or (h) The Company or any of its Subsidiaries defaults in the observance or performance of any Material Contract; or (i) The Company or any of its Subsidiaries makes an assignment for the benefit of its creditors or files a voluntary petition seeking relief under any provision of any bankruptcy, reorganization, arrangement, insolvency or readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect; or (j) Any involuntary petition is filed against the Company or any of its Subsidiaries under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect, and such petition shall remain undismissed for a period of sixty (60) days or the Company approves, consents or acquiesces thereto; or (k) The Company incurs any liability or is exposed to any potential liability under any employee benefit plan that has or would have a Materially Adverse Effect; or (l) Final judgment for the payment of money in excess of $250,000 (not fully covered by insurance) or otherwise having a Materially Adverse Effect shall have been rendered against the Company or any of its Subsidiaries and the same shall have remained unpaid, unstayed on appeal, undischarged, or undismissed for a period of sixty (60) days, or such longer period as may be permitted by Applicable Law, during which execution may not be made, provided no judgment Lien has attached or continues to attach to the assets of the Company or such Subsidiary during such longer period; or (m) Any Change in Control occurs; or (n) Edward M. Sellian shall cease to function as the Company's chief executive officer or chairman of the board or shall cease to devote his full time and attention thereto (other than due to his death or disability); or 60 (o) Any change occurs which has had or could reasonably be expected to have a Materially Adverse Effect. SECTION 8.02 Remedies on Default. (a) Upon (i) the occurrence and during the continuation of an Event of Default (other than an Event of Default described in Section 8.01(i) or (j)) and (ii) the receipt of written instructions by the Agent from any Lender, the Agent shall (x) terminate all obligations of the Lenders to the Company, including, without limitation, the Commitments and all obligations to make Advances under this Agreement, and (y) declare the Notes, including, without limitation, principal, accrued interest and costs of collection (including, without limitation, reasonable attorneys' fees if collected by or through an attorney at law or in bankruptcy, receivership or other judicial proceedings) and all other Obligations immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are expressly waived. (b) Upon the occurrence of an Event of Default under Section 8.01(i) or (j) all obligations of the Lenders to the Company, including, without limitation, the Commitments, shall terminate automatically and the Notes, including, without limitation, principal, accrued interest and costs of collection (including, without limitation, reasonable attorneys' fees if collected by or through an attorney at law or in bankruptcy, receivership or other judicial proceedings) and all other Obligations shall be immediately due and payable, without presentment, demand, protest, or any other notice of any kind, all of which are expressly waived. (c) Upon the occurrence of an Event of Default and acceleration of the Notes as provided in (a) or (b) above, each of the Lenders and the Agent, or any of them, may pursue any remedy available under this Agreement, the Notes, the Security Documents or any other Loan Document, or available at law or in equity, all of which shall be cumulative. The order and manner in which the rights and remedies of the Lenders under the Loan Documents and otherwise may be exercised shall be determined by the Required Lenders. (d) Regardless of how each Lender may treat the payments for the purpose of its own accounting, for the purpose of computing the Company's obligations hereunder and under the Notes, no application of the payments will cure any Event of Default or prevent acceleration, or continued acceleration, of amounts payable under the Loan Documents or prevent the exercise, or continued exercise, of rights or remedies of the Lenders hereunder or under applicable law. ARTICLE IX THE AGENT SECTION 9.01 Appointment and Authorization. Each Lender hereby designates SunTrust as Agent to act as herein specified. Each Lender hereby irrevocably 61 authorizes, and each holder of any Revolving Note or by the acceptance of a Revolving Note shall be deemed irrevocably to authorize, the Agent to take such action on its behalf under the provisions of this Agreement and the Revolving Notes and any other instruments and agreements referred to herein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or employees. SECTION 9.02 Nature of Duties of the Agent. The Agent shall have no duties or responsibilities to the other Lenders except those expressly set forth in this Agreement. Neither the Agent nor any of its officers, directors, employees or agents shall be liable for any action taken or omitted by it as such hereunder or in connection herewith, unless caused by its or their gross negligence or willful misconduct. The Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender; and nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement except as expressly set forth herein. The Agent agrees to give each Lender prompt notice of the Agent's receipt from the Company of any notice under this Agreement. SECTION 9.03 Lack of Reliance on the Agent. (a) Each Lender agrees that, independently and without reliance upon the Agent, any other Lender, or the directors, officers, agents or employees of the Agent or of any other Lender, each Lender, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its Subsidiaries in connection with the taking or not taking of any action in connection with this Agreement and the other Loan Documents, including the decision to enter into this Agreement, and (ii) its own appraisal of the creditworthiness of the Company and its Subsidiaries and, except as expressly provided in this Agreement, the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of any Advance or at any time or times thereafter. (b) The Agent shall not be responsible to any Lender for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, priority or sufficiency of this Agreement or any other Loan Documents or the financial condition of the Company or its Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Loan Documents, or the financial condition of the Company or its Subsidiaries, or the existence or possible existence of any Default or Event of Default. 62 SECTION 9.04 Certain Rights of the Agent. (a) If the Agent shall request instructions from the Required Lenders with respect to any act or action (including the failure to act) in connection with this Agreement or any other Loan Documents, the Agent shall be entitled to refrain from such act or taking such action unless and until the Agent shall have received instructions from the Required Lenders and the Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders; provided, however, that the Agent shall not be required to act or not act in accordance with any instructions of the Required Lenders if to do so would expose the Agent to personal liability or would be contrary to any Loan Document or to Applicable Law. (b) The Agent may assume that no Event of Default has occurred and is continuing, unless the Agent has received notice from the Company stating the nature of the Event of Default, or has received notice from a Lender stating the nature of the Event of Default and that such Lender considers the Event of Default to have occurred and to be continuing. (c) If the Agent has notice, or has received notice, that an Event of Default has occurred and is continuing, the Agent shall give notice thereof to the Lenders and shall act or not act upon the instructions of the Required Lenders, provided that the Agent shall not be required to act or not act if to do so would expose the Agent to personal liability or would be contrary to any Loan Document or to Applicable Law, and provided further, that if the Required Lenders fail, for five days after the receipt of notice from the Agent, to instruct the Agent, then the Agent, in its discretion, may act or not act as it deems advisable for the protection of the interests of the Lenders and shall be fully protected in so acting. SECTION 9.05 Liability of the Agent. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or not taken by them under or in connection with the Loan Documents, except for their own gross negligence or willful misconduct. Without limitation on the foregoing, the Agent and its directors, officers, agents, and employees: (a) may treat the payee of any Revolving Note as the holder thereof until the Agent receives notice of the assignment or transfer thereof in form satisfactory to the Agent, signed by the payee, and may treat each Lender as the owner of that Lender's interest in the obligations due to such Lender for all purposes of this Agreement and the other Loan Documents until the Agent receives notice of the assignment or transfer thereof, in form satisfactory to the Agent, signed by such Lender; (b) may consult with outside legal counsel (including King & Spalding), in-house legal counsel, independent public accountants, in-house accountants and other professionals, or other experts selected by it with reasonable care, or with legal counsel, independent public accountants, or other experts for the Company, and shall not be liable for any 63 action taken or not taken by it or them in good faith in accordance with the advice of such legal counsel, independent public accountants, or experts; (c) will not be responsible to any Lender for any statement, warranty, or representation made in any of the Loan Documents or in any notice, certificate, report, request, or other statement (written or oral) in connection with any of the Loan Documents; (d) except to the extent expressly set forth in the Loan Documents, will have no duty to ascertain or inquire as to the performance or observance by the Company or any of its Subsidiaries or any other Person of any of the terms, conditions, or