Exhibit 10.1

SECOND AMENDMENT TO

CREDIT AGREEMENT AND TERM NOTE

BY AND AMONG

ACR GROUP, INC.

as Borrower,

and

WELLS FARGO BANK, NATIONAL ASSOCIATION

as Bank

and

SUBSIDIARIES OF BORROWER

Listed on the Signature Page Hereto

Effective as of June 14, 2006

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TABLE OF CONTENTS

 

           Page

ARTICLE I DEFINITIONS; CONSTRUCTION

   2     Section 1.01   

Terms Defined Above

   2 Section 1.02   

Terms Defined in Credit Agreement

   2 Section 1.03   

Other Provisions

   2

ARTICLE II AMENDMENTS TO CREDIT AGREEMENT

   3 Section 2.01   

Amendments to Section 1.1 – DEFINITIONS, RULES OF INTERPRETATION

   3 Section 2.02   

Amendment to Section 1.2 – LINE OF CREDIT

   5 Section 2.03   

Amendment to Section 1.3 – TERM COMMITMENT

   5 Section 2.04   

Amendment to Section 1.6 – COLLATERAL

   6 Section 2.05   

Amendment to Section 2.1 – LEGAL STATUS

   6 Section 2.06   

Amendment to Section 2.5 – CORRECTNESS OF FINANCIAL STATEMENT

   7 Section 2.07   

Amendment to Section 2.14 – NO DISRUPTION, ETC.

   7 Section 2.08   

Amendment to Schedule 2.15 – LIST OF SUBSIDIARIES

   7 Section 2.09   

Amendment to Section 4.9 – FINANCIAL COVENANTS

   9 Section 2.10   

Amendment to Section 5.10 – REPURCHASE OF STOCK

   10

ARTICLE III AMENDMENT TO TERM NOTE

   10 Section 3.01   

Amendment to Paragraph on BORROWING AND REPAYMENT

   10

ARTICLE IV CONDITIONS

   10 Section 4.01   

Loan Documents

   10 Section 4.02   

Corporate Proceedings of Borrower and Guarantors

   12 Section 4.03   

Representations and Warranties

   12 Section 4.04   

No Default

   12 Section 4.05   

No Change

   12 Section 4.06   

Security Instruments

   13 Section 4.07   

Other Instruments or Documents

   13 Section 4.08   

Fees

   13

ARTICLE V MISCELLANEOUS

   13 Section 5.01   

Adoption, Ratification and Confirmation

   13 Section 5.02   

Successors and Assigns

   13 Section 5.03   

Counterparts; Delivery of Telecopy Signature Pages

   13 Section 5.04   

Entire Agreement

   13 Section 5.05   

Invalidity

   13 Section 5.06   

Titles of Articles, Sections and Subsections

   14 Section 5.08   

Governing Law

   14

 

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SECOND AMENDMENT TO

CREDIT AGREEMENT AND TERM NOTE

This SECOND AMENDMENT TO CREDIT AGREEMENT AND TERM NOTE (as amended, amended and
restated, modified, supplemented or extended from time to time, this “Second
Amendment”) executed effective as of the 14th day of June, 2006 (the “Effective
Date”), is by and among ACR GROUP, INC., a corporation formed under the laws of
the State of Texas (“Borrower”) and WELLS FARGO BANK, NATIONAL ASSOCIATION
(together with its successors and assigns, “Bank”). The subsidiaries set forth
on the signature pages hereto (collectively, the “Subsidiaries”) join in the
execution hereof to acknowledge their consent with respect to the other Loan
Documents required to be entered into and delivered pursuant to Article IV
hereof.

R E C I T A L S:

A. Borrower and Bank are parties to that certain Credit Agreement dated as of
September 7, 2004, pursuant to which Bank agreed, subject to certain terms and
conditions, to extend credit to Borrower.

B. Pursuant to the terms and conditions of said September 7, 2004 Credit
Agreement, Borrower executed and delivered to Bank, among other things, (i) that
certain Term Loan Note dated as of September 7, 2004 in the original principal
amount of $5,000,000.00 (the “Term Note”) and (ii) that certain Line of Credit
Note dated as of September 7, 2004 in the face amount of $30,000,000.00 (the
“Line of Credit Note”).

