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Exhibit 10.3

CREDIT AND SECURITY AGREEMENT

Dated as of November 16, 2016

among

KATY INDUSTRIES, INC., A DELAWARE CORPORATION,

CONTINENTAL COMMERCIAL PRODUCTS, LLC, A DELAWARE LIMITED LIABILITY COMPANY,

FTW HOLDINGS, INC., A DELAWARE CORPORATION,

FORT WAYNE PLASTICS, INC., AN INDIANA CORPORATION,

2155735 ONTARIO INC., AN ONTARIO CORPORATION,

CCP CANADA INC., AN ONTARIO CORPORATION,

as Borrowers,

CERTAIN FINANCIAL INSTITUTIONS,

as Lenders

and

ENCINA BUSINESS CREDIT SPV, LLC,

as Agent and Swing Line Lender

 

 

			Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS			1
	1.01	Defined Terms	1
	1.02	Other Interpretive Provisions	44
	1.03	Accounting Terms.	45
	1.04	Uniform Commercial Code	46
	1.05	Rounding	46
	1.06	Times of Day	46
	1.07	Letter of Credit Amounts	46
ARTICLE II THE COMMITMENTS AND CREDIT EXTENSIONS			46
	2.01	Loan Commitments.	46
	2.02	Borrowings, Conversions and Continuations of Loans.	48
	2.03	Letters of Credit.	49
	2.04	Repayment of Loans	54
	2.05	Prepayments.	55
	2.06	Termination or Reduction of Commitment; Termination Fee	57
	2.07	Interest.	58
	2.08	Fees	58
	2.09	Computation of Interest and Fees	59
	2.10	Evidence of Debt	59
	2.11	Payments Generally; Agent's Clawback	59
	2.12	Sharing of Payments by Lenders	61
	2.13	Settlement Among Lenders.	62
	2.14	Nature and Extent of Each Borrower's Liability	62
	2.15	Cash Collateral.	65
	2.16	Defaulting Lenders and Substitution of Lenders.	66
	2.17	Swing Line Loans.	68
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY			71
	3.01	Taxes.	71
	3.02	Illegality	74
	3.03	Inability to Determine Rates	74
	3.04	Increased Costs; Reserves on Eurodollar Rate Loans.	75
	3.05	Mitigation Obligations; Designation of a Different Lending Office	76
	3.06	Certificate of Lender	76
	3.07	Survival	76
ARTICLE IV SECURITY AND ADMINISTRATION OF COLLATERAL			76
	4.01	Security Interest in Collateral	76
	4.02	Other Collateral.	78
	4.03	Collateral Administration.	80
	4.04	Further Assurances.	81
	4.05	Cash Management.	82
	4.06	Information Regarding Collateral	83
	4.07	Releases	83
ARTICLE V CONDITIONS PRECEDENT TO CREDIT EXTENSIONS			84
	5.01	Conditions of Initial Credit Extension	84
	5.02	Conditions to all Credit Extensions	86

 

ARTICLE VI REPRESENTATIONS AND WARRANTIES			87
	6.01	Existence, Qualification and Power	87
	6.02	Authorization; No Contravention	87
	6.03	Governmental Authorization; Other Consents	87
	6.04	Binding Effect	87
	6.05	Financial Statements; No Material Adverse Effect.	87
	6.06	Litigation	88
	6.07	No Default	88
	6.08	Ownership of Property; Liens.	88
	6.09	Environmental Compliance.	89
	6.10	Insurance	90
	6.11	Taxes	90
	6.12	ERISA Compliance.	90
	6.13	Subsidiaries; Equity Interests	91
	6.14	Margin Regulations; Investment Company Act	92
	6.15	Disclosure	92
	6.16	Compliance with Laws	92
	6.17	Intellectual Property; Licenses, Etc	92
	6.18	Labor Matters	92
	6.19	Deposit Accounts and Securities Accounts.	93
	6.20	Accounts; Equipment; Inventory	93
	6.21	Anti-Terrorism Laws and Foreign Asset Control Regulations	94
	6.22	Brokers	94
	6.23	Customer and Trade Relations	94
	6.24	Material Contracts	95
	6.25	Casualty	95
	6.26	Senior Indebtedness	95
	6.27	Inactive Subsidiaries	95
ARTICLE VII AFFIRMATIVE COVENANTS			95
	7.01	Financial Statements	95
	7.02	Borrowing Base Certificate; Other Information	96
	7.03	Notices	97
	7.04	Payment of Obligations	99
	7.05	Preservation of Existence, Etc	99
	7.06	Maintenance of Properties	99
	7.07	Maintenance of Insurance.	99
	7.08	Utilization of Net Proceeds.	101
	7.09	Compliance with Laws	102
	7.10	Books and Records	102
	7.11	Inspection Rights and Appraisals; Meetings with the Lenders.	102
	7.12	Use of Proceeds	103
	7.13	New Domestic Subsidiaries and Qualifying Foreign Subsidiaries	103
	7.14	New Foreign Subsidiaries	104
	7.15	Compliance with ERISA	104
	7.16	Further Assurances	104
	7.17	Licenses	104

 

	7.18	Environmental Laws	104
	7.19	Landlord and Storage Agreements	105
	7.20	Material Contracts	105
	7.21	Tracing of Proceeds of Loans	105
	7.22	Second Lien Debt	105
	7.23	Chief Restructuring Officer	106
	7.24	Post Closing Covenants	106
ARTICLE VIII NEGATIVE COVENANTS			107
	8.01	Liens	107
	8.02	Indebtedness	108
	8.03	Investments	110
	8.04	Fundamental Changes	111
	8.05	Dispositions	111
	8.06	Restricted Payments	112
	8.07	Change in Nature of Business	113
	8.08	Transactions with Affiliates	113
	8.09	Burdensome Agreements	114
	8.10	Use of Proceeds	114
	8.11	Prepayment of Indebtedness; Amendment to Material Agreements; Other Transactions.	114
	8.12	Consolidated Capital Expenditures	115
	8.13	Creation of New Subsidiaries	115
	8.14	Securities of Subsidiaries	115
	8.15	Sale and Leaseback	115
	8.16	Acquisitions	115
	8.17	Inactive Subsidiaries	116
	8.18	Management Fees	116
	8.19	Centrex Earnout Payments	116
ARTICLE IX EVENTS OF DEFAULT AND REMEDIES			116
	9.01	Events of Default	116
	9.02	Remedies Upon Event of Default	119
	9.03	License	120
	9.04	Application of Funds.	120
	9.05	Limitation of Remedies	121
ARTICLE X AGENT			122
	10.01	Appointment and Authority	122
	10.02	Rights as a Lender	122
	10.03	Exculpatory Provisions	122
	10.04	Reliance by Agent	123
	10.05	Delegation of Duties	123
	10.06	Resignation of Agent	123
	10.07	Non-Reliance on Agent and Other Lenders	124
	10.08	Agent May File Proofs of Claim	124
	10.09	Collateral Matters	125
	10.10	Other Collateral Matters.	125
	10.11	Credit Product Providers and Credit Product Arrangements.	126

 

ARTICLE XI MISCELLANEOUS			126
	11.01	Amendments, Etc	126
	11.02	Notices; Effectiveness; Electronic Communication.	128
	11.03	No Waiver; Cumulative Remedies	130
	11.04	Expenses; Indemnity; Damage Waiver.	130
	11.05	Marshalling; Payments Set Aside	132
	11.06	Successors and Assigns.	133
	11.07	Treatment of Certain Information; Confidentiality	136
	11.08	Right of Setoff	137
	11.09	Interest Rate Limitation	137
	11.10	Counterparts; Integration; Effectiveness	137
	11.11	Survival	137
	11.12	Severability	138
	11.13	Governing Law; Jurisdiction; Etc.	138
	11.14	Waiver of Jury Trial	139
	11.15	Electronic Execution of Assignments and Certain Other Documents	139
	11.16	USA PATRIOT Act Notice	139
	11.17	No Advisory or Fiduciary Responsibility	139
	11.18	Attachments	140
	11.19	ORAL AGREEMENTS	140
	11.20	Second Lien Intercreditor Agreement	140

