Exhibit 10.1
SECOND AMENDMENT TO CREDIT AGREEMENT
     THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of
Februar 12, 2008, is by and among SUNAIR SERVICES CORPORATION (f/k/a SUNAIR
ELECTRONICS, INC., a Florida corporation (the “Borrower”), each of those
subsidiaries of the Borrower party hereto (each a “Guarantor”, and collectively,
the “Guarantors”), the several banks and other financial institutions (the
“Lenders”) from time to time party to the Credit Agreement (defined below) and
WACHOVIA BANK, NATIONAL ASSOCIATION, as administrative agent for the Lenders
(the “Agent”).
RECITALS
     A. The Borrower, the Guarantors, the Lenders and the Agent have entered
into that certain Credit Agreement, dated as of June 7, 2005, as amended by that
certain First Amendment to Credit Agreement dated May 14, 2007 (as amended,
supplemented or otherwise modified, the “Credit Agreement”).
     B. The Borrower, the Guarantors, the Lenders and the Agent have agreed to
modify the Credit Agreement as follows:
     NOW, THEREFORE, the parties hereto agree as follows:
     1. The Credit Agreement is hereby amended as follows:
     (a) Section 1.1 is hereby amended by amending in their entirety the
following definitions so that such definitions now read as follows:
     “Applicable Percentage” shall mean, for any day, five percent (5%).
     “Consolidated EBITDA” shall mean, for any applicable period of computation,
(a) Consolidated Net Income for such period plus (b) the sum of the following to
the extent deducted in calculating Consolidated Net Income: (i) Consolidated
Interest Expense for such period, (ii) the provision for Federal, state, local
and foreign income taxes payable by the Borrower and its Subsidiaries for such
period, (iii) depreciation and amortization expense for such period, (iv) other
non-cash expenses of the Borrower and its Subsidiaries, including, but not
limited to, stock based compensation, equity based compensation, bad debt
reserves, goodwill impairment and any other non-cash expenses reflected on the
Borrower’s financial statements, and (v) after October 1, 2007, any accrued but
unpaid management fees due to RPC Financial Advisors, LLC; provided, however,
any such management fees that are actually paid shall be deducted from the
Consolidated EBITDA during the period paid.
     “Funded Debt” shall mean, with respect to any Person, without duplication,
(a) all obligations of such Person for borrowed money, (b) all obligations of
such Person evidenced by bonds, debentures, notes or similar instruments, or
upon which interest payments are customarily made, including, without
limitation, all Indebtedness of Borrower to any Seller that is not

 

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Subordinated Debt, (c) all obligations of such Person under conditional sale or
other title retention agreements relating to property purchased by such Person
(other than customary reservations or retentions of title under agreements with
suppliers entered into in the ordinary course of business), (d) all obligations
of such Person issued or assumed as the deferred purchase price of property or
services purchased by such Person (other than trade debt incurred in the
ordinary course of business and due within six months of the incurrence thereof)
which would appear as liabilities on a balance sheet of such Person, (e) the
principal portion of obligations of such Person under Capital Leases, (f) the
maximum amount of all letters of credit issued or bankers’ acceptances
facilities created for the account of such Person and, without duplication, all
drafts drawn thereunder (to the extent reimbursed), including, without
limitation, all LOC Obligations, (g) all preferred Capital Stock issued by such
Person and which by the terms thereof could be (at the request of the holders
thereof or otherwise) subject to mandatory sinking (fund payments, redemption or
other acceleration, (h) the principal balance outstanding under any synthetic
lease, tax retention operating lease, off-balance sheet loan or similar
off-balance sheet financing product, (i) obligations of such Person under
non-compete agreements to the extent such obligations have been determined,
(j) all obligations of such Person under Hedging Agreements, excluding any
portion thereof which would be accounted for as interest expense under GAAP,
(k) all Indebtedness of others of the type described in clauses (a) through
(j) hereof secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien on, or
payable out of the proceeds of production from, property owned or acquired by
such Person, whether or not the obligations secured thereby have been assumed,
(l) all Guaranty Obligations of such Person with respect to Indebtedness of
another Person of the type described in clauses (a) through (j) hereof, and
(m) all Indebtedness of the type described in clauses (a) through (j) hereof of
any partnership or unincorporated joint venture in which such Person is a
general partner or a joint venturer; provided, however, that Funded Debt shall
not include Indebtedness among the Credit Parties.
     “Revolving Commitment Termination Date” shall mean January 7, 2009.
     (b) Section 2.1(a) is amended in its entirety so that such Section now
reads as follows:
     (a) Revolving Commitment. During the Commitment Period, subject to the
terms and conditions hereof, each Lender severally agrees to make revolving
credit loans (“Revolving Loans”) to the Borrower from time to time for the
purposes hereinafter set forth; provided, however, that (i) with regard to each
Lender individually, the sum of such Lender’s share of outstanding Revolving
Loans plus such Lender’s LOC Commitment Percentage of LOC Obligations shall not
exceed such Lender’s Revolving Commitment Percentage of the aggregate Revolving
Committed Amount, and (ii) with regard to the Lenders collectively, the sum of
the aggregate amount of outstanding Revolving Loans plus LOC Obligations shall
not exceed the aggregate Revolving Committed Amount then in effect. For purposes
hereof, the, aggregate amount available