C. In connection with its execution of said September 7, 2004 Credit Agreement,
and in order to secure Borrower’s obligations governed thereby, Borrower,
certain subsidiaries of Borrower, and Bank (as applicable) entered into (i) that
certain Deed of Trust and Assignment of Rents and Leases dated as of
September 7, 2004 by Lifetime Filter, Inc., a Texas corporation and subsidiary
of Borrower as Grantor, and Mr. Danny Oliver as Trustee for the benefit of Bank,
(ii) that certain Deed of Trust and Assignment of Rents and Leases dated as of
September 7, 2004 by ACR Supply, Inc., a Texas corporation and subsidiary of
Borrower as Grantor, and Mr. Danny Oliver as Trustee for the benefit of Bank,
(iii) that certain Pledge Agreement dated as of September 7, 2004 between
Borrower and Bank, (iv) that certain Continuing Guaranty dated as of
September 7, 2004, executed by Borrower its subsidiaries and (v) that certain
Security Agreement dated as of September 7, 2004, executed by Borrower and its
subsidiaries.

D. Borrower and certain subsidiaries and Bank entered into an amendment of said
September 7, 2004 Credit Agreement (and the other loan and security documents
referred to above) pursuant to that certain First Amendment to Credit Agreement,
Term Loan Note, Line of Credit Note, Security Agreement, Deeds of Trust and
Assignment of Rents and Leases, Pledge Agreement and Continuing Guaranty dated
effective as of August 31, 2005 (together with said September 7, 2004 Credit
Agreement as so amended and as may be further amended, amended and restated,
modified, supplemented or extended from time to time, including by this Second
Amendment, the “Credit Agreement”).

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E. Borrower and its Subsidiaries are undertaking a corporate restructuring (the
“Restructure”), including (i) the merger of certain Subsidiaries, (ii) the
formation of certain new limited partnerships and transfer of certain assets
owned by certain Subsidiaries and related operations thereto, (iii) the
formation of new limited liability companies, and (iv) the continuance of
certain Subsidiaries as Nevada corporations.

F. Borrower and its Subsidiaries have requested that Bank agree to amendments to
the Credit Agreement and other Loan Documents required as a result of the
Restructure, all as further described hereinafter.

G. In addition, Borrower has requested that Bank increase the line of credit
under the Credit Agreement to Forty Million and 00/100 Dollars ($40,000,000.00).

H. Bank has agreed to do so provided that the conditions precedent set forth in
Article IV hereof are satisfied, it being expressly agreed and understood that
but for the Borrower’s and Subsidiaries’ agreement to enter into and deliver the
agreements described in Article IV hereof, Bank would not so agree or enter into
this Second Amendment or any other of the Loan Documents referred to therein.

I. Accordingly, Borrower, Borrower’s Subsidiaries and Bank desire further to
amend the Credit Agreement and the Loan Documents, all in the particulars
hereinafter provided.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

ARTICLE I

DEFINITIONS; CONSTRUCTION

Section 1.01 Terms Defined Above. As used in this Second Amendment, each of the
terms defined herein (including, without limitation, in the introductory
paragraph and the Recitals above) shall have the meaning assigned to such terms
herein.

Section 1.02 Terms Defined in Credit Agreement. Each term defined in the Credit
Agreement and used herein without definition shall have the meaning assigned to
such term in the Credit Agreement, unless provided to the contrary.

Section 1.03 Other Provisions.

(i) The words “hereby”, “herein”, “hereinafter”, “hereof”, “hereto” and
“hereunder” when used in this Second Amendment shall refer to this Second
Amendment as a whole and not to any particular Article, Section, subsection or
provision of this Second Amendment, unless provided to the contrary.

(ii) Section, subsection and Exhibit references herein are to such Sections,
subsections and Exhibits to this Second Amendment unless otherwise specified.

 

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(iii) Whenever the context requires, reference herein made to the single number
shall be understood to include the plural; and likewise, the plural shall be
understood to include the singular. Words denoting gender shall be construed to
include the masculine, feminine and neuter, when such construction is
appropriate; and specific enumeration shall not exclude the general but shall be
construed as cumulative. Definitions of terms defined in the singular or plural
shall be equally applicable to the plural or singular, as the case may be,
unless otherwise indicated.