covenants of any of the Loan Documents or to inspect the property, books, or records of the Company or any of its Subsidiaries or other Person; (e) will not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, effectiveness, sufficiency, or value of any Loan Document, any other instrument or writing furnished pursuant thereto or in connection therewith; (f) will not incur any liability by acting or not acting in reliance upon any Loan Document, notice, consent, certificate, document, statement, telex, telecopier message or other instrument or writing believed by it or them to be genuine and to have been signed, sent or made by the proper Person; and (g) will not incur any liability for any arithmetical error in computing any amount payable to or receivable from any Lender hereunder, including, without limitation, payment of principal and interest on the Revolving Notes, Advances and other amounts; provided that promptly upon discovery of such an error in computation, the Agent, the Lender and (to the extent applicable) the Company shall make such adjustments as are necessary to correct such error and to restore the parties to the position that they would have occupied had the error not occurred. SECTION 9.06 Indemnification. Each Lender shall, ratably in accordance with the respective outstanding principal amount of its Advances, indemnify and hold the Agent and its directors, officers, agents and employees harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, attorneys' fees and disbursements) that may be imposed on, incurred by, or asserted against it or them in any way relating to or arising out of the Loan Documents (other than losses incurred by reason of the failure by the Company to pay the obligations due to the Lenders hereunder or under the Revolving Notes) or any action taken or not taken by it as Agent thereunder, except for the gross negligence or willful misconduct of the Agent. Without limitation of the foregoing, each Lender shall reimburse the Agent upon demand for that Lender's ratable share of any cost or expense incurred by the Agent in connection with the negotiation, preparation, execution, delivery, administration, amendment, waiver, refinancing, restructuring, reorganization (including a 64 bankruptcy reorganization) or enforcement of the Loan Documents, to the extent that the Company is required to pay that cost or expense but fails to do so upon demand. SECTION 9.07 Agent and Affiliates. SunTrust (and each successor Agent) has the same rights and powers under the Loan Documents as any other Lender and may exercise the same as though it were not the Agent; and the term "the Lenders" or "Lender" includes SunTrust in its individual capacity. SunTrust (and each successor Agent) and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Company and any Affiliate of the Company, as if it were not the Agent and without any duty to account therefor to the Lenders. SunTrust (and each successor Agent) need not account to any other Lender for any monies received by it for reimbursement of its costs, expenses and fees as the Agent hereunder, or for any monies received by it in its capacity as a Lender hereunder, except as otherwise provided herein. This Agreement shall not be deemed to constitute a joint venture or partnership among the Lenders. SECTION 9.08 Successor Agent. The Agent may resign as such at any time by written notice to the Company and the Lenders, to be effective upon a successor's acceptance of appointment as Agent. In such event, the Required Lenders shall appoint a successor Agent or Agents who must be from among the Lenders; provided that the Agent shall be entitled to appoint a successor Agent from among the Lenders, subject to acceptance of appointment by that successor Agent if the Required Lenders have not appointed a successor Agent within thirty (30) calendar days after the date the Agent gave notice of resignation or was removed; and provided further that if no such successor Agent is appointed from among the Lenders, an Agent who is not a Lender may be appointed, which shall be a bank organized under the laws of the United States of America or any State thereof, or any affiliate of such bank, having a combined capital and surplus of at least $500,000,000. Upon a successor's acceptance of appointment as Agent the successor will thereupon succeed to and become vested with all the rights, powers, privileges, and duties of the Agent under the Loan Documents, and the resigning Agent will thereupon be discharged from its duties and obligations thereafter arising under the Loan Documents. ARTICLE X MISCELLANEOUS SECTION 10.01 Survival. All covenants, agreements, warranties and representations made herein, in the other Loan Documents, or in any certificates or other documents delivered in connection with this Agreement by or on behalf of the Company or any Guarantor shall survive the advances of money made by the Lenders to the Company hereunder and the delivery of this Agreement and the other Loan Documents, and all such covenants, agreements, warranties and representations shall be binding upon and inure to the benefit of the Company, the Guarantors, the Lenders, the Agent, and their respective successors and assigns, 65 whether or not so expressed, provided, however, that the Company may not assign or transfer any of its rights under this Agreement without the prior written consent of each of the Lenders. SECTION 10.02 Amendments; Consents. No amendment, modification, supplement, termination, or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Company, any Guarantor or any Subsidiary of the Company therefrom, may in any event be effective unless in writing signed by the Required Lenders, and then only in the specific instance and for the specific purpose given; provided, however, that without the approval in writing of all Lenders, no amendment, modification, supplement, termination, waiver, or consent may be effective: (a) to amend or modify the principal of, the rate of interest payable on, or any fees with respect to, any Lender's Note, the Fees or the amount of any Lender's Commitment; (b) to postpone any date fixed for any payment of principal of, or any installment of interest on, any Lender's Notes or the Fees, or to extend the term "Commitments" of any Lender's Commitment; (c) to amend or modify the definitions of "Borrowing Base", "Cost of Products Sold", "EBITDA Multiple", "Gross Margin", "Gross Margin Factor", "Revolving Loan Commitment" or "Required Lenders", to amend or modify Schedule 1.01, or the provisions of Section 10.07 or of this Section 10.02; (d) to release any of the Collateral pledged to the Agent for the benefit of, inter alia, the Agent or the Lenders pursuant to the Security Documents to secure the Obligations, if any Obligations are outstanding or any Commitment has not been terminated; (e) to consent to the existence of any other lien, security interest or encumbrance on the Collateral except as otherwise permitted herein; (f) to subordinate any of the Obligations or the Commitments to any other indebtedness of the Company or any of its Subsidiaries; and (g) to release any Guarantor or to consent to the termination or modification of any Guaranty Agreement. Any amendment, modification, supplement, termination, waiver or consent effected in accordance with this Section 10.02 shall apply equally to, and shall be binding upon, all Lenders and the Agent. SECTION 10.03 Notices. All notices, consents, demands and other communications provided for hereunder, unless otherwise provided, shall be in writing and mailed, sent by facsimile transmission or delivered to the parties hereto addressed as follows or 66 at such other address as shall be designated by any party in a written notice to the other party hereto: If to the Company: NuCo2 Inc. 2800 SE Market Place Stuart, Florida 34997 Attn: Ms. Joann Sabatino Chief Financial Officer Telecopier No.: (561) 221-1690 Confirmation No.: (561) 221-1754 with a copy to: Olshan Grundman Frome Rosenzweig & Wolosky LLP 505 Park Avenue New York, New York 10022 Attn: Steven Wolosky, Esq. Telecopier No.: (212) 755-1467 Confirmation No.: (212) 753-7200 If to the Agent: SunTrust Bank, South Florida, National Association 501 E. Las Olas Blvd. Ft. Lauderdale, Florida 33301 Attn: Corporate Banking Department Telecopier No.: (954) 765-7301 Confirmation No.: (954) 765-7152 with a copy to: King & Spalding 191 Peachtree St. Atlanta, Georgia 30303 Attn: G. Lemuel Hewes, Esq. Telecopier No.: 404-572-5149 Confirmation No.: 404-572-4862 67 If to a Lender: The address, telecopier and confirmation numbers set forth opposite its name on the signature pages hereof. All notices that are sent by facsimile transmission or are hand delivered shall be deemed to be delivered upon receipt. All notices which are mailed shall be mailed first class certified mail--return receipt requested, postage prepaid, and shall be deemed delivered upon actual receipt or three days after being deposited in the mail, whichever shall occur first. The parties hereto agree that their signatures by facsimile shall be effective and binding upon them as though executed in ink on paper, and that the parties shall exchange original ink signatures promptly following any such delivery by facsimile. SECTION 10.04 Severability; Time of Essence. Every provision of this Agreement and the other Loan Documents are intended to be severable. If any term or provision of this Agreement or the Loan Documents, or any other document delivered in connection herewith shall be unenforceable in any respect, the enforceability of the remaining provisions shall not thereby be affected. Time is of the essence of this Agreement and the other Loan Documents. SECTION 10.05 Governing Law; Submission to Jurisdiction. (a) THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ALL OTHER DOCUMENTS CONTEMPLATED HEREBY, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND UNDER THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF FLORIDA (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF). (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF FLORIDA OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF FLORIDA, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE TRIAL BY JURY, AND THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. 