 

SCHEDULES
1.01	Existing Letters of Credit
1.01A	Fiscal Periods
1.01B	Agent's Office; Lender's Office
1.01C	Mortgaged Property
2.01	Commitments and Applicable Percentages
4.01	Commercial Tort Claims
4.02	Pledged Interests
4.06	Information Regarding Collateral; Chief Executive Office; Etc.
5.01	Good Standing and Foreign Qualification Jurisdictions
6.06	Litigation
6.08(b)(1)	Owned Real Estate
6.08(b)(2)	Leased Real Estate
6.09	Environmental Matters
6.10	Insurance
6.12(d)	Pension Plans
6.13	Subsidiaries; Other Equity Investments
6.18	Labor Matters
6.19	Deposit Accounts and Securities Accounts
6.24	Material Contracts
7.02	Borrower Website Address
8.01	Existing Liens
8.02	Existing Indebtedness
8.03	Existing Investments
EXHIBITS	Form of
A-1	Form of Revolving Loan Note
A-2	Form of Term A Loan Note
A-3	Form of Term B Loan Note
B	Form of Borrowing Base Certificate
C	Form of Compliance Certificate
D	Form of Committed Loan Notice
E-1	Form of US Tax Compliance Certificate
E-2	Form of US Tax Compliance Certificate
E-3	Form of US Tax Compliance Certificate
E-4	Form of US Tax Compliance Certificate
F	Form of Assignment and Assumption
G	Form of Swing Line Loan Notice
H	Form of Authorized Accounts Form
I	Form of Client User Form

 

CREDIT AND SECURITY AGREEMENT

This CREDIT AND SECURITY AGREEMENT (this "Agreement") is entered into as of November 16, 2016, among Katy Industries, Inc., a Delaware corporation (the "Company;"), Continental Commercial Products, LLC, a Delaware limited liability company ("CCP"), 2155735 Ontario Inc., an Ontario corporation ("2155735 Inc."), and CCP Canada Inc., an Ontario corporation ("CCP Canada"), FTW Holdings, Inc., a Delaware corporation ("FTW"), Fort Wayne Plastics, Inc., an Indiana corporation ("FWP"; together with Company, CCP, 2155735 Inc., CCP Canada, FTW and each other Person that joins this Agreement as a "Borrower", individually and collectively, "Borrower" or "Borrowers"), each lender from time to time party hereto (collectively the "Lenders" and individually a "Lender") and Encina Business Credit SPV, LLC, as agent for the Lenders (in such capacity, "Agent") and as Swing Line Lender.

Preliminary Statements

A.            The Borrowers have requested that Agent and Lenders provide a credit facility to the Borrowers to finance their mutual and collective business enterprise.

B.             Agent and Lenders are willing to provide the credit facility on the terms and conditions set forth in this Agreement.

In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

1.01         Defined Terms.  As used in this Agreement, the following terms shall have the meanings set forth below:

 

"Ablesoft" means the electronic and/or internet-based system approved by Agent for the purpose of making notices, requests, deliveries, communications and for the other purposes contemplated in this Agreement or otherwise approved by Agent, whether such system is owned, operated or hosted by Agent, any of its Affiliates or any other Person.

"Account Debtor" means any Person who is or may become obligated under or on account of any Account, contract right, Chattel Paper or General Intangible.

"ACH" means automated clearing house transfers.

"Acquisition" means the acquisition of (a) a controlling equity or other ownership interest in another Person, whether by purchase of such equity or other ownership interest or upon exercise of an option or warrant for, or conversion of securities into, such equity or other ownership interest, or (b) assets of another Person which constitute all or substantially all of the assets of such Person or of a line or lines of business conducted by such Person.

"Additional Availability Amount" means, as of the Closing Date, the sum of $800,000.00 and beginning on the date that is three (3) Business Days after the date of receipt by the Second Lien Agent of the first cash payment made pursuant to clause (y) of Section 4.4(b) of the Second Lien Intercreditor Agreement and at all times thereafter, $0.00.

 

"Adjustment Date" means the first day of each Fiscal Quarter, commencing with the first day after the Fiscal Quarter ending June 27, 2014.

"Affected Lender" has the meaning specified in Section 2.16(c).

"Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

"Agent" means Encina Business Credit SPV, LLC, in its capacity as administrative agent for the Lenders under any of the Loan Documents, or any successor administrative agent for the Lenders.

"Agent's Office" means, with respect to any currency, Agent's address and, as appropriate, account as set forth on Schedule 1.01B with respect to such currency, or such other address or account with respect to such currency as Agent may from time to time notify to the Borrower Agent.

"Agreement" means this Credit and Security Agreement, as amended, restated, extended, renewed or otherwise modified from time to time.

"Allocable Amount" has the meaning specified in Section 2.14(c)(ii).

"ALTA Survey" means a survey reasonably satisfactory to Agent prepared in accordance with the standards adopted by the American Land Title Association and the American Congress on Surveying and Mapping in 2011, known as the "Minimum Standard Detail Requirements of Land Title Surveys" and in sufficient form to satisfy the requirements of any applicable title insurance company to provide extended coverage over survey defects and shall also show the location of all easements, utilities, and covenants of record, dimensions of all improvements, encroachments from any adjoining property, and certify as to the location of any flood plain area affecting the subject real estate.

"Applicable Margin" means with respect to any Type of Loan, the percentages per annum set forth below:

Loan	Applicable Margin for Eurodollar Rate Loans	Applicable Margin for Base Rate Loans
Revolving Loans	5.25%	4.25%
Term A Loans	5.75%	4.75%
Term B Loans	6.00%	5.00%

"Applicable Percentage" means (a) in respect of the Revolving Credit Facility, with respect to any Revolving Lender at any time, the percentage (carried out to the ninth decimal place) of the Revolving Credit Facility, represented by the amount of the Revolving Credit Commitment of such Revolving Lender at such time; provided that if the Aggregate Revolving Credit Commitments have been terminated at such time, then the Applicable Percentage of each Revolving Lender shall be the Applicable Percentage of such Revolving Lender immediately prior to such termination and after giving effect to any subsequent assignments, (b) in respect of the Term A Loan Facility, with respect to any Term A Lender at any time, the percentage (carried out to the ninth decimal place) of the Term A Loan Facility represented by (i) on or prior to the Closing Date, such Term A Lender's Term A Loan Commitment at such time and (ii) thereafter, the Outstanding Amount of such Term A Lender's Term A Loans at such time and (c) in respect of the Term B Loan Facility, with respect to any Term B Lender at any time, the percentage (carried out to the ninth decimal place) of the Term B Loan Facility represented by (i) on or prior to the Closing Date, such Term B Lender's Term B Loan Commitment at such time and (ii) thereafter, the Outstanding Amount of such Term B Lender's Term B Loans at such time.  The initial Applicable Percentage of each Lender with respect to each Facility is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.

 

"Appraised Value" means, with respect to the Borrowers' Eligible Real Estate, the fair market value of such Eligible Real Estate as set forth in the most recent appraisal of such Eligible Real Estate conducted by an independent appraiser engaged by Agent, which appraisal shall be in form and substance reasonably acceptable to Agent, shall assume, among other things, a marketing time of not greater than twelve (12) months or less than three (3) months or such other time period agreed to by Agent in its reasonable discretion exercised in good faith.