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hereunder shall be THIRTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($13,500,000)
(as such aggregate maximum amount may be reduced from time to time as provided
in Section 2.4 including, without limitation, scheduled mandatory reductions and
the maintenance of Reserves, the “Revolving Committed Amount”). Revolving Loans
may consist of Floating LIBOR Rate Loans or Fixed LIBOR Rate Loans, or a
combination thereof, as the Borrower may request, and may be repaid and
reborrowed in accordance with the provisions hereof; provided, however, the
Revolving Loans made on the Closing Date or on either of the two Business Days
immediately following the Closing Date may only consist of Floating LIBOR Rate
Loans. Fixed LIBOR Rate Loans shall be made by each Lender at its LIBOR Lending
Office and Floating LIBOR Rate Loans at its Domestic Lending Office.
     (c) Section 2.4(b) is amended in its entirety so that such Section now
reads as follows:
     (b) Mandatory Reductions. The Revolving Commitment Amount shall be reduced
to $12,750,000 on June 30, 2008, and to $11,750,000 on September 30, 2008. In
addition, in the event of the disposition of Telecom FL Limited, all cash
proceeds resulting from such disposition shall be paid to the Agent and shall be
applied to permanently reduce the Revolving Commitment.
     (d) Section 5.9(a) is amended in its entirety so that such Section now
reads as follows:
     (a) Leverage Ratio. The Leverage Ratio shall be less than or equal to the
following amounts as of the last day of each fiscal quarter ending during the
following periods:

                    Period     Maximum Ratio    
Through December 31, 2007
      5.68      
January 1, 2008 through March 31, 2008
      10.50      
April 1, 2008 through June 30, 2008
      9.63      
July 1, 2008 through January 7, 2009
      4.22      

     (e) Section 5.9(b) is amended in its entirety so that such Section now
reads as follows:
     (b) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio shall be
at least the following amounts as of the last day of each fiscal quarter ending
during the following periods:

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                    Period     Maximum Ratio    
Through December 31, 2007
      1.00      
January 1, 2008 through March 31, 2008
      0.95      
April 1, 2008 through June 30, 2008
      1.00      
July 1, 2008 through January 7, 2009
      1.14      

     (f) Section 5.9(c) is amended in its entirety so that such Section now
reads as follows:
     (c) Consolidated EBITDA. Consolidated EBITDA shall be at least each of the
following amounts for each of the following amounts for each of the rolling four
fiscal quarterly periods ending as of the last day of each fiscal quarter ending
during the following periods:

                    Period     Minimum Amount    
Through December 31, 2007
    $ 1,690,000      
January 1, 2008 through March 31, 2008
    $ 1,027,000      
April 1; 2008 through June 30, 2008
    $ 1,141,000      
July 1, 2008 through January 7, 2009
    $ 2,373,000      