ARTICLE II

AMENDMENTS TO CREDIT AGREEMENT

Borrower and Bank agree that the Credit Agreement is hereby amended in the
following particulars:

Section 2.01 Amendments to Section 1.1 – DEFINITIONS, RULES OF INTERPRETATION.

(a) Section 1.1(a) of the Credit Agreement is hereby amended by deleting each of
the definitions of “Deeds of Trust,” “Guaranty,” “Line of Credit Note,” “Loan
Documents,” “Pledge Agreement,” “Security Agreement,” “Subsidiary,” and
“Termination Date,” and, substituting, respectively, the following definitions
therefor in their entirety:

“Deeds of Trust” means that certain Deed of Trust and Assignment of Rents and
Leases dated June 14, 2006 by ACR Supply, LP, a Texas limited partnership, to
Danny Oliver, Trustee, for the benefit of Bank, as amended, restated,
supplemented or otherwise modified from time to time and that certain Amended
and Restated Deed of Trust and Assignment of Rents and Leases dated June 14,
2006 by Lifetime Filter, Inc., a Texas corporation, to Danny Oliver, Trustee,
for the benefit of Bank (which amends and restates that certain Deed of Trust
and Assignment of Rents and Leases dated September 7, 2004 by Lifetime Filter,
Inc., to Danny Oliver, Trustee, for the benefit of Bank), as amended restated
supplemented or otherwise modified from time to time.

“Guaranty” means that certain Continuing Guaranty dated June 14, 2006 made by
the Subsidiaries to Bank, as amended, restated, supplemented or otherwise
modified from time to time and that certain Continuing Guaranty dated
September 7, 2004 made by the Subsidiaries to the Bank.

“Line of Credit Note” means, that certain line of Credit Note dated as of
September 7, 2004 made by Borrower payable to the order of Bank with a face
amount of Thirty Million Dollars ($30,000,000), that certain Line of Credit Note
dated as of August 31, 2005 made by Borrower payable to the order of Bank with a
face amount of Thirty-Five Million Dollars ($35,000,000), restating and amending
in part said September 7, 2004 Line of Credit Note, and that certain Second
Amended and Restated Line of Credit Note dated as of June 14, 2006 made by
Borrower payable to the order of Bank with a face amount of Forty Million
Dollars ($40,000,000), restating and amending in part said August 31, 2005 Line
of Credit Note and the September 7, 2004 Line of Credit Note, all evidencing the
Line of Credit in an aggregate

 

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principal amount not to exceed Forty Million Dollars ($40,000,000) at any time
outstanding, and any amendments and modifications thereto, any substitutes
therefor, together with any replacements, restatements, renewals or extensions
thereof, in whole or in part.

“Loan Documents” means, collectively this Agreement, the Term Loan Note, the
Line of Credit Note, the Guaranty, the Security Agreement, Pledge Agreement, the
Pledge Agreement of Partnership Interests, the Deeds of Trust, and each other
document, instrument, certificate and agreement now or hereafter executed and
delivered by the Borrower or any Subsidiary thereof, including, without
limitation, any and all interest rate swap or similar agreements, in connection
with this Agreement or otherwise referred to herein or contemplated hereby
(including, without limitation, the First Amendment and the Second Amendment),
all as may be amended, restated, amended and restated, supplemented, renewed,
extended or otherwise modified from time to time and including any document
instrument or other agreement given in renewal or substitution for any of the
foregoing.

“Pledge Agreement” means that certain Amended and Restated Pledge Agreement
dated as of June 14, 2006 by and between Borrower and Bank (which amends and
restates that certain Pledge Agreement dated as of September 7, 2004 by and
between Borrower and Bank), as amended, restated, supplemented or otherwise
modified from time to time.

“Security Agreement” means that certain Amended and Restated Security Agreement
dated June 14, 2006 by and among the Borrower, Subsidiaries, and Bank (which
amends and restates that certain Security Agreement dated as of September 7,
2004 by and among Borrower, Subsidiaries and Bank), as amended, restated,
supplemented or otherwise modified from time to time.