"Appropriate Lender" means, at any time, (a) with respect to any Facility, a Lender that has a Commitment with respect to such Facility or holds a Loan under such Facility at such time, (b) with respect to the Letter of Credit Sublimit, (i) the L/C Issuer and (ii) if any Letters of Credit have been issued, the Revolving Lenders, and (c) with respect to the Swing Line Sublimit, (i) the Swing Line Lender and (ii) if any Swing Line Loans are outstanding, the Revolving Lenders.

"Approved Fund" means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

"Assignment and Assumption" means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 11.06(b)), and accepted by Agent, in substantially the form of Exhibit E or any other form approved by Agent.

"Attributable Indebtedness" means, on any date, (a) in respect of any Capital Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a capital lease.

"Audited Financial Statements" means the audited consolidated balance sheet of the Company and its Subsidiaries for the Fiscal Year ended December 31, 2015, and the related consolidated statements of income or operations, retained earnings and cash flows for such Fiscal Year of the Company and its Subsidiaries, including the notes thereto.

"Auditor" has the meaning specified in Section 7.01(a).

"Auto-Extension Letter of Credit" has the meaning specified in Section 2.03(b)(ii).

"Availability" means the lesser of:

a)            the Revolving Credit Commitment Amount minus the Reserves minus Total Revolving Credit Outstandings; and

b)            the Borrowing Base minus Total Revolving Credit Outstandings.

In calculating Availability at any time and for any purpose under this Agreement, the Borrower Agent, on behalf of the Borrowers, shall certify to Agent that all accounts payable and Taxes are being paid on a timely basis and consistent with past practices (absent which Agent may establish a Reserve therefor).

 

"Availability Period" means, in respect of the Revolving Credit Facility, the period from the Closing Date to the Revolving Credit Termination Date.

"Availability Reserves" means, without duplication of any other Reserves or items that are otherwise addressed or excluded through eligibility criteria, such reserves as Agent from time to time determines in its discretion exercised in its Permitted Discretion as being appropriate (a) to reflect the impediments to Agent's ability to realize upon the Collateral consisting of Eligible Accounts or Eligible Inventory included in the Borrowing Base, (b) to reflect sums that any Loan Party may be required to pay under any Section of this Agreement or any other Loan Document (including taxes, assessments, insurance premiums, or, in the case of leased assets, rents or other amounts payable under such leases) and has failed to pay, (c) to reflect amounts for which claims may be reasonably expected to be asserted against the Collateral, Agent or the Lenders or (d) to reflect criteria, events, conditions, contingencies or risks which adversely affect any component of the Borrowing Base, or the assets, business, financial performance or financial condition of any Loan Party. Without limiting the generality of the foregoing, Availability Reserves may include (but are not limited to) reserves, without duplication, based on: (i) Rent and Charge Reserves; (ii) customs duties, and other costs to release Inventory which is being imported into the United States; (iii) outstanding Taxes and other governmental charges, including, without limitation, ad valorem, real estate, personal property, sales, and other Taxes which might have priority over the interests of Agent and the Lenders in the Collateral; (iv) salaries, wages and benefits due to employees of any Loan Party, whether in the United States of America, Canada or elsewhere (including amounts for employee wage claims for earned wages, vacation pay, health care reimbursements and other amounts due under Wisconsin wage lien law, Wis. Stat 109.01, et seq.); (v) any liabilities that are or may become secured by Liens on the Collateral (including Permitted Liens) which might have priority over the Liens or interests of Agent and the Lenders in the Collateral; (vi) Credit Product Reserves; (vii) Realty Reserves; (viii) payables to vendors entitled to the benefits of PACA or PASA, or any similar statute or regulation; (ix) salability of Eligible Inventory or which reflect such other factors as affect the market value of the Eligible Inventory, including obsolescence, seasonality, Shrink, vendor chargebacks, imbalance, change in Inventory character, composition or mix, markdowns and out of date and/or expired Inventory; and (x) due but unpaid premiums or any other amounts that could be offset against any and all unearned premiums, dividends, or other proceeds due under any insurance premium financing arrangement.

"Average Availability" means, for any period, the average daily amount of Availability during such period.

"Bankruptcy Code" means Title 11 of the United States Code.

"Base Rate" means, for any day, the greatest of (a) the Federal Funds Rate plus ½%, (b) the Eurodollar Rate (which rate shall be calculated based upon a one (1) month period and shall be determined on a daily basis), (c) one percent (1.0%), and (d) the rate of interest announced, from time to time, within Wells Fargo Bank, N.A. at its principal office in San Francisco as its "prime rate", with the understanding that the "prime rate" is one of Wells Fargo Bank, N.A.'s base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publications as Wells Fargo Bank, N.A. may designate (or, if such rate ceases to be so published, as quoted from such other generally available and recognizable source as Lender may select).

"Base Rate Loan" means a Loan that bears interest based on the Base Rate.

 

"Base Rate Revolving Loan" means a Revolving Loan that is a Base Rate Loan.

"Borrower Agent" has the meaning specified in Section 2.14(g).

"Borrower's Deposit Account" has the meaning specified in Section 7.08(b).

"Borrowers" has the meaning specified in the introductory paragraph hereto.

"Borrowing" means a Revolving Borrowing, a Term Borrowing or a Swing Line Borrowing, as the context may require.

"Borrowing Base" means, at any time of calculation, an amount equal to:

a)            the Value of Eligible Accounts (less all cash received but not yet applied in respect of such Eligible Accounts) multiplied by eighty-five percent (85%); plus

b)            the lesser of (i) the NOLV multiplied by Eligible Inventory of each Borrower at each applicable location multiplied by eighty-five percent (85%) or (ii) the Cost of all Eligible Inventory of all Borrowers multiplied by sixty-five percent (65%); plus

c)            the Additional Availability Amount; minus

d)            the amount of all Reserves.

The term "Borrowing Base" and the calculation thereof shall not include any assets or property acquired in an Acquisition unless Agent has conducted Field Exams and appraisals reasonably required by it (with results reasonably satisfactory to Agent) and the Person owning such assets or property shall be a (directly or indirectly) wholly-owned Domestic Subsidiary of the Company and shall have become a Borrower hereunder, and the amount of the Borrowing Base predicated on Eligible In-Transit Inventory shall not at any time exceed $750,000.

"Borrowing Base Certificate" means a certificate, in the form of Exhibit B hereto and otherwise in form satisfactory to Agent, by which Borrowers certify calculation of the Borrowing Base.

"Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where Agent's Office is located and, if such day relates to any interest rate settings as to a Eurodollar Rate Loan, any fundings, disbursements, settlements and payments in respect of any such Eurodollar Rate Loan, or any other dealings to be carried out pursuant to this Agreement in respect of any such Eurodollar Rate Loan, means any such day that is also a London Banking Day.

"Canadian Dollar" and/or "CAD" means the lawful currency of Canada.

"Capital Leases" means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.

"Cash Collateralize" means to pledge and deposit with or deliver to Agent, (a) for the benefit of one or more of the L/C Issuer or the Revolving Lenders, as collateral for L/C Obligations or obligations of the Revolving Lenders to fund participations in respect of L/C Obligations, cash or deposit account balances or, if Agent and the L/C Issuer shall agree in their sole discretion, other credit support, in each case pursuant to documentation in form and substance satisfactory to Agent and the L/C Issuer or (b) for the benefit of Agent, as collateral for Protective Advances or Swing Line Loans that have not been refunded by the Revolving Lenders, cash or deposit account balances or, if Agent shall agree in its sole discretion, other credit support, in each case pursuant to documentation in form and substance reasonably satisfactory to Agent or (c) for the benefit of the Credit Parties during the continuance of an Event of Default or in connection with the Payment in Full of the Obligations, as collateral for any Obligations that are due or may become due, cash or deposit account balances or, if Agent shall agree in its sole discretion, other credit support, in each case pursuant to documentation in form and substance reasonably satisfactory to Agent.  "Cash Collateral" shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.