68 (c) Nothing herein shall affect the right of the Lenders and the Agent to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company in any other jurisdiction. SECTION 10.06 Payment of Costs. The Company shall pay all reasonable costs, expenses, taxes and fees incurred by the Agent in connection with the negotiation, preparation, execution and delivery of this Agreement, the term sheet and the Commitment Letter relating to this Agreement, the Security Documents and all other Loan Documents, including, without limitation, all of the reasonable professional fees and expenses of King & Spalding, special counsel to the Agent, as set forth in the Commitment Letter. SECTION 10.07 Indemnity. The Company agrees to protect, indemnify and save harmless the Agent and each Lender, and all directors, officers, employees and agents of the Agent and each Lender, from and against any and all (i) claims, demands and causes of action of any nature whatsoever brought by any person or entity not a party to this Agreement and arising from or related or incident to this Agreement or any other Loan Document, (ii) costs and expenses incident to the defense of such claims, demands and causes of action, including, without limitation, reasonable attorneys' fees, and (iii) liabilities, judgments, settlements, penalties and assessments arising from such claims, demands and causes of action, provided such claims, costs and liabilities are not the result of the gross negligence or willful misconduct of such Agent or such Lender. The indemnity contained in this Section shall survive the termination of this Agreement. SECTION 10.08 Benefit of the Agreement. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that the Company may not assign or transfer any of its interest hereunder without the prior written consent of the Lenders, and no such assignment or transfer of any such obligations shall relieve the Company of its obligations hereunder unless each Lender shall have consented to such release in a writing specifically referring to the obligation from which the Company is to be released. (b) Any Lender may make, carry or transfer Advances at, to or for the account of, any of its branch offices or the office of an Affiliate of such Lender. Any Lender may at any time assign all or any portion of its rights in this Agreement and the Revolving Notes issued to it to a Federal Reserve Bank; provided that no such assignment shall release the Lender from any of its obligations hereunder. (c) Each Lender may assign or delegate all or a portion of its interests, rights and obligations under this Agreement and the other Loan Documents (including all or a portion of any of its Commitments and the Advances at the time owing to it and the Revolving Notes held by it) to another financial or lending institution or entity; provided, however, that (i) the Agent and the Company must give their prior written consent to such assignment (which 69 consent, in the case of the Company, shall not be unreasonably withheld) unless such assignment is to an Affiliate of the assigning Lender or, in the case of the Company, unless an Event of Default has occurred and is continuing, (ii) such assignment or delegation is complete or is in minimum increments of $5,000,000, and (iii) the parties to each such assignment shall execute and deliver to the Agent an Assignment Agreement, and, together with a Revolving Note or Revolving Notes subject to such assignment and, unless such assignment is to an Affiliate of such Lender, a processing and recordation fee of $3,000. The Company shall not be responsible for such processing and recordation fee or any costs or expenses incurred by any Lender (other than the Agent) in connection with such assignment. From and after the effective date specified in each Assignment Agreement, which effective date shall be at least five (5) Business Days after the execution thereof, the assignee thereunder shall be a party hereto and to the extent of the interest assigned by such Assignment Agreement, have the rights and obligations of a Lender under this Agreement. Within five (5) Business Days after receipt of the notice and the Assignment Agreement, the Company, at its own expense, shall execute and deliver to the Agent, in exchange for the surrendered Revolving Note or Revolving Notes, a new Revolving Note or Revolving Notes to the order of such assignee in a principal amount equal to the applicable Commitments assumed by it pursuant to such Assignment and Acceptance and new Revolving Note or Revolving Notes to the assigning Lender in the amount of its retained Commitment or Commitments. Such new Revolving Note or Revolving Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Revolving Note or Revolving Notes, shall be dated the date of the surrendered Revolving Note or Revolving Notes which they replace, and shall otherwise be in substantially the form attached hereto. (d) Each Lender may from time to time sell or otherwise grant participations in all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including all or a portion of its Commitments and the Advances owing to it and the Revolving Notes held by it) to another financial or lending institution or entity, whereupon the holder of any such participation, if the participation agreement so provides, shall be entitled to all of the rights of a Lender hereunder; provided, however, that (i) the Agent must give its prior written consent to such participation unless such participation is to an Affiliate of such Lender, (ii) such selling Lender's obligations under this Agreement shall remain unchanged, (iii) such selling Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and (iv) the Company, the Agent and other Lenders shall continue to deal solely and directly with each Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents, and such Lender shall retain the sole right to enforce the obligations of the Company relating to the Advances and to approve any amendment, modification or waiver of any provisions of this Agreement or the other Loan Documents. Any Lender selling a participation hereunder shall provide prompt written notice to the Company of the name of such participant. SECTION 10.09 Subordination of Indebtedness. Any Indebtedness of any Guarantor now or hereafter owed to the Company is hereby subordinated in right of payment to the payment by such Guarantor of its Guaranty Obligations such that if a default in the payment 70 of the Obligations shall have occurred and be continuing, any such Indebtedness of such Guarantor owed to the Company, if collected or received by the Company, shall be held in trust by the Company for the holders of the Obligations and be paid over to the Lenders and the Agent for application of such Guarantor's Guaranty Obligations. SECTION 10.10 Maximum Interest Rate. Nothing contained in this Agreement or any Note shall require the Company to pay interest at a rate exceeding the Maximum Permissible Rate. If interest payable to any Lender for any period would exceed the Maximum Permissible Rate, such interest shall be reduced automatically to the maximum amount that will not exceed the Maximum Permissible Rate, and interest payable to any Lender for any subsequent period, to the extent less than the Maximum Permissible Rate, shall, to that extent, be increased by the aggregate amount of all such reductions. SECTION 10.11 Entire Agreement. This Agreement and the other Loan Documents executed and delivered contemporaneously herewith, together with the exhibits and schedules attached hereto and thereto, constitute the entire understanding of the parties with respect to the subject matter hereof, and any other prior or contemporaneous agreements, whether written or oral, with respect thereto, including, without limitation, the Commitment Letter, which is expressly superseded hereby; provided, however, that the indemnities of the Company in favor of the Lenders and SunTrust Equitable Securities Corporation contained in the Commitment Letter shall survive the execution and delivery of this Agreement. The execution of this Agreement and the other Loan Documents by the Company was not based upon any facts or materials provided by the Agent or any Lender, nor was the Company or any Guarantor induced to execute this Agreement or any other Loan Document by any representation, statement or analysis made by the Agent or any Lender. SECTION 10.12 Set-Off. Upon the occurrence and during the continuance of any Event of Default, each Lender, and each of its branches and offices, is hereby authorized by the Company, at any time and from time to time, without notice to the Company (i) to set off against, and to appropriate and apply to the payment of the Obligations (in each case whether matured or unmatured) any and all amounts owing by such Lender, or any such office or branch, to the Company (whether payable in Dollars or any other currency, whether matured or unmatured, and, in the case of deposits, whether general or special, time or demand and however evidenced) and (ii) pending any such action, to the extent necessary, to hold such amounts as collateral to secure such Obligations and Guaranty Obligations and to return as unpaid for insufficient funds any and all checks and other items drawn against any deposits so held as such Lender in its sole discretion may elect. Each Lender shall give the Company notice of its intention to exercise its rights under this Section 10.12; provided, however, that failure by such Lender to give the Company notice shall not prevent such Lender from exercising its rights as provided in this Section. The Company, to the fullest extent it may effectively do so under Applicable Law, agrees that any holder of a participation in any Advance may exercise rights of set-off and counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Company in the amount of such participation. 71 SECTION 10.13 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one and the same instrument. SECTION 10.14 Replacement Notes. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Note, and in the case of any such loss, theft or destruction, upon delivery of any indemnity agreement reasonably satisfactory to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Note, the Company shall execute and deliver, in lieu thereof, a replacement note identical in form and substance to such Note and dated as of the date of such Note, and upon such execution and delivery of the replacement note all references in this Agreement and in all other Loan Documents to the Note shall be deemed to refer to such replacement note. SECTION 10.15 Release. In consideration of the Agent's and the Lenders' agreement to enter into this Agreement and to establish the Commitments hereunder, the Company hereby (a) releases, acquits and forever discharges the Agent and the Lenders, their respective agents, employees, officers, directors, servants, representatives, attorneys, affiliates, successors and assigns (collectively, the "Released Parties") from any and all liabilities, claims, suits, debts, liens, losses, causes of action, demands, rights, damages, costs and expenses of any kind, character or nature whatsoever, known or unknown, fixed or contingent, that the Company may have or claim to have against the Agent and the Lenders which might arise out of or be connected with any act of commission or omission of the Agent or the Lenders existing or occurring on or prior to the date of this Agreement, including, without limitation, any claims, liabilities or obligations relating to or arising out of or in connection with the Loan Documents (including, without limitation, arising out of or in connection with the initiation, negotiation, closing or administration of the transactions contemplated thereby or related thereto), from the beginning of time until the execution and delivery of this Agreement (the "Released Claims") and (b) agrees forever to refrain from commencing, instituting or prosecuting any lawsuit, action or other proceeding against the Released Parties with respect to any and all Released Claims. 72 WITNESS the hand and seal of the parties hereto through their duly authorized officers, as of the date first above written. NUCO2 INC., a Florida corporation Address: By: /s/ Joann Sabatino c/o NuCo2 Inc. ----------------------------- 2800 S.E. Market Place Joann Sabatino Stuart, Florida 34997 Chief Financial Officer and Treasurer Attest: /s/ Eric M. Wechsler -------------------- Eric M. Wechsler General Counsel and Secretary [SIGNATURE PAGE TO THE REVOLVING CREDIT AGREEMENT] SUNTRUST BANK, SOUTH FLORIDA, NATIONAL ASSOCIATION, By: /s/ Russell E. Burnette ---------------------------------- Russell E. Burnette Vice President [SIGNATURE PAGE TO THE REVOLVING CREDIT AGREEMENT] BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC., individually and as Documentation Agent By: /s/ Scott Kray ------------------------------------ Name: Scott Kray Title: Vice President By: /s/ Gary W. Andresen ------------------------------------ Name: Gary W. Andresen Title: Associate [SIGNATURE PAGE TO THE REVOLVING CREDIT AGREEMENT] BANK-LEUMI LE-ISRAEL B.M., MIAMI AGENCY By: /s/ Stephen Hanas ----------------------------------- Name: Steven Hanas Title: Vice President [SIGNATURE PAGE TO THE REVOLVING CREDIT AGREEMENT] THE PROVIDENT BANK By: /s/ Nick Jeviz ----------------------------------- Name: Nick Jeviz Title: Vice President [SIGNATURE PAGE TO THE REVOLVING CREDIT AGREEMENT] EX-10.9 3 FIRST AMENDMENT TO AMENDED AND RESTATED AGREEMENT EXHIBIT 10.9 FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated as of June 16, 1999 (this "Amendment"), by and among NUCO2 INC., a Florida corporation (the "Company"), SUNTRUST BANK, SOUTH FLORIDA, NATIONAL ASSOCIATION, a national banking association ("SunTrust"), BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC., a Delaware corporation (the "Documentation Agent"), THE PROVIDENT BANK, an Ohio banking corporation, BANK LEUMI LE-ISRAEL B.M., Miami Agency, IBJ WHITEHALL BUSINESS CREDIT CORPORATION, a New York corporation, and any other banks or other lending institutions that are or will become parties to this Amendment (collectively, the "Lenders" and each individually, a "Lender"), and SUNTRUST BANK, SOUTH FLORIDA, NATIONAL ASSOCIATION, as agent for the Lenders. PRELIMINARY STATEMENTS The Company, Agent and the Lenders are parties to that certain Amended and Restated Credit Agreement, dated as of May 4, 1999 (the "Credit Agreement"; capitalized terms used herein and not defined herein shall have the meanings assigned to them in the Credit Agreement), pursuant to which the Lenders made and continue to make certain financial accommodations to the Company; and The Company, Agent and the Lenders desire to amend the Credit Agreement on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: 1. Amendments to Credit Agreement. a. Section 10.02 of the Credit Agreement is hereby amended by replacing subsection (c) in its entirety with the following subsection (c): (c) to amend or modify the definitions of "Borrowing Base", "Cost of Products Sold", "EBITDA Multiple", "Gross Margin", "Gross Margin Factor", "Revolving Loan Commitment" or "Required Lenders", to amend or modify Schedule 1.01, or the provisions of Section 2.01 (ii)(E), Section 10.07 or of this Section 10.02; b. Exhibit K to the Credit Agreement is hereby amended by replacing such Exhibit K in its entirety with Annex A attached to this Amendment. 2. Other Agreements. a. Company hereby affirms that each of the representations and warranties of the Company contained in the Credit Agreement and in any of the other Loan Documents (except to the extent that any such representation or warranty expressly relates solely to an earlier date and for changes therein permitted or contemplated by the Credit Agreement) is correct in all material respects on and as of the date hereof and after giving effect to this Amendment. In addition, with respect to this Amendment, the Company warrants and represents that the execution, delivery and performance by the Company of this Amendment (i) are within the Company's corporate or similar power; (ii) have been duly authorized by all necessary or proper corporate or similar action, and shareholder or similar action; (iii) are not in contravention of any provision of the Company's certificate of incorporation or bylaws; (iv) will not violate any law or regulation, or any order or decree of any Governmental Authority; (v) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which the Company is a party or by which the Company or any of its property is bound; (vi) will not result in the creation or imposition of any Lien upon any of the property of the Company other than those in favor of the Agent and the Lenders, all pursuant to the Loan Documents; and (vii) do not require the consent or approval of any Governmental Authority. Company further represents and warrants that this Amendment has been duly executed and delivered for the benefit of or on behalf of the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. b. As amended hereby, all terms of the Credit Agreement and the other Loan Documents shall be and remain in full force and effect and shall constitute the legal, valid, binding and enforceable obligations of the Company to the Agent and the Lenders. To the extent any terms and conditions in any of the other Loan Documents shall contradict or be in conflict with any terms or conditions of the Credit Agreement, after giving effect to this Amendment, such terms and conditions are hereby deemed modified and amended accordingly to reflect the terms and conditions of the Credit Agreement as modified and amended hereby. c. Company hereby restates, ratifies and reaffirms each and every term and condition set forth in the Credit Agreement and the other Loan Documents, effective as of the date hereof, and represents that, after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing as of the date hereof. d. Company agrees to pay on demand all costs and expenses of the Agent and the Lenders in connection with the preparation, execution, delivery and enforcement of this Amendment, the closing hereof, and any other transactions contemplated hereby, including the fees and out-of-pocket expenses of the Agent's counsel. e. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAWS OF CONFLICTS), OF THE STATE OF FLORIDA AND ALL APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. A-2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. NUCO2 INC., a Florida corporation By: /s/ Joann Sabatino ------------------------------------- Joann Sabatino Chief Financial Officer and Treasurer Attest: /s/ Eric M. Wechsler --------------------------------- Eric M. Wechsler General Counsel and Secretary SUNTRUST BANK, SOUTH FLORIDA, NATIONAL ASSOCIATION, individually and as Agent By: /s/ Russell E. Burnette ------------------------------------- Russell E. Burnette Vice President A-3 BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC., Individually and as Documentation Agent By: /s/ Scott Kray ------------------------------------- Name: Scott Kray Title: Vice President By: Gary W. Andresen ------------------------------------ Name: Gary W. Andresen Title: Associate A-4 BANK-LEUMI LE-ISRAEL B.M., MIAMI AGENCY By: /s/ Stephen Hanas ----------------------------------- Name: Steven Hanas Title: Vice President A-5 THE PROVIDENT BANK By: /s/ Nick Jeviz ----------------------------------- Name: Nick Jeviz Title: Vice President A-6 IBJ WHITEHALL BUSINESS CREDIT CORPORATION By: /s/ Bruce Kasper ----------------------------------- Name: Bruce Kasper Title: Vice President A-7 ACKNOWLEDGMENT OF GUARANTORS Each of the Guarantors acknowledges and agrees to the terms of the foregoing First Amendment to Amended and Restated Credit Agreement, and further acknowledges and agrees that (i) all of the obligations of the Company shall continue to constitute "Guaranteed Obligations" covered by the Amended and Restated Guaranty Agreement dated as of May 4, 1999 executed by the undersigned, and (ii) the Amended and Restated Guaranty Agreement is and shall remain in full force and effect on and after the date hereof, and (iii) the foregoing agreement shall in no way release, discharge, or otherwise