“Subsidiary” of a Person means, at any time of determination and whether now or
hereafter existing, a corporation, partnership, limited partnership, joint
venture, limited liability company or other business entity of which a majority
of the shares of securities or other interests having ordinary voting power for
the election of directors or other governing body (other than securities or
interests having such power only by reason of the happening of a contingency)
are at the time beneficially owned, or the management of which is otherwise
controlled, directly, or indirectly through one or more intermediaries, or both,
by such Person. Unless otherwise specified, all references herein to a
“Subsidiary” shall refer to a Subsidiary of the Borrower.

“Termination Date” means, the earliest to occur of (i) August 31, 2008 and
(ii) the termination of Bank’s obligation to extend further credit pursuant to
Section 6.2 of the Credit Agreement.

(b) Section 1.1(a) of the Credit Agreement is hereby amended by adding the
following definitions thereto:

“First Amendment” means that certain First Amendment to Credit Agreement, Term
Loan Note, Line of Credit Note, Security Agreement, Deeds of Trust and
Assignments of Rents and Leases, Pledge Agreement and Continuing Guaranty
effective as of August 31, 2005 by and among Borrower, Bank and the subsidiaries
of Borrower therein set forth.

 

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“Pledge Agreement of Partnership Interests” means that certain Pledge Agreement
of Partnership Interests dated as of June 14, 2006 by and among ACR Supply, LLC,
a Nevada limited liability company, Westbrook GP, LLC, a Texas limited liability
company, Heating and Cooling Supply, LLC, a Nevada limited liability company and
Bank, as amended, restated, supplemented or otherwise modified from time to
time.

“Second Amendment” means that certain Second Amendment to Credit Agreement and
Term Note dated as of June 14, 2006 by and among Borrower, Subsidiaries and
Bank.

Section 2.02 Amendment to Section 1.2 – LINE OF CREDIT. Section 1.2(a) of the
Credit Agreement is hereby amended and supplemented by deleting the first
sentence of Section 1.2(a) and replacing it with the following:

“Subject to the terms and conditions of this Agreement, Bank hereby agrees to
make advances to Borrower from time to time up to and including the Termination
Date (howsoever occurring), in an aggregate principal amount not to exceed at
any time outstanding FORTY MILLION AND NO/100 DOLLARS ($40,000,000) (“Line of
Credit”), the proceeds of which shall be used only for general business purposes
of the Borrower and its Subsidiaries, including working capital and routine
capital expenditures made in the ordinary course of business, the repurchase of
Stock as set forth in Section 5.10 below, and for no other purpose.”

Section 2.03 Amendment to Section 1.3 – TERM COMMITMENT. Section 1.3(c) of the
Credit Agreement is hereby deleted in its entirety and replaced with the
following:

“Borrowing and Repayment. Borrower may from time to time during the period in
which Bank will make advances under the Term Commitment borrow and partially or
wholly repay its outstanding borrowings subject to all the limitations, terms
and conditions contained herein; provided, however, and it is expressly agreed
and understood by Borrower, that amounts repaid may not be reborrowed, and
provided, further, that the total amount advanced under the Term Commitment
shall not at any time exceed FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00),
subject, however, to the limitations set forth in clause (b) above of this
Section 1.3. Repayment of the Term Loan Note shall be made in accordance with
the following terms, as applicable (i) in the case of advances made for
equipment purchases and in the case of the Existing B of A Indebtedness
refinanced hereby to the extent such indebtedness was used to finance equipment
purchases (together with accrued, unpaid interest thereon, if any), principal
shall be amortized over seven (7) years from the date of the relevant advance
and shall be repaid in equal monthly installments based on such amortization,
plus interest, and with a balloon payment of all remaining principal together
with all accrued, unpaid interest thereon, being due and payable in full in one
lump sum payment on August 31, 2008; (ii) in the case of advances made for real
estate

 

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purchases and in the case of the Existing B of A Indebtedness refinanced hereby
to the extent such indebtedness was used to finance the purchase of real estate
(together with accrued, unpaid interest thereon, if any), principal shall be
amortized over fifteen years with a balloon payment of all remaining principal,
together with all accrued, unpaid interest thereon, being due and payable in
full in one lump sum payment on August 31, 2008; and shall be repaid in equal
monthly installments based on such amortization, plus interest thereon, all as
further set forth in the Term Loan Note.”