 

"Cash Equivalents" means any of the following types of property, to the extent owned by any Borrower free and clear of all Liens (other than Liens created under the Security Instruments):

a)            cash, denominated in Dollars or Canadian Dollars;

b)           readily marketable direct obligations of the government of the United States or any agency or instrumentality thereof, or obligations the timely payment of principal and interest on which are fully and unconditionally guaranteed by the government of the United States or any state or municipality thereof, in each case so long as such obligation has an investment grade rating by S&P and Moody's;

c)            commercial paper rated at least P-1 (or the then equivalent grade) by Moody's and A-1 (or the then equivalent grade) by S&P, or carrying an equivalent rating by a nationally recognized rating agency if at any time neither Moody's nor S&P shall be rating such obligations;

d)            insured certificates of deposit or bankers' acceptances of, or time deposits with any Lender or with any commercial bank that (i) is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in the first portion of clause (c) above (without regard to the proviso), (iii) is organized under the laws of the United States or of any state thereof and (iv) has combined capital and surplus of at least $500,000,000;

e)            readily marketable general obligations of any corporation organized under the laws of any state of the United States of America, payable in the United States of America, expressed to mature not later than twelve months following the date of issuance thereof and rated A or better by S&P or A2 or better by Moody's; and

f)             readily marketable shares of investment companies or money market funds that, in each case, invest solely in the foregoing Investments described in clauses (a) through (e) above; and

"Casualty" means any act or occurrence of any kind or nature that results in any loss, destruction, or damage to any asset or property.

"CCP" means Continental Commercial Products, LLC, a Delaware limited liability company.

"Centrex Acquisition Documents" means the Centrex Purchase Agreement and all other material documents, agreements, bills of sale, and certificates, including those executed between or among any of the Loan Parties, Centrex Plastics, LLC and T.R. Plastics delivered in connection with the acquisition transaction described in the Centrex Purchase Agreement.

"Centrex Earnout Payments" means the "Cabinet Payments" as defined in Section 2.10 of the Centrex Purchase Agreement.

 

"Centrex Earnout Subordination Agreement" means that certain Subordination Agreement dated as of the Closing Date, by and among Agent, certain of the Loan Parties, Centrex Plastics, LLC, T.R. Plastics, LLC and Terence Reinhart.

"Centrex Purchase Agreement" means that certain Asset Purchase Agreement, dated as of April 7, 2015, by and among CCP, Centrex Plastics, LLC, T.R. Plastics, LLC and Terrence L. Reinhart.

"Centrex Side Letter" has the meaning specified in Section 8.19.

"Change in Law" means the occurrence, after the date of this Agreement, of any of the following:  (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a "Change in Law", regardless of the date enacted, adopted or issued.

"Change of Control" means an event or series of events by which:

a)            The Equity Investor shall cease to own and control, beneficially and of record both assuming all of the preferred stock owned by the Equity Investor is converted to common stock (i) in excess of 51% of the issued and outstanding Equity Interests of the Company, and (ii) a sufficient percentage of the issued and outstanding Equity Interests of the Company to control its board of directors;

b)           Other than the Equity Investor, any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any employee benefit plan of the Company or its Subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be deemed to have "beneficial ownership" of all securities that such person or group has the right to acquire (such right, an "option right"), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 51% or more of the Equity Interests of the Company on a fully-diluted basis (and taking into account all such Equity Interests that such person or group has the right to acquire pursuant to any option right);

c)            during any period of 24 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Company cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors); or

 

d)            The Company shall fail to own and control, beneficially and of record (directly or indirectly), 100% of the issued and outstanding Equity Interests of each of its Subsidiaries, except where such failure is the result of a transaction permitted under the Loan Documents.

"Closing Date" means the first date all the conditions precedent in Section 5.01 are satisfied or waived in accordance with this Agreement (or, in the case of Section 5.01(b), waived by the Person entitled to receive the applicable payment).

"Code" means the Internal Revenue Code of 1986, as amended, and the regulations and official guidance thereunder.

"Collateral" means, collectively, certain personal property of the Borrowers or any other Person in which Agent or any Credit Party is granted a Lien under any Security Instrument as security for all or any portion of the Obligations or any other obligation arising under any Loan Document, but expressly excluding, for the avoidance of doubt, the Excluded Assets and the Excluded Deposit Accounts.

"Commitment" means the Revolving Credit Commitment.

"Committed Loan Notice" means a notice of a Borrowing, which shall be substantially in the form of Exhibit D.

"Commodity Exchange Act" means the Commodity Exchange Act (7 U.S.C. §1 et seq.), as amended from time to time, and any successor statute.

"Company" means Katy Industries, Inc., a Delaware corporation.

"Compliance Certificate" means a certificate substantially in the form of Exhibit C.

"Concentration Account" has the meaning specified in Section 4.05(b).

"Condemnation" means any seizure or taking of title to, use of, or any other interest in any asset or property, or confiscation of such asset or property or the requisition of the use of such asset or property, under the exercise of the power of condemnation or eminent domain, whether temporarily or permanently, by any Governmental Authority or by any other Person acting under or for the benefit of a Governmental Authority.

"Condemnation Awards" means any and all judgments, awards of damages (including severance and consequential damages), payments, proceeds, settlements, amounts paid for a taking in lieu of Condemnation, or other compensation whenever made, including interest thereon, and the right to receive the same, as a result of, or in connection with, any Condemnation or threatened Condemnation.

"Consolidated" or "consolidated" means the consolidation, in accordance with GAAP, of the financial condition or operating results of such Person and its Subsidiaries excluding from Consolidated EBITDA the Inactive Subsidiaries.

"Consolidated Capital Expenditures" means, with respect to the Company and its Subsidiaries on a Consolidated basis, for any period the sum of (without duplication) all expenditures (whether paid in cash or accrued as liabilities) by the Company or any Subsidiary during such period for items which should be capitalized under GAAP, including without limitation all transactional costs incurred in connection with such expenditures provided the same have been capitalized; provided, that Consolidated Capital Expenditures shall exclude any expenditures for equipment or other property purchased simultaneously or substantially concurrently with the trade-in of existing equipment or property owned by any Borrower or any of its Subsidiaries except to the extent such expenditures exceeds the amount of credit received for such trade-in.