limit the obligations of such Guarantor under the Amended and Restated Guaranty Agreement. This Acknowledgment of Guarantors made and delivered as of June 16, 1999. GUARANTORS: NUCO2 ACQUISITION CORP., a Florida corporation By: /s/ Eric M. Wechsler ----------------------------------- Name: Eric M. Wechsler Title: Vice President [CORPORATE SEAL] KOCH COMPRESSED GASES, INC., a New Jersey corporation By: /s/ Eric M. Wechsler ----------------------------------- Name: Eric M. Wechsler Title: Vice President [CORPORATE SEAL] A-8 EX-10.13 4 AMENDMENT NO. 3 TO SENIOR SUBORDINATED NOTE EXECUTION COPY AMENDMENT NO. 3 AMENDMENT NO. 3 dated as of May 4, 1999 to the Note Purchase Agreement referred to below, between: NUCO2 INC., a corporation duly organized and validly existing under the laws of the State of Florida (the "Company"); each of the Subsidiaries of the Company appearing under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereto (each a "Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors"; and, together with the Company, the "Obligors"); and each of the Investors, including the Additional Investors (as defined below), appearing under the caption "INVESTORS" on the signature pages hereto (each, an "Investor", and collectively, the "Investors"). WHEREAS, the Obligors and the Investors (other than SunTrust Banks, Inc. ("SunTrust")) are party to a Senior Subordinated Note Purchase Agreement dated as of October 31, 1997 (as heretofore modified and supplemented and in effect on the date hereof, the "Note Purchase Agreement"), pursuant to which the Company issued its 12% Senior Subordinated Notes due 2004 in an aggregate principal amount of $30,000,000 (the "Existing Notes") to such Investors (other than SunTrust). Chase Equity Associates L.P. ("Chase Capital") and SunTrust desire to purchase from the Company, and the Company desires to issue to each of Chase Capital and SunTrust, its 12% Senior Subordinated Note due 2005 (each such Note, a "2005 Note") in the aggregate principal amount of $13,000,000 and $2,000,000, respectively, under the Note Purchase Agreement, having the same terms as the Existing Notes heretofore issued by the Company thereunder (except as otherwise provided herein) and the parties to the Note Purchase Agreement wish to amend the Note Purchase Agreement to provide for such issuance and to make certain other modifications thereto; Accordingly, the parties hereto hereby agree as follows: Section 1. Definitions. Except as otherwise defined in this Amendment No. 3, terms defined in the Note Purchase Agreement are used herein as defined therein. Section 2. Amendments to Note Purchase Agreement. Subject to the satisfaction of the conditions precedent specified in Section 4 below, but effective as of the date hereof, the Note Purchase Agreement shall be amended as follows: A. References in the Note Purchase Agreement to "this Agreement" (and indirect references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be references to the Note Purchase Agreement as amended hereby. B. Section 1.01 of the Note Purchase Agreement shall be amended by adding the following new definitions (to the extent not already included in said Section 1.01) and inserting the same in the appropriate alphabetical locations and amending the following definitions (to the extent already included in said Section 1.01) to read in their entirety as follows: "Amendment No. 3" means Amendment No. 3 dated as of May 4, 1999 to this Agreement. "First 2005 Note Closing Date" has the meaning assigned to such term in Section 2.07(a). "New Investor" has the meaning assigned to such term in Section 2.07(a). "Required Investors" means, at any time after the First 2005 Note Closing Date, Investors holding more than 60% in aggregate principal amount of the Notes at the time outstanding, and at any time after the Second 2005 Note Closing Date, Investors holding more than 63% in aggregate principal amount of the Notes at the time outstanding (in each case exclusive of Notes then owned by the Company or any of its Affiliates); provided that, in each case, "Required Investors" shall include at least two Investors. "Second 2005 Note Closing Date" has the meaning assigned to such term in Section 2.07(b). "Senior Credit Agreement" means the Amended and Restated Revolving Credit Agreement dated as of May 4, 1999 between the Company, the lenders party thereto from time to time and SunTrust Bank, South Florida, National Association, agent for such lenders, as executed and delivered on May 4, 1999, and any refinancing, refunding, extension or renewal thereof (whether or not with any of the lenders or the agent for such lenders then party to the Senior Credit Agreement), in each case, at any time amended or modified in accordance with Section 8.10(a). "Senior Debt" means the following obligations of the Company and its Subsidiaries: (i) with respect to the Company, all principal of the loans outstanding under the Senior Credit Agreement, all interest thereon (including any interest accruing after the date of any filing by the Company of any petition in bankruptcy or the commencing of any bankruptcy, insolvency or similar proceedings with respect to the Company whether or not the same is allowed as a claim in any such proceeding) and all other amounts outstanding thereunder, including all expenses (including, without limitation, attorneys' fees), indemnities and penalties and all commitment, facility and administrative, agency or other similar fees payable by the Company from time to time under the Senior Credit Documents, and including any obligations of the Company in respect of Hedging Agreements owing to one or more of the lenders under Senior Credit Agreement that are required by the terms of the Senior Credit Agreement; (ii) with respect to the Company, additional Indebtedness in an aggregate principal amount up to but not exceeding $15,000,000 under or in respect of (x) the Senior Credit Agreement and (y)any other instrument evidencing such Indebtedness; provided that, in the case of clause (y) only, such Indebtedness is specifically designated in such other instrument as "Senior Debt" for purposes of this Agreement; (iii) with respect to the Company, additional Indebtedness under or respect of (x) the Senior Credit Agreement and (y) any other instrument evidencing such Indebtedness; provided that (i) in the case of clause (y) only, such Indebtedness is specifically designated in such other instrument as "Senior Debt" for purposes of this Agreement and (ii) after giving effect to the incurrence of such Indebtedness (and the application of the proceeds thereof), the Senior Debt Incurrence Ratio is less than or equal to 3.50 to 1.00; (iv) with respect to any Subsidiary Guarantor, the Guarantee of such Subsidiary Guarantor in respect of any Senior Debt of the Company; and (v) with respect to the Company, any and all refinancings, replacements or refundings of any of the amounts referred to in clauses (i), (ii) and (iii) above; provided that the refinancing, replacement or refunding of Senior Debt incurred under said clause (iii) shall constitute Senior Debt only to the extent that, after giving effect to such refinancing, replacement or refunding (and the application of the proceeds hereof), the Senior Debt Incurrence Ratio is less than or equal to 3.50 to 1.00; provided that the aggregate principal amount of Senior Debt permitted under clauses (i) and (ii) above (together with the amount of obligations in respect of Hedging Agreements referred to in said clause (i)), and any refinancing, replacement or refunding thereof permitted under clause (v) above (including the maximum amount of the aggregate commitments of the lenders to extend any revolving credit facility thereunder) shall not exceed at any time $90,000,000 minus the aggregate amount of (x) permanent reductions in revolving credit commitments thereunder and (y) prepayments of any term loans made from time to time in respect of the Senior Debt. "SunTrust" means SunTrust Banks, Inc. "2005 Note" has the meaning assigned to such term in Section 2.07(a). C. Section 2.03(a) of the Note Purchase Agreement shall be amended in its entirety to read as follows: "(a) The Company's obligation to pay the principal of and interest on all the Notes issued by it shall be evidenced by a Note, substantially in the form of Exhibit A (except, in the case of the 2005 Notes, as modified by Section 2.07(a)), duly executed and delivered by the Company with blanks appropriately completed in conformity herewith." D. A new Section 2.04(e) is added to the Note Purchase Agreement to read as follows: "(e) Notwithstanding anything in this Agreement or the Notes to the contrary, the unpaid principal amount of each Note (other than the 2005 Notes) shall bear interest at the rate of 14% Mar annum during each fiscal quarter (commencing with the fiscal quarter beginning on April 1, 1999) of the Company in which the Total Net Funded Debt Coverage Ratio exceeds 5.50 to 1.00 as at the end of the immediately preceding fiscal quarter (that portion of the interest accruing on the Notes in excess of 12% being herein referred to as "Additional Interest"); provided, however, that no Additional Interest shall accrue prior to May 4, 1999. Interest accruing pursuant to the immediately preceding sentence will be payable as provided in Section 2.04(c); provided, however, that any Additional Interest accruing with respect to any fiscal quarter ending on (i) March 31 will be payable on May 31 of such year and (ii) September 30 will be payable on November 30 of such year. E. A new Section 2.07 is added to the Note Purchase Agreement to read as follows: "SECTION 2.07 Issuance of 2005 Notes. (a) Subject to and upon the terms and conditions set forth in the immediately succeeding sentence, each of Chase Capital and SunTrust (each, a "New Investor") agrees to purchase from the Company, and the Company agrees to issue to each New Investor, its 12% Senior Subordinated Notes due 2005 (the "2005 Notes"), which Notes (i) shall be issued on May 4, 1999 (or such later date as the Company and the New Investors shall mutually agree, but not later than May [4], 1999) (the "First 2005 Note