     2. In connection with the execution of this Second Amendment, Borrower
agrees to pay the Agent a loan modification fee in the amount of $70,000 on the
date hereof and this Second Amendment shall not be effective until the receipt
in full of such amount.
     3. Borrower agrees to execute such additional documents as are reasonably
requested by the Agent to reflect the terms and conditions of this Second
Amendment and will cause to be delivered such certificates, legal opinions and
other documents as are reasonably required by the Agent. In addition, the
Borrower will pay all costs and expenses in connection with the preparation,
execution and delivery of the documents executed in connection with this
transaction, including, without limitation, the reasonable fees and
out-of-pocket expenses of special counsel to the Agent as well as any and all
filing and recording fees and stamp and other taxes with respect thereto and to
save the Agent harmless from any and all such costs, expenses and liabilities.
     4. Except as expressly amended hereby, all of the provisions of the Credit
Agreement and the Credit Documents shall remain unchanged and shall continue to
be, and shall remain, in full force and effect in accordance with their
respective terms. The amendments set forth herein shall be limited precisely as
provided for herein to the provisions expressly amended herein and any waivers
of any provisions of the Credit Agreement or other Credit Documents granted
prior to the date hereof shall be limited to such waiver on the date waived and,
in each case, the amendments and the waivers shall not be deemed to be a waiver
of, an amendment to, consent to or modification of any other term or provision
of the Credit Agreement or any other

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Credit Document or of any transaction or further or future action on the part of
the Borrower which would require the consent of the` Lenders under the Credit
Agreement or any of the Credit Documents.
     5. This Second Amendment is a Credit Document executed pursuant to the
Credit Agreement and shall (unless otherwise expressly indicated therein) be
construed, administered and applied in accordance with the terms and provisions
of the Credit Agreement.
     6. At such time as this Second Amendment shall become effective, all
references in the Credit Documents to the “Credit Agreement” shall be deemed to
refer to the Credit Agreement as amended by this Second Amendment.
     7. This Second Amendment shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
     8. This Second Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original, and it
shall not be necessary in making proof of this Second Amendment to produce or
account for more than one counterpart.
     9. THIS SECOND AMENDMENT AND THE OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN
CONNECTION HEREWITH (UNLESS SPECIFICALLY STIPULATED TO THE CONTRARY IN SUCH
DOCUMENT OR AGREEMENT), AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
AND THEREUNDER, SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NORTH CAROLINA WITHOUT REGARD TO CONFLICTS OF
LAWS PRINCIPLES.
[Execution pages follow]

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     IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to
be duly executed and delivered by its proper and duly authorized officers as of
the day and year first above written.

          BORROWER:   SUNAIR SERVICES CORPORATION (f/k/a/ SUNAIR ELECTRONICS,
INC.)
      By:   /s/ John Hayes         Name:   JOHN HAYES         Title:  
President      GUARANTORS:   MIDDLETON PEST CONTROL, INC.
      By:   /s/ John Hayes         Name:   JOHN HAYES         Title:  
President        SUNAIR SOUTHEAST PEST HOLDINGS, INC.
      By:   /s/ John Hayes         Name:   JOHN HAYES         Title:  
President        SUNAIR PEST HOLDINGS, INC.
      By:   /s/ John Hayes         Name:   JOHN HAYES         Title:  
President        SUNAIR HOLDINGS, INC. (f/k/a Sunair Services Corporation
      By:   /s/ John Hayes         Name:   JOHN HAYES         Title:  
President   

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            SUNAIR COMMUNICATIONS, INC.
      By:   /s/ John Hayes         Name:   JOHN HAYES         Title:  
President        SUNAIR FLORIDA PEST HOLDINGS, INC.
      By:   /s/ John Hayes         Name:   JOHN HAYES         Title:  
President     

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          ADMINISTRATIVE AGENT AND LENDERS:   WACHOVIA BANK, NATIONAL
ASSOCIATION, as Administrative Agent and as a Lender
      By:   /s/ Marinus Otle         Name:   Marinus Otle         Title:  
Senior Vice President     

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