 

"Consolidated EBITDA" means, for any period, Consolidated Net Income for such period, plus (a) in each case to the extent deducted in determining such Consolidated Net Income, without duplication, (i) Consolidated Interest Charges (net of cash interest income for such period of the Company and its Subsidiaries) for such period, (ii) federal, state, local and foreign income tax expense for such period, net of income tax credits, (iii) depreciation and amortization for such period, (iv) non-cash compensation expense, or other non-cash expenses or charges, for such period arising from the granting of stock options, stock appreciation rights or similar equity arrangements, (v) if agreed upon in writing by Agent, other non-cash expenses or losses and other non-cash charges incurred (excluding any non-cash charges representing an accrual of, or reserve for, cash charges to be paid within the next twelve months), (vi) LIFO reserves established during such period, (vii) Restructuring Costs paid or expensed during such period, (viii) non-cash management fees paid or expensed during such period to Kohlberg & Company,  L.L.C., (ix) amounts paid or expensed during such period for expenses relating to the discontinuance of certain Subsidiaries of the Company, (x) amounts paid or expensed during such period for fees and expenses, including attorneys’ fees and expenses, or settlement payments in connection with the Hazelwood lease, (xi) amounts paid or expensed during such period for third-party executive recruiting fees and expenses, including fees and expenses of Spenser Stuart, in connection with the recruiting and retention of a Chief Executive Officer, (xii) amounts paid or expensed during such period, including attorneys’ fees and expenses and settlement payments, relating to certain employee severance matters or other officer-related salary and deferred compensation and related expenses, (xiii) the amount during such period of Chief Executive Officer expense and cost savings realized due to the retention of a new Chief Executive Officer, and (xiv) amounts paid or expensed during such period on account of one-time deferred compensation expenses not to exceed $275,000; provided, that no items described in clauses (vii) to (xiv) above shall be added to Consolidated Net Income in the determination of EBITDA for any period unless Agent is provided with back-up detail and a schedule of all such proposed addbacks in a form satisfactory to Agent concurrently with the delivery to Agent of the financial statements for the applicable period, minus (b) non-cash income, gains or profits or LIFO reserves terminated during such period, in each case as determined for the Company and its Subsidiaries on a Consolidated basis; provided that, for any period that includes a material Disposition, the calculation of Consolidated EBITDA shall be subject to the adjustments set forth in Sections 1.03(c) and 1.03(d).

"Consolidated Fixed Charge Coverage Ratio" means the ratio, determined on a Consolidated basis for the Company and its Subsidiaries for the most recent Measurement Period, of (a) Consolidated EBITDA minus Consolidated Capital Expenditures (other than Financed Capital Expenditures) to (b) Consolidated Fixed Charges.

"Consolidated Fixed Charges" means, for any period, for the Company and its Subsidiaries on a Consolidated basis, the sum of, without duplication, (a) Consolidated Interest Charges paid or required to be paid in cash during such period, (b) all principal repayments made or required to be made of Consolidated Funded Indebtedness (including, without limitation, the Second Lien Indebtedness) during such period, but excluding any repayments of principal of any Revolving Loans and further excluding any such payments to the extent constituting a refinancing of such Consolidated Funded Indebtedness through the incurrence of additional Indebtedness otherwise expressly permitted under Section 8.02, (c) all Restricted Payments made in cash during such period, (d) the aggregate amount of Federal, state, local and foreign income taxes paid in cash, in each case, of or by the Company and its Subsidiaries, during such period, (e) cash contributions made to any Pension Plan or any Foreign Plan (to the extent not deducted in the calculation of the Consolidated Net Income) during such period, and (f) an amount equal to the Term A Amortization Amount (without giving effect to any reduction in respect of the Term A Amortization Adjustment Amount) and the Term B Amortization Amount, in each case whether or not such amount is actually paid (or required to be paid) during such period.

 

"Consolidated Funded Indebtedness" means, as of any date of determination, for the Company and its Subsidiaries on a Consolidated basis, the sum of (a) the outstanding principal amount of all obligations, whether current or long-term, for borrowed money (including Obligations hereunder) and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (b) all purchase money Indebtedness, (c) all direct obligations arising under standby and commercial letters of credit (excluding the undrawn amount thereof), bankers' acceptances, bank guaranties (excluding the amounts available thereunder as to which demand for payment has not yet been made), surety bonds (excluding the amounts available thereunder as to which demand for payment has not yet been made) and similar instruments, (d) all obligations in respect of the deferred purchase price of property or services (other than trade accounts payable in the Ordinary Course of Business), (e) Attributable Indebtedness in respect of Capital Leases and Synthetic Lease Obligations, (f) without duplication, all Guarantees with respect to outstanding Indebtedness of the types specified in clauses (a) through (e) above of Persons other than the Company or any Subsidiary, (g) all Subordinated Indebtedness (including the Specified Subordinated Indebtedness and all Second Lien Indebtedness), and (h) all Indebtedness of the types referred to in clauses (a) through (f) above of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which the Company or a Subsidiary is a general partner or joint venturer, to the extent such Indebtedness is recourse to the Company or such Subsidiary.

"Consolidated Interest Charges" means, with respect to the Company and its Subsidiaries for any period ending on the date of computation thereof, the gross interest expense of the Company and its Subsidiaries, including without limitation (a) the current amortized portion of all fees (including fees payable in respect of any Swap Contract in the nature of an interest rate hedge and all fees payable in respect of any Letter of Credit) payable in connection with the incurrence of Indebtedness to the extent included in gross interest expense and (b) the portion of any payments made in connection with Capital Leases allocable to interest expense, all determined on a Consolidated basis; provided, however, that Consolidated Interest Charges shall include the amount of payments in respect of Synthetic Lease Obligations that are in the nature of interest.

"Consolidated Net Income" means, for any period, for the Company and its Subsidiaries on a Consolidated basis, the net income after taxation of the Company and its Subsidiaries for that period excluding (a) net losses or gains realized in connection with (i) any sale, lease, conveyance or other disposition of any asset (other than in the Ordinary Course of Business), or (ii) repayment, repurchase or redemption of Indebtedness, and (b) extraordinary gain or income (or non-cash expense), including, any compensation charge incurred in connection with the Transactions whether or not accrued or expensed; provided, that the following shall be excluded from Consolidated Net Income, without duplication: (x) the net income or loss of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting to the extent of the amount of dividends or distributions are not actually paid to the Company or a Subsidiary in cash, (y) net income or loss of any Person in which any other Person (other than the Company or a Subsidiary) has an ownership interest, except to the extent of the amount of dividends or other distributions actually paid in cash to the Company or a Subsidiary by such Person during such period and (z) any Person the ability of which to make Restricted Payments is restricted by any Restrictive Agreement, except to the extent of the amount of dividends or other distributions actually paid in cash to the Company or a Subsidiary by such Person during such period.

 

"Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

"Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.  "Controlling" and "Controlled" have meanings correlative thereto.  Without limiting the generality of the foregoing, a Person shall be deemed to be Controlled by another Person if such other Person possesses, directly or indirectly, power to vote 10% or more of the securities having ordinary voting power for the election of directors, managing general partners or the equivalent.

"Control Agreement" means, with respect to any Deposit Account, any Securities Account, commodity account, securities entitlement or commodity contract, an agreement, in form and substance reasonably satisfactory to Agent, among Agent, the financial institution or other Person at which such account is maintained or with which such entitlement or contract is carried and the Borrower maintaining such account, effective to grant "control" (as defined under the applicable UCC or the Securities Transfer Act, 2006, (Ontario)) over such account to Agent.

"Controlled Account Bank" means each bank with whom Deposit Accounts are maintained in which any funds of any of the Borrowers are concentrated and with whom a Control Agreement has been, or is required to be, executed in accordance with the terms hereof.

"Controlled Deposit Account" means each Deposit Account (including all funds on deposit therein) that is the subject of an effective Control Agreement and that is maintained by any Borrower with a financial institution approved by Agent.

"Controlled Investment Affiliates" means, with respect to the Equity Investor, any fund or investment vehicle that is both (i) organized by the Equity Investor or an Affiliate of the Equity Investor for the purpose of making equity or debt investments in one or more companies and (ii) controlled by or under common control with the Equity Investor.  For purposes of this definition "control" means the power to direct or cause the direction of management and policies of a Person, whether by contract or otherwise.

"Controlled Securities Account" means each securities account or commodity account (including all financial assets held therein and all certificates and instruments, if any, representing or evidencing such financial assets) that is the subject of an effective Control Agreement and that is maintained by any Borrower with a securities intermediary or commodity intermediary approved by Agent.