Closing Date"), (ii) shall be in a principal amount of $8,666,667, in the case of Chase Capital, and $1,333,333, in the case of SunTrust, and purchased at par by such New Investor and (iii) shall otherwise be in the form of Exhibit A (except that the maturity date thereof shall be October 31, 2005). Each 2005 Note shall constitute a Note, and each New Investor shall be an Investor, for all purposes of this Agreement. The issuance of the 2005 Notes to the New Investors is subject, at the time of purchase, to the satisfaction of the following conditions: (i) receipt by the New Investors of a certificate of a senior officer of the Company, dated the date of such purchase, to the effect, both immediately prior to the purchase of such 2005 Notes and also after giving effect thereto and the intended use thereof, set forth in clauses (a) and (b) of Section 5.02; (ii) receipt by each New Investor of the 2005 Note of such New Investor, duly executed and completed for such New Investor; and (iii) the execution and delivery of an amendment to the Warrant Agreement satisfactory to the New Investors providing for the issuance of Warrants to the New Investors (or any Affiliate thereof) for the purchase of 323,173 Stock Units (as defined in the Warrant Agreement), in the case of Chase Capital, and 49,719 Stock Units (as defined in the Warrant Agreement), in the case of SunTrust, and making certain other modifications thereto as mutually agreed by the Company and the Investors (including the New Investors). Notwithstanding anything to the contrary herein or in the 2005 Notes, interest on the 2005 Notes issued on the First 2005 Note Closing Date under this Section 2.07(a) shall accrue from and including the First 2005 Note Closing Date and the initial payment of interest on the 2005 Notes issued under this Section 2.07(a) shall be made on October 31, 1999. (b) Subject to and upon the terms and conditions set forth in the immediately succeeding sentence and upon ten Business Days' prior written notice from the Company to the New Investors, each New Investor agrees to purchase from the Company, and the Company agrees to issue to each New Investor, an additional 2005 Note, which Notes (i) shall be issued on any Business Day (such day, the "Second 2005 Note Closing Date") during the period from the First 2005 Note Closing Date to and including March 31, 2000, (ii) shall be in a principal amount of $4,333,333, in the case of Chase Capital, and $666,667, in the case of SunTrust, and purchased at par by such New Investor and (iii) shall otherwise be in the form of the 2005 Notes issued under Section 2.07(a). Each such 2005 Note shall constitute a Note, and each such New Investor shall be an Investor, for all purposes of this Agreement. The issuance of such 2005 Notes to such New Investors is subject, at the time of purchase, to the satisfaction of the following conditions: (i) receipt by the New Investors of a certificate of a senior officer of the Company, dated the date of such purchase, to the effect, both immediately prior to the purchase of such 2005 Notes and also after giving effect thereto and the intended use thereof, set forth in clauses (a) and (b) of Section 5.02; (ii) receipt by each New Investor of the 2005 Note of such New Investor, duly executed and completed for such New Investor; (iii) receipt by the Investors of the most recent financial statements required to be delivered pursuant to Section 7.01(a) or 7.01(b), as applicable; and (iv) the Total Net Funded Debt Coverage Ratio as of the end of and for the most recent fiscal quarter for which financial statements have been delivered pursuant to clause (iii) above would not exceed 6.0 to 1.0 after giving effect to the issuance of such 2005 Notes, and receipt by the New Investors of a certificate of a senior officer of the Company, dated the date of such purchase, demonstrating in reasonable detail to that effect. Notwithstanding anything to the contrary herein or in the 2005 Notes, interest on the 2005 Notes issued on the Second 2005 Note Closing Date under this Section 2.07(b) shall accrue from and including the Second 2005 Note Closing Date and the initial payment of interest on the 2005 Notes issued under this Section 2.07(b) shall be made on the first 30~ day of April or the first 31~ day of October, whichever is earlier, to occur following the Second 2005 Note Closing Date. The Company shall pay to each New Investor a commitment fee on the principal amount of the 2005 Notes to be issued to such New Investor on the Second 2005 Note Closing Date for the period from and including the First 2005 Note Closing Date to but not including the earlier of the Second 2005 Note Closing Date and March 31, 2000 (or such earlier date on which the Company shall terminate in writing to each of the New Investors the obligations of the New Investors to purchase the 2005 Notes pursuant to this Section 2.07(b)) at a rate per annum equal to 1/2 of 1%. The accrued commitment fee (which shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first but excluding the last day)) shall be payable in arrears on April 30 and October 31 of each year (or if any date is not a Business Day, on the immediately succeeding Business Day), commencing on October 31, 1999, and on the date on which the obligations of the New Investors to purchase the 2005 Notes pursuant to this Section 2.07(b) shall terminate. " F. Section 3.01(a) of the Note Purchase Agreement shall be amended in its entirety to read as follows: "(a) The Company may, at its option, upon notice as provided below, prepay all or, from time to time, part of the Notes (other than the 2005 Notes) at any time at the following prices (expressed in percentages of principal amount) in each of the years listed below, in each case, together with interest accrued and unpaid on the Notes (other than the 2005 Notes) (or part thereof, as the case may be) to the prepayment date: Year Price From the Closing Date through October 31, 1998 106% From November 1, 1998 through October 31, 1999 104% From November 1, 1999 through October 31, 2000 102% From November 1, 2000 and thereafter 100% The Company may, at its option, upon notice as provided below, prepay all or, from time to time, part of the 2005 Notes at any time at the following prices (expressed in percentages of principal amount) in each of the years listed below, in each case, together with interest accrued and unpaid on the 2005 Notes (or part thereof, as the case may be) to the prepayment date: Year Price From the Closing Date through April 30, 2000 106% From May 1, 2000 through April 30, 2001 104% From May 1, 2001 through April 30, 2002 102% From May 1, 2002 and thereafter 100%" G. The first sentence of Section 3.01(d) of the Note Purchase Agreement shall be amended in its entirety to read as follows: "(d) In the event of a Change in Control, any Investor shall have the option to require the Company to repurchase (i) the Notes (other than the 2005 Notes) held by such Investor at a price equal to 101% of the principal amount of such Notes if such Change in Control occurs prior to the third anniversary of the date hereof and thereafter at a price equal to 100% of the principal amount of such Notes, in each case, together with interest accrued and unpaid on the Notes (or part thereof, as the case may be) to the payment date and/or (ii) the 2005 Notes held by such Investor at a price equal to 101% of the principal amount of such Notes if such Change in Control occurs prior to the third anniversary of the First 2005 Note Closing Date and thereafter at a price equal to 100% of the principal amount of such Notes, in each case, together with interest accrued and unpaid on the Notes (or part thereof, as the case may be) to the payment date. " H. The last sentence of Section 3.02 of the Note Purchase Agreement shall be amended in its entirety to read as follows: "Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of, or premium or interest on any Note, or any other payment hereunder or under the Notes, that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. " I. Section 5.02 of the Note Purchase Agreement shall be amended in its entirety to read as follows: "SECTION 5.02. Other Conditions Precedent. The obligation of any Investor to purchase its Note(s) (including its 2005 Note(s)) hereunder is subject to the further conditions precedent that, both immediately prior to the purchase of such Note(s) and also after giving effect thereto and to the intended use thereof: (a) no Default shall have occurred and be continuing; and (b) the representations and warranties made by the Company in Article VI shall be true and correct on and as of the Closing Date (or the First 2005 Closing Date or the Second 2005 Closing Date, as applicable, in the case of the 2005 Notes) with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date)." J. A new Section 5.03 is added to the Note Purchase Agreement to read as follows: "SECTION 5.03 Conditions Precedent to Second 2005 Notes. The obligation of each New Investor to purchase its 2005 Note on the Second 2005 Note Closing Date is subject to the further condition precedent that the Company shall have issued and delivered to such Investors the Warrants required to be issued under Section 2.08(b) of the Warrant Agreement in the amounts therein specified and shall have executed and delivered each of the other agreements and instruments contemplated to be executed and/or delivered under said Section 2.08(b) with respect to such Warrants." K. Section 8.09 of the Note Purchase Agreement shall be amended in its entirety to read as follows: "SECTION 8.09 Financial Covenants. (a) Interest Coverage Ratio. The Company will not permit the Interest Coverage Ratio to be less than the following respective ratios as at the last day of each fiscal quarter during the following respective periods: Period Ratio From April 1, 1999 through December 31, 1999 1.25 to 1.00 From January 1, 2000 through March 31, 2000 1.50 to 1.00 From April 1, 2000 through June 30, 2000 1.75 to 1.00 From July 1, 2000 through September 30, 2000 2.00 to 1.00 From October 1, 2000 and at all times thereafter 2.50 to 1.00 (b) Total Net Funded Debt Coverage Ratio. The Company will not permit the Total Net Funded Debt Coverage Ratio to exceed the following respective ratios at any time during the following respective periods: Period Ratio From January 1, 1999 through June 30, 1999 6.75 to 1.00 From July 1, 1999 through September 30, 1999 6.00 to 1.00 From October 1, 1999 through December 31, 1999 5.50 to 1.00 From January 1, 2000 through March 31, 2000 5.00 to 1.00 From April 1, 2000 and at all times thereafter 4.50 to 1.00 (c) Minimum Net Worth. The Company shall at all times maintain Consolidated Net Worth of not less than the sum of (a) $40,000,000, (b) ~ 50% of the cumulative Consolidated Net Income for each fiscal quarter ending on or after December 31, 1997 (but specifically not including any Consolidated Net Loss for any such fiscal quarter) plus (c) the cumulative net proceeds of all equity offerings (if any) made by the Company for each fiscal quarter ending on or after September 30, 1997." L. Section 8.10(a) of the Note Purchase Agreement shall be amended in its entirety to read as follows: "(a) The Company will not, and will not permit any of its Subsidiaries to, change, amend, supplement or otherwise modify the terms of the Senior Credit Documents, or refund or refinance the same, without the prior consent of the Required Investors, if the effect of such amendment or such refunding or refinancing is to: (i) impose upon the Company, directly or indirectly, any prohibition or limitation on its ability to make regularly scheduled payments of principal of or interest on the Notes, or any other amounts owing to the Investors under this Agreement, except as provided in the subordination provisions set forth in Article XI; (ii) extend or shorten the scheduled maturity of any payment of any principal amount of the loans under the Senior Credit Agreement, except (x) altering or modifying the payment schedule of such loans so as to cause the average life to maturity of such loans to be not more than three years longer than the average life to maturity of such loans as of the date hereof or (y) extending the final maturity date of such loans by more than three years; and (iii) change, amend, supplement or otherwise modify Section 2.1 l(d) of the Senior Credit Agreement or change, amend, supplement or otherwise modify the terms of the Senior Credit Agreement to require a reduction in the Commitments (as defined in the Senior Credit Agreement) as a result of a mandatory prepayment under Section 2.11 of the Senior Credit Agreement." M. Schedules 6.06(a), 6.10, 6.12, 6.13, 8.01 and 8.02 to the Note Purchase Agreement are hereby amended to read as set forth in Schedules 6.06(a), 6.10, 6.12, 6.13, 8.01 and 8.02, respectively, to this Amendment No. 3. Section 3. Representations and Warranties. (a) The Company represents and warrants to the Investors that (i) the representations and warranties set forth in Article VI of the Note Purchase Agreement (as amended hereby) are true and complete on the date hereof as if made on and as of the date hereof and as if each reference in said Article VI to "this Agreement" (or words of similar import) referred to the Note Purchase Agreement as amended by this Amendment No. 3 and (ii) no Default has occurred and is continuing. (b)Each New Investor represents to the Company that the representations set forth in Article IV of the Note Purchase Agreement are true and complete with respect to such New Investor on the date of each purchase of its 2005 Note pursuant to Section 2.07 of the Note Purchase Agreement, as amended hereby, as if made on and as of such date and as if each reference in said Article IV to "this Agreement" (or words of similar import) referred to the Note Purchase Agreement as amended by this Amendment No. 3. Section 4. Conditions Precedent. As provided in Section 2 above, the amendments to the Note Purchase Agreement set forth in said Section 2 shall become effective, as of the date hereof, upon the satisfaction of the following conditions: (a) Amendment No. 3. The execution and delivery of one or more counterparts of this Amendment No. 3 by each of the parties hereto and receipt by the Investors of evidence that the lenders party to the Senior Credit Agreement shall have approved this Amendment No. 3. (b) Corporate Documents. Receipt by the Investors of certified copies of the charter and by-laws (or equivalent documents) of each Obligor and of all corporate authority for each Obligor (including, without limitation, board of director resolutions and evidence of the incumbency, including specimen signatures, of officers) with respect to the execution, delivery and performance of this Amendment No. 3 and each other document to be delivered by such Obligor from time to time in connection herewith and the 2005 Notes hereunder (each Investor may conclusively rely on such certificate until it receives notice in writing from such Obligor to the contrary). (c) Officer's Certificate. Receipt by the Investors of a certificate of a senior officer of the Company, dated the First 2005 Note Closing Date, to the effect set forth in clauses (a) and (b) of Section 5.02. (d) Opinion of Counsel to the Obligors. Receipt by the Investors of an opinion, dated the First 2005 Note Closing Date, of Olshan Grundman Frome Rosenzweig & Wolosky LLP, counsel to the Obligors, in form and substance reasonably satisfactory to the Required Investors (and each Obligor hereby instructs such counsel to deliver such opinion to the Investors). (e) Opinion of Special New York Counsel to the Investors. Receipt by the Investors of an opinion, dated the First 2005 Note Closing Date, of Milbank, Tweed, Hadley & McCloy LLP, special New York counsel to Chase Capital, in form and substance reasonably satisfactory to the Required Investors. (f) 2005 Notes. Receipt by the Additional Investors of the 2005 Notes to be purchased on the First 2005 Note Closing Date, duly completed and executed for each New Investor. (g) Warrants. Receipt by the New Investors of the Warrants required to be issued under Section 2.08(a) of the Warrant Agreement, as amended, in the amounts therein specified and each of the other agreements and instruments contemplated to be executed and/or delivered under said Section 2.08(a) with respect to such Warrants (h) Other Documents. Receipt by the New Investors of such other documents as any Additional Investor or special New York counsel to the Investors may reasonably request. Section 5. Miscellaneous. Except as herein provided, the Note Purchase Agreement shall remain unchanged and in full force and effect. This Amendment No. 3 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 3 by signing any such counterpart. This Amendment No. 3 shall be governed by, and construed in accordance with, the law of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to be duly executed and delivered as of the day and year first above written. NUCO2 INC. By /s/ Joann Sabatino -------------------------------------- Name: Joann Sabatino Title: Chief Financial Officer and Treasurer SUBSIDIARY GUARANTORS NUCO2 ACQUISITION CORP. By /s/ Joann Sabatino -------------------------------------- Name: Joann Sabatino Title: Chief Financial Officer and Treasurer KOCH COMPRESSED GASES, INC. By /s/ Joann Sabatino -------------------------------------- Name: Joann Sabatino Title: Chief Financial Officer and Treasurer INVESTORS CHASE EQUITY ASSOCIATES L.P. By Chase Capital Partners, its general partner By____________________________________ Title: DK ACQUISITION PARTNERS, L.P. By M.H. Davidson & Co., its general partner By____________________________________ Title: EMPIRE INSURANCE COMPANY, as executed on their behalf by their Investment Manager, Cohanzick Management, L.L C. By____________________________________ Title: ORIX USA CORPORATION By____________________________________ Title: PAINEWEBBER HIGH INCOME FUND, a series of PaineWebber Managed Investments Trust By____________________________________ Title: SUNTRUST BANKS, INC. By____________________________________ Title: EX-10.16 5 AMENDMENT NO. 2 TO WARRANT AGREEMENT EXECUTION COPY AMENDMENT NO. 2 AMENDMENT NO. 2 dated as of May 4, 1999 to the Warrant Agreement referred to below, between: NUCO2 INC., a corporation duly organized and validly existing under the laws of the State of Florida (the "Company"); and each of the Initial Holders, including the Additional Initial Holders (as defined below), appearing under the caption "INITIAL HOLDERS" on the signature pages hereto (each, an "Initial Holder", and collectively, the "Initial Holders"). WHEREAS, the Company and the Initial Holders (other than SunTrust Banks, Inc. ("SunTrust")) are party to a Warrant Agreement dated as of October 31, 1997 (as heretofore modified and supplemented and in effect on the date hereof, the "Warrant Agreement"); WHEREAS, pursuant to the Warrant Agreement, in connection with the issuance by the Company of $30,000,000 aggregate principal amount of Senior Subordinated Notes (the "2004 Notes") and as an inducement for the purchase by the Initial Holders (other than SunTrust and Nationsbanc Montgomery Securities, Inc.) of such $30,000,000 aggregate principal amount of the Notes, the Company issued Warrants to such Initial Holders providing for the purchase of shares of Common Stock of the Company; WHEREAS, in connection with the issuance by the Company of up to an additional $15,000,000 aggregate principal amount of Senior Subordinated Notes due 2005 (the "2005 Notes", and together with the 2004 Notes, the "Notes") to each of Chase Equity Associates L.P. ("Chase Capital") and SunTrust (each, a "2005 Note Initial Holder") and as an inducement for the purchase by the 2005 Note Initial Holders of up to such $ 15,00O,000 aggregate principal amount of the 2005 Notes, the Company has agreed to issue Warrants to the 2005 Note Initial Holders providing for the purchase of shares of Common Stock of the Company; WHEREAS, SunTrust desires to become an Initial Holder party to the Warrant Agreement and each 2005 Note Initial Holder desires to purchase the 2005 Notes from the Company, and the Company desires to issue to the 2005 Note Initial Holders, a Warrant having the same terms as the Warrants heretofore issued