"Core Business" means any material line of business conducted by the Company and its Subsidiaries as of the Closing Date and any business directly related thereto.

"Cost" means (a) with respect to Inventory, the lower of (i) cost (as reflected in the general ledger of such Person) determined in accordance with GAAP calculated on a first-in, first-out basis and in accordance with the Borrowers' accounting practices as in effect on the Closing Date and (ii) market value and (b) with respect to Equipment, Real Estate and other property, the lower of (i) cost (as reflected in the general ledger of such Person) and (ii) market value, in each case, determined in accordance with GAAP.

"Credit Extension" means each of the following:  (a) a Borrowing and (b) an L/C Credit Extension.

 

"Credit Party" and "Credit Parties" means (a) Agent, (b) each Lender, (c) each Credit Product Provider to the extent it holds secured Credit Product Obligations and was a Lender or an Affiliate of the Lender when such Person provided Credit Product Arrangements to the Borrowers, (d) each Related Party entitled to indemnification under Section 10.04(b) hereof, and (e) the successors and assigns of each of the foregoing.

"Credit Product Arrangements" means, collectively, (a) Swap Contracts between a Loan Party and any Lender or Affiliate of any Lender and (b) agreements entered into to provide Treasury Management and Other Services.

"Credit Product Obligations" means Indebtedness and other obligations of any Loan Party arising under Credit Product Arrangements and owing to any Credit Product Provider; provided that Credit Product Obligations shall not include Excluded Swap Obligations.

"Credit Product Provider" means (a) Encina or any of its Affiliates; and (b) any other Lender or Affiliate of a Lender that is a provider under a Credit Product Arrangement, so long as such provider delivers written notice to Agent, in form and substance satisfactory to Agent, by the later of the Closing Date or 10 days following the entering into of the applicable Credit Product Arrangement, (i) describing the Credit Product Arrangement and setting forth the maximum amount thereunder to be secured by the Collateral and the methodology to be used in calculating such amount and (ii) agreeing to be bound by Section 10.11.

"Credit Product Reserve" means the reserves established by Agent from time to time in its reasonable judgment in respect of secured Credit Product Obligations in an amount equal to the maximum amount owing thereunder as specified by the Credit Product Provider in writing to Agent.  It is understood that the amounts so provided by the applicable Credit Product Provider with respect to Swap Credit Product Obligations may include a commercially reasonable level of "cushion" to account for normal short-term market fluctuations.

"Customs Broker Agreement" means an agreement, reasonably acceptable in form and substance to Agent, among a Borrower, a customs broker or other carrier, and Agent, in which the customs broker or other carrier acknowledges that it has control over and holds the documents evidencing ownership of the subject Inventory for the benefit of Agent (for itself and on behalf of the Credit Parties) and agrees, upon notice from Agent, to hold and dispose of the subject Inventory solely as directed by Agent.

"Debtor Relief Laws" means the Bankruptcy Code of the United States, the Bankruptcy and Insolvency Act (Canada), the Companies' Creditors Arrangement Act (Canada), the Winding-Up and Restructuring Act (Canada) and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or Canada or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

"Default" means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would unless cured or waived be an Event of Default.

"Default Rate" means an interest rate equal to (a) the Eurodollar Rate or Base Rate, as applicable, plus (b) the Applicable Margin plus (c) 2% per annum; provided, however, that, with respect to Letter of Credit Fees, the Default Rate shall equal the Letter of Credit Fee, then in effect plus 2% per annum, in each case to the fullest extent permitted by applicable Laws.

 

"Defaulting Lender" means any Lender that (a) has failed to fund any portion of the Loans, participations in L/C Obligations or participations in Swing Line Loans required to be funded by it hereunder within two (2) Business Days of the date required to be funded by it hereunder unless such failure has been cured or is due to such Lender’s good faith determination that the conditions set forth in Section 5.01 have not been met, (b) has otherwise failed to pay over to the Agent or any other Lender any other amount required to be paid by it hereunder within two (2) Business Days of the date when due, unless the subject of a good faith dispute (including, but not limited to, such Lender’s good faith determination that the conditions set forth in Section 5.01 have not been met) or unless such failure has been cured, (c) has notified the Borrower Agent, Agent or any Lender in writing that it does not intend to comply with all or any portion of its funding obligations hereunder, (d) has made a public statement to the effect that it does not intend to comply with its funding obligations hereunder (as reasonably determined by the Agent), (e) after the Closing Date has been, or has a parent company that has been, deemed insolvent or become the subject of a bankruptcy or insolvency proceeding or a receiver or conservator has been appointed for such Lender (or parent thereof), provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender), or (f) has failed, within three (3) Business Days after request by the  Agent or Borrowers, to confirm that it will comply with the terms of this Agreement relating to its funding obligations hereunder or under the other Loan Documents.

"Dilution Percent" means the percent, determined for the most recent Measurement Period, equal to (a) bad debt write-downs or write-offs, discounts, returns, promotions, credits, credit memos and other dilutive items with respect to Accounts, divided by (b) gross sales.

"Dilution Reserve" means, at any date of determination, (a) the percentage amount by which the Dilution Percent exceeds five percent (5%) times (b) the amount of Eligible Accounts of the Borrowers.

"Disposition" or "Dispose" means the sale, transfer, license, lease or other disposition (including the Permitted Sale/Leaseback and any other sale and leaseback transaction) of any property (including any Equity Interest), or part thereof, by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith, or any Event of Loss with respect to such asset or property.

"Disqualified Equity Interest" means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, (a) matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 180 days after the Revolving Credit Maturity Date, (b) is convertible into or exchangeable for debt securities (unless only occurring at the sole option of the issuer thereof), (c) (i) contains any repurchase obligation that may come into effect prior to, (ii) requires cash dividend payments (other than taxes) prior to, or (iii) provides the holders thereof with any rights to receive any cash upon the occurrence of a change of control or sale of assets prior to, in each case, the date that is 180 days after the Revolving Credit Maturity Date; provided, however, that (i) with respect to any Equity Interests issued to any employee or to any plan for the benefit of employees of the Company or its Subsidiaries or by any such plan to such employees, such Equity Interest shall not constitute Disqualified Equity Interests solely because it may be required to be repurchased by the Company or one of its Subsidiaries in order to satisfy applicable statutory or regulatory obligations or as a result of such employee's termination, resignation, death or disability and (ii) any class of Equity Interest of such Person that by its terms authorizes such Person to satisfy its obligations thereunder by delivery of an Equity Interest that is not a Disqualified Equity Interest, such Equity Interests shall not be deemed to be Disqualified Equity Interests and (iii) only the portion of such Equity Interests which so matures or is so mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such date shall be deemed to be Disqualified Equity Interests.

 

"Disqualified Institution" means any Person that is (i) designated by Equity Investor or Borrower Agent, by written notice delivered to Encina on or prior to the Closing Date as a (x) disqualified institution or (y) competitor of Company or its Subsidiaries (any such Person under this clause (i)(y), a "Competitor") or (ii) reasonably identifiable on the basis of such Person's name, as an affiliate of any person referred to in clauses (i)(x) or (i)(y) above; provided, however, Disqualified Institutions shall (A) exclude any person that Borrower Agent has designated as no longer being a Disqualified Institution by written notice delivered to Agent from time to time and (B) include any Person that from time to time is added as a Competitor, pursuant to a written supplement to the list of Competitors that are Disqualified Institutions, that is delivered after the Closing Date by Borrower Agent to Agent.

"Dollar" and "$" mean lawful money of the United States.

"Domestic Borrower" means the Company and each Borrower that is a Domestic Subsidiary of the Company.

"Domestic Subsidiary" means any Subsidiary that is organized under the laws of any political subdivision of the United States (but excluding any territory or possession thereof).

"Dominion Account" means a special account established by Borrowers at a bank acceptable to Agent, over which Agent has exclusive control for withdrawal purposes.

"Eligible Account" means Accounts due to a Borrower that are determined by Agent, in its Permitted Discretion to be Eligible Accounts.  Except as otherwise agreed by Agent, none of the following shall be deemed to be Eligible Accounts:

a)            Accounts that are not fully earned by performance (or otherwise represent a progress billing or pre-billing) or not evidenced by an invoice which has been delivered to the applicable Account Debtor;

b)            Accounts that have been outstanding for more than one hundred twenty (120) days past the invoice date or more than sixty (60) days past the due date whichever comes first; provided, however, that subject to due diligence by such Borrower reasonably acceptable to Agent, the Referenced Customers may be allowed up to the lesser of sixty (60) days past due or one hundred fifty (150) days after the respective dates of the invoices to pay and such Accounts shall not be deemed ineligible pursuant to the forgoing;

c)            Accounts due from any Account Debtor, fifty percent (50%) of whose Accounts are otherwise ineligible under the terms of clause (b) above;

d)            Accounts with respect to which (i) any representation or warranty set forth in any Loan Document with respect thereto is not true and correct in all material respects or (ii) a Borrower does not have good, valid and marketable title thereto, free and clear of any Lien (other than Permitted Liens which do not have priority over the Lien in favor of Agent);

 

e)            Accounts with respect to which Agent does not have a first priority perfected Lien;

f)            Accounts which are disputed or with respect to which a claim, counterclaim, offset or chargeback has been asserted, but only to the extent of such dispute, counterclaim, offset or chargeback;

g)           Accounts which (i) do not arise out of a sale of goods or rendition of services in the ordinary course of business, (ii)  do not arise upon credit terms usual to the business of the Borrowers or (iii) are not payable in Dollars or Canadian Dollars (provided that Accounts payable in Canadian Dollars shall not exceed $1,000,000);

h)           Accounts (i) upon which the Borrower's right to receive payment is not absolute or is contingent upon the fulfillment of any condition whatsoever or (ii) as to which a Borrower is not able to bring suit or otherwise enforce its remedies against the Account Debtor through judicial process;

i)             Accounts which are owed by (i) any other Borrower or (ii) any Affiliate which is not a Borrower;

j)             Accounts for which all material consents, approvals or authorizations of, or registrations or declarations with any Governmental Authority required to be obtained, effected or given in connection with the performance of such Account by the Account Debtor or in connection with the enforcement of such Account by Agent have not been duly obtained, effected or given or are not in full force and effect;

k)            Accounts due from an Account Debtor which is the subject of any bankruptcy or insolvency proceeding, has had a trustee or receiver appointed for all or a substantial part of its property, has made an assignment for the benefit of creditors or has suspended its business;

l)             Accounts due from any Governmental Authority, except to the extent that the subject Account Debtor is the federal government of the United States of America and has complied with the Federal Assignment of Claims Act of 1940 and any similar state legislation; provided that up to $250,000 in the aggregate of all such Accounts may be included in the determination of Eligible Accounts, and the Borrower shall not be required to comply with the Federal Assignment of Claims Act of 1940 and any similar state legislation applicable thereto, unless and until an Event of Default has occurred and is then continuing (at which point the Agent, in its sole discretion, may require the Borrowers do so comply in order for such Accounts to be included in the determination of Eligible Accounts thereafter);

m)           Accounts (i) owing from any Account Debtor that is also a supplier to or creditor of a Borrower unless such Person has waived any right of setoff in a manner reasonably acceptable to Agent, but only to the extent of the aggregate amount of such Borrower's liability to such Account Debtor, (ii) to the extent representing any manufacturer's or supplier's allowances, credits, discounts, incentive plans or similar arrangements entitling such Borrower to discounts on future purchase therefrom, (iii) to the extent constituting amounts owed with respect to loans or advances, or (iv) to the extent relating to payment of interest, fees or late charges;

n)            (i) the goods giving rise to such Account have not been delivered to (other than Accounts in an aggregate amount not to exceed $500,000 to the extent Agent has received a bill and hold agreement executed and delivered by the Account Debtor which is a domestic Account Debtor thereof in form and substance acceptable to Agent) and accepted by the Account Debtor or the services giving rise to such Account have not been performed by the applicable Borrower and accepted by the Account Debtor or the Account otherwise does not represent a final sale; and (ii) all Accounts owing from foreign Account Debtors arising out of sales on bill-and-hold;

 

o)            Accounts arising out of guaranteed sale, sale‑or‑return, sale on approval or consignment basis or subject to any right of return, or arising from deposits;

p)            Accounts arising out of sales to Account Debtors outside the United States or Canada unless either (i) such Accounts are fully backed by an irrevocable letter of credit on terms, and issued by a financial institution, reasonably acceptable to Agent and such irrevocable letter of credit is in the possession of Agent, or (ii) such Accounts are supported by credit insurance reasonably acceptable to Agent, naming Agent as an additional insured;

q)            Accounts that are evidenced by a judgment, Instrument or Chattel Paper;

r)             Accounts due from an Account Debtor and its Affiliates, the aggregate of which Accounts due from such Account Debtor represents more than fifteen percent (15%) (such percentage to be increased solely with respect to (i) Accounts due from Lowe's to twenty-five percent (35%), (ii) Accounts due from Menards to twenty percent (25%) and (iii) other Accounts approved in writing (which may include via email, and shall specify the applicable increased percentage) by Agent in its Permitted Discretion) of all then outstanding Accounts owed to the Borrowers, provided that in each case the portion of the Accounts of any Account Debtor not in excess of the applicable percentage for such Account Debtor that otherwise satisfy the criteria set forth herein will be deemed Eligible Accounts;

s)            Accounts constituting Permitted Investments made in accordance with Section 8.03(b);

t)             Accounts that remain open after the applicable Account Debtor has made a partial payment in respect of the applicable invoice (whether or not the applicable Account Debtor has provided an explanation for such partial payment);

u)            Accounts where the applicable Account Debtor tendered a check or other item of payment in full or partial satisfaction and such check or other item of payment has been returned by the financial institution on which it is drawn;

v)            Accounts for which payment has been received by the applicable Borrower but such payment has not been applied to the applicable Account; or

w)           Accounts created on cash on delivery or cash in advance terms.

"Eligible Assignee" means (a) a Credit Party or any of its Affiliates; (b) a bank or other financial institution engaged in the business of making commercial loans having a combined capital and surplus in excess of $300,000,000 approved by Agent (such approval not to be unreasonably withheld or delayed); (c) an Approved Fund; (d) any Person to whom a Credit Party assigns its rights and obligations under this Agreement as part of an assignment and transfer of such Credit Party's rights in and to a material portion of such Credit Party's portfolio of asset based credit facilities, and (e) any other Person (other than a natural person) approved by (i) Agent, the L/C Issuer and the Swing Line Lender, and (ii) unless an Event of Default has occurred and is continuing, the Borrower Agent (each such approval not to be unreasonably withheld or delayed); provided that, notwithstanding the foregoing, "Eligible Assignee" shall not include (x) a Defaulting Lender, (y) an Affected Lender or (z) a Disqualified Institution.