by the Company and as amended (including the amendments thereto effected by this Amendment No. 2) under the Warrant Agreement (as amended hereby). The Company and the Initial Holders (including the 2005 Note Initial Holders) wish to amend the Warrant Agreement to add SunTrust as an Initial Holder thereunder and to provide for the issuance of such additional Warrants and to make other modifications to the Warrant Agreement and the Warrants heretofore issued and outstanding thereunder. Accordingly, the parties hereto hereby agree as follows: Section 1. Definitions. Except as otherwise defined in this Amendment No. 2, terms defined in the Warrant Agreement are used herein as defined therein. Section 2. Amendments to Warrant Agreement. Subject to the satisfaction of the conditions precedent specified in Section 5 below, but effective as of the date hereof, the parties to the Warrant Agreement agree that the Warrant Agreement shall be amended as follows: A. References in the Warrant Agreement to "this Agreement" (and indirect references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be references to the Warrant Agreement as amended hereby. B. Section 1.01 of the Warrant Agreement shall be amended by adding the following new definitions (to the extent not already included in said Section 1.01) and inserting the same in the appropriate alphabetical locations and amending the following definitions (to the extent already included in said Section 1.01) to read in their entirety as follows: "Amendment No. 2" shall mean Amendment No. 2 dated as of May 4, 1999 to this Agreement. "First 2005 Note Closing Date" shall have the meaning assigned to such term in the Senior Subordinated Note Purchase Agreement. "Second 2005 Note Closing Date" shall have the meaning assigned to such term in the Senior Subordinated Note Purchase Agreement. "Senior Subordinated Note Purchase Agreement" shall mean the Senior Subordinated Note Purchase Agreement dated as of October 31, 1997 between the Company, the subsidiary guarantors party thereto and the investors party thereto, as amended and in effect from time to time. "2005 Note Initial Holder" shall have the meaning assigned to such term in Section 2.07 and Section 2.08 hereof. C. A new Section 2.08 is added to the Warrant Agreement to read as follows: "SECTION 2.08 Issuance of Additional Warrants. (a) Subject to and upon the conditions set forth in this Agreement, the Company shall issue to each of Chase Equity Associates L.P. ("Chase Capital") and SunTrust Banks, Inc. ("SunTrust" and, together with Chase Capital, the "2005 Note Initial Holders"), on the First 2005 Note Closing Date and for no cash consideration, a Warrant (the "2005 Note Warrants") in the form of Annex 1 to this Agreement covering such number of Stock Units as is equal to the percentage of the issued and outstanding shares of Common Stock on a fully diluted basis on the date of issuance of such 2005 Note Warrant as is specified opposite the name of such 2005 Note Initial Holder in Part A of Schedule 1 to Amendment No. 2. The number of shares of Common Stock comprising each Stock Unit covered by the 2005 Note Warrants issued under this Agreement shall be subject to adjustment as provided in Sections 6 and 7 hereof. Each 2005 Note Warrant shall constitute a Warrant, and each 2005 Note Initial Holder shall be an Initial Holder, for all purposes of this Agreement. On the First 2005 Note Closing Date, the Company shall deliver to each 2005 Note initial Holder a single certificate for the Warrant to be acquired by such Initial Holder hereunder, registered in the name of such Initial Holder. (b) Subject to and upon the terms and conditions set forth in the this Agreement, on the Second 2005 Note Closing Date, the Company shall (i) issue to each 2005 Note Initial Holder (or its transferees, as the case may be) Warrants in the form of Annex 1 to this Agreement covering such number of Stock Units as is equal to the percentage of the issued and outstanding shares of the Common Stock on a fully diluted basis on the date of issuance of such Warrants as is specified opposite the name of such 2005 Note Initial Holder in Part B of Schedule I to Amendment No. 2, (ii) deliver to each 2005 Note Initial Holder a single certificate for the Warrants to be acquired by such 2005 Note Initial Holder hereunder on such date, registered in the name of such 2005 Note Initial Holder, except that, if such 2005 Note Initial Holder shall notify the Company in writing prior to such issuance that it desires certificates for Warrants to be issued in other denominations or registered in the name or names of any Person or Persons referred to in Section 5.01 (a)(i) or (ii) hereof or any nominee or nominees for its or their benefit, then the certificates for Warrants shall be issued to such 2005 Note Initial Holder in the denominations and registered in the name or names specified in such notice, and (iii) deliver to each 2005 Note Initial Holder a legal opinion from counsel to the Company in form and substance reasonably satisfactory to each 2005 Note Initial Holder. Each 2005 Note Warrant shall constitute a Warrant, and each 2005 Note Initial Holder shall be an Initial Holder, for all purposes of this Agreement." D. Schedules 1 and 2 to the Warrant Agreement are hereby amended to read as set forth in Schedules 1 and 2, respectively, to this Amendment No. 2. E. The form of Warrant attached as Annex 1 to the Warrant Agreement shall be amended by deleting the amount "$16.40" in the first paragraph of such form and adding in lieu thereof the amount "$6.65." Section 3. Amendments to Warrants. Subject to the satisfaction of the conditions precedent specified in Section 5 below, but effective as of the date hereof, the Company agrees for the benefit of each of holders of the Warrants heretofore issued by the Company under the Warrant Agreement, as amended and outstanding thereunder on the date hereof (the "Existing Warrants"), that each of the Existing Warrants (other than Warrant No. 5 to purchase 30,000 Stock Units held by NationsBanc Montgomery Securities, Inc. and Warrant No. 7 to purchase 43,715 Stock Units held by DK Acquisition Partners, L.P.) shall be amended by deleting the amount "$ 12.40" in the first paragraph thereof and adding in lieu thereof the amount $6.65. " Section 4. Representations and Warranties. (a) The Company represents and warrants to the Initial Holders that (i) the representations and warranties set forth in Section 3 of the Warrant Agreement as amended hereby are true and complete on the date hereof as if made on and as of the date hereof and as if each reference in said Section 3 to "this Agreement" (or words of similar import) referred to the Warrant Agreement as amended by this Amendment No. 2 and (ii) no default has occurred and is continuing. (b) Each 2005 Note Initial Holder represents to the Company that the representations set forth in Section 2.03 of the Warrant Agreement are true and complete with respect to such 2005 Note Initial Holder on the date of each issuance of the 2005 Note Warrants as if made on and as of such date and as if each reference in said Section 2.03 to "this Agreement" (or words of similar import) referred to the Warrant Agreement as amended by this Amendment No. 2. Section 5. Conditions Precedent. As provided in Section 2 above, the amendments to the Warrant Agreement set forth in said Section 2 shall become effective, as of the date hereof, upon the execution and delivery of one or more counterparts of this Amendment No. 2 by the Company and Holders of at least 66-2/3% of the Restricted Warrants. Section 6. Miscellaneous. Except as herein provided, the Warrant Agreement shall remain unchanged and in full force and effect. This Amendment No. 2 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 2 by signing any such counterpart. This Amendment No. 2 shall be governed by, and construed in accordance with, the law of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed and delivered as of the day and year first above written. NUCO2 INC. By: /s/ Joann Sabatino ----------------------------------- Name: Joann Sabatino Title: Chief Financial Officer/ Treasurer INITIAL HOLDERS CHASE EQUITY ASSOCIATES L.P. By Chase Capital Partners, its general partner By_____________________________________ Title: ORIX USA CORPORATION By_____________________________________ Title: EMPIRE INSURANCE COMPANY, as executed on their behalf by their Investment Manager, Cohanzick Management, L.L.C. By_____________________________________ Title: DK ACQUISITION PARTNERS, L.P. By M.H. Davidson & Co., its general partner By_____________________________________ Title: NATIONSBANC MONTGOMERY SECURITIES, INC. By_____________________________________ Title: PAINEWEBBER HIGH INCOME FOND, a series of PaineWebber Managed Investments Trust By_____________________________________ Title: SUNTRUST BANKS, INC. By_____________________________________ Title: Schedule 1 PART A: First 2005 Note Closing Date Percentage CHASE EQUITY ASSOCIATES L.P. 3.90% SUNTRUST BANKS, INC. 0.60% ----- Total 4.50% ===== PART B: Second 2005 Note Closing Date CHASE EQUITY ASSOCIATES L.P. 1.95% SUNTRUST BANKS, INC. 0.30% ----- Total 2.25% ===== EX-23 6 CONSENT OF MARGOLIN CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement (No. 333-06705) on Form S-8 of our report dated August 20, 1999 for the years ended June 30, 1997, 1998 and 1999, and to the addition of our firm under the caption "Experts" in the Prospectus, insofar as it relates to our report on the financial statements for the three years ended June 30, 1999. /s/ Margolin, Winer & Evens LLP ------------------------------- Margolin, Winer & Evens LLP Garden City, New York September 28, 1999 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NUCO2 INC. FINANCIAL STATEMENTS AS OF JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS JUN-30-1999 JUN-30-1999 1,579,191 0 7,325,308 557,592 213,605 9,153,999 120,227,912 20,563,022 141,630,201 9,609,272 0 0 0 7,217 47,725,464 141,630,201 47,097,670 47,097,670 25,224,746 48,541,599 0 0 7,524,966 (8,932,940) 0 (8,932,940) 0 0 0 (8,932,940) (1.24) (1.24)
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