 

"Eligible Equipment" means all Equipment that is determined by Agent, in its Permitted Discretion to be Eligible Equipment.  Except as otherwise agreed by Agent, none of the following shall be deemed to be Eligible Equipment:

a)            Equipment that is not owned by a Borrower;

b)            Equipment that is subject to any Lien other than Permitted Liens which do not have priority over the Lien in favor of Agent;

c)            Equipment with respect to which Agent does not have a first priority perfected Lien;

d)            Equipment that does not comply with each of the representations and warranties or covenants respecting Equipment made by the Borrowers in the Loan Documents;

e)            Equipment that is not installed and located in a facility owned by a Borrower or leased by a Borrower (and if leased subject at all times to a Lien Waiver, provided that Agent may, in its sole discretion, elect to establish an appropriate Rent and Charges Reserve if no Lien Waiver has been delivered to Agent);

f)             Equipment that is not in good operating condition (ordinary wear and tear excepted);

g)            Equipment that is not located within the continental United States (excluding Alaska);

h)            Equipment that is obsolete or surplus Equipment or not otherwise used by Borrower in its operations on a regular basis; and

i)             Equipment that is not included in the equipment appraisal most-recently obtained and approved by Agent prior to the Closing Date.

"Eligible Inventory" means Inventory of the Borrowers that is determined by Agent, in its Permitted Discretion, to be Eligible Inventory.  Except as otherwise agreed by Agent, the following items of Inventory shall not be included in Eligible Inventory:

a)            Inventory that is not solely owned by a Borrower or a Borrower does not have good and valid title thereto;

b)            Inventory that (i) does not consist of finished goods or raw materials or (ii) is not readily saleable in the Ordinary Course of Business;

c)            Inventory that does not comply with each of the representations and warranties or covenants respecting Inventory made by the Borrowers in the Loan Documents;

d)           Inventory that is leased by or is on consignment to a Borrower;

e)            Inventory that is not located (i) in the United States of America or Canada (excluding territories or possessions of the United States or Canada) and (ii) at a location that is owned or leased by a Borrower, except (in the case of this clause (ii)) to the extent that such Borrower has furnished to Agent (A) any UCC or PPSA financing statements or other documents that Agent may reasonably determine to be necessary to perfect its security interest in such Inventory at such location, and (B) a Lien Waiver or agreement to repurchase such Inventory executed by the Person owning any such location on terms reasonably acceptable to Agent or Agent, in its sole discretion, has elected not to exclude Inventory at such location notwithstanding that no such Lien Waiver or other agreement has been delivered to Agent by virtue of Agent establishing a Rent and Charges Reserve with respect to such location;

 

f)             Inventory that is the subject of a consignment by a Borrower as consignor;

g)            Inventory that is in transit, except (i) Inventory in transit between locations of Borrowers (or between locations of Borrowers and processors in the Ordinary Course of Business) and (ii) Eligible In-Transit Inventory;

h)          Inventory that is comprised of goods which (i) are damaged, defective, "seconds," or otherwise unmerchantable, (ii) have been returned or are to be returned to the vendor, (iii) are obsolete or slow moving, (iv) are work-in-process (unless work-in-progress approved by Agent and included in the most-recent inventory appraisal approved by Agent), (v) that constitute spare parts, discontinued products, promotional, marketing, packaging and shipping materials or supplies used or consumed in the Borrowers' business and other similar non-merchandise categories; (vi) are not in compliance with all standards imposed by any Governmental Authority having regulatory authority over such Inventory, its use or sale;  (vii) are bill and hold goods; (viii) are subject to any warehouse receipt, bill of lading or negotiable Document; (ix) are in excess of $25,000 in the aggregate and are located on leased premises or in the possession of a warehouseman, bailee, processor, repairman, mechanic, shipper, freight forwarder or other Person, unless the lessor or such Person has delivered a Lien Waiver to Agent, provided that Agent may, in its sole discretion, elect to establish an appropriate Rent and Charges Reserve if no Lien Waiver has been delivered to Agent; or (x) constitute Hazardous Materials;

i)             Inventory that is not subject to a perfected first priority Lien in favor of Agent (subject only to Permitted Liens set forth in clauses (c), (d) or (l) of Section 8.01 hereof) or which do not have priority over the Lien in favor of Agent;

j)             Inventory that is not insured in compliance with the provisions of this Agreement and the other Loan Documents;

k)            Inventory not on a perpetual schedule;

l)             Inventory that has been sold but not yet delivered; or

m)           Inventory that is subject to any License or other arrangement that restricts such Borrower's or Agent's right to dispose of such Inventory, unless (i) Agent has received an appropriate Lien Waiver, and (ii) such Borrower has not received notice of a dispute in respect of any such License or other arrangement.

"Eligible In-Transit Inventory" means, as of any date of determination thereof, without duplication of other Eligible Inventory, Inventory:

a)            which has been shipped from within the continental United States or Canada for receipt by a Borrower within fifteen (15) days of the date of determination, but which has not yet been delivered to a Borrower;

 

b)            for which the purchase order is in the name of a Borrower and title has passed to such Borrower;

 

c)            for which the document of title reflects a Borrower as consignee or, if requested by Agent, names Agent as consignee, and in each case as to which Agent has control over the documents of title which evidence ownership of the subject Inventory (such as, if applicable and if requested by Agent, by the delivery of a Customs Broker Agreement);

d)            which is insured to the reasonable satisfaction of Agent, with loss payable to Agent; and

e)            which otherwise would constitute Eligible Inventory.

"Eligible Real Estate" means Real Estate of the Borrowers that is determined by Agent in its Permitted Discretion to be Eligible Real Estate, except as otherwise agreed by Agent in good faith, Real Estate shall be Eligible Real Estate if it satisfies all of the following conditions:

a)            a Borrower owns fee title;

b)           the applicable Borrower has executed and delivered to Agent such Mortgages and other documents as Agent may reasonably request;

c)            the applicable Borrower shall have delivered to Agent with respect to each parcel of Eligible Real Estate all Mortgage Related Documents and other real estate items as required by FIRREA and reasonably satisfactory to Agent;

d)            Agent has a perfected first priority Lien in such Real Estate (subject only to Permitted Liens set forth in clauses (c), (d) and (g) of Section 8.01);

e)            such parcel of Real Estate has been appraised by a third party appraiser  engaged by Agent;

f)            as to any particular property, the Borrower is in compliance with the representations, warranties and covenants set forth in Sections 6.09 and 7.18 hereof and in the Mortgage relating to such Real Estate, unless Agent, in its discretion, otherwise waives such requirement in the determination of Eligible Real Estate; and

g)           such Real Estate is not deemed by Agent in its Permitted Discretion to be ineligible for inclusion in the calculation of the Borrowing Base.

"Encina" means Encina Business Credit SPV, LLC, a Delaware limited liability company.

"Environmental Laws" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

"Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of a Loan Party or any of its Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

 

Date of Termination	Applicable Percent
On or prior to the first anniversary of the Closing Date	3.00%
After the first anniversary of the Closing Date but on or prior to the second anniversary of the Closing Date	1.50%

(x)  If to Agent, L/C Issuer or Swing Line Lender:

c/o Encina Business Credit 111 West Jackson, Suite 1700 Chicago, Illinois  60604 Attention:  Account Manager – Katy Facsimile No.:  (855) 675-0537

	With a copy to:	Goldberg Kohn Ltd. 55 East Monroe, Suite 3300 Chicago, Illinois 60603 Attention:  Jeffrey Dunlop Facsimile No.:  312-863-7828
	(y)  If to a Loan Party:	Katy Industries, Inc. 11840 Westline Industrial Drive, Suite 200 St. Louis, Missouri 63146 Attention: Curt A. Kroll, Vice President and Chief Financial Officer Facsimile No.: (314) 739-8558
	With a copy to:	Katten Muchin Rosenman LLP 525 West Monroe Street Chicago, Illinois 60661-3693 Attention:  Michael A. Jacobson Facsimile No.:  (312) 902-1061