Section 2.04 Amendment to Section 1.6 – COLLATERAL. Section 1.6 of the Credit
Agreement is hereby deleted in its entirety and replaced with the following:

“As security for all indebtedness of Borrower to Bank due and to become due
hereunder or under any of the other Loan Documents or otherwise governed hereby
or by any of the other Loan Documents, whether principal, interest, fees,
expenses or otherwise (collectively, the “Obligations”) Borrower shall grant,
and shall cause each Subsidiary to grant, security interests of first priority
in all of Borrower’s and each Subsidiary’s respective right, title and interest,
whether now or hereafter acquired or arising, in all of their respective
property, whether real, personal or mixed, (collectively and including the
proceeds thereof, the “Collateral”) and including, but not limited to, all
accounts, notes, intercompany notes, accounts receivable, inventory, machinery,
equipment, general intangibles, capital stock and real property, all as further
set forth in the Security Agreement, the Pledge Agreement, the Pledge Agreement
of Partnership Interests, and the Deeds of Trust.

All of the foregoing shall be evidenced by, and subject to the terms of, such
security agreements, financing statements, deeds of trust and other documents as
Bank shall reasonably require, all in form and substance satisfactory to Bank.
Borrower shall reimburse Bank immediately upon demand for all costs and expenses
incurred by Bank after the Closing Date in connection with any of the foregoing
security including without limitation filing and recording fees.”

Section 2.05 Amendment to Section 2.1 – LEGAL STATUS. Section 2.1 of the Credit
Agreement is hereby deleted in its entirety and replaced with the following:

“Borrower and each of its Subsidiaries is a corporation, limited liability
company or limited partnership duly organized and existing and in good standing
under the laws of the jurisdiction of its incorporation or formation, and is
qualified or licensed to do business and is in good standing in all
jurisdictions in which such qualification or licensing is required or in which
the failure to so qualify or to be so licensed could have a material adverse
effect on Borrower or such Subsidiary or Borrower and its Subsidiaries taken as
a whole.”

 

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Section 2.06 Amendment to Section 2.5 – CORRECTNESS OF FINANCIAL STATEMENT.
Section 2.5 of the Credit Agreement is hereby deleted in its entirety and
replaced with the following:

“Each of the (i) consolidated audited annual financial statements dated as of
February 28, 2006 and (ii) consolidated unaudited financial statements dated as
of April 30, 2006 of Borrower and its Subsidiaries, a true copy of which have
been delivered by Borrower to Bank prior to the date hereof (a) are complete and
correct and present fairly the financial condition of Borrower and its
Subsidiaries, (b) disclose all liabilities of Borrower and its Subsidiaries that
are required to be reflected or reserved against GAAP, whether liquidated or
unliquidated, fixed or contingent, or otherwise and (c) have been prepared in
accordance with GAAP consistently applied. Since the date of such financial
statements, there has been no material adverse change in the financial condition
of Borrower or any Subsidiary, nor has Borrower or any of its Subsidiaries
mortgaged, pledged, granted a security interest in or otherwise encumbered any
of its assets or properties except in favor of Bank or as otherwise permitted by
Bank in writing.”

Section 2.07 Amendment to Section 2.14 – NO DISRUPTION, ETC.. Section 2.14 of
the Credit Agreement is hereby deleted in its entirety and replaced with the
following:

“As of May 31, 2006 there has not occurred any disruption or other event or
circumstance which has had or could reasonably be expected to have a material
adverse effect on any industry from which a significant part of the business of
the Borrower or any of and its Subsidiaries is derived.”

Section 2.08 Amendment to Schedule 2.15 – LIST OF SUBSIDIARIES. Schedule 2.15 to
the Credit Agreement is hereby deleted in its entirety and replaced with the
following:

“Schedule 2.15

Subsidiaries of the Borrower

CAC Distributors, Inc., a Texas corporation

ETI Texas, Inc., a Tennessee corporation

Florida Cooling Supply, Inc., a Nevada corporation

Lifetime Filter, Inc., a Texas corporation

Total Supply, Inc., a Nevada corporation

Valley Supply, Inc., a Texas corporation

 

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West Coast HVAC Supply, Inc., a Nevada corporation

Heating and Cooling Supply, LLC, a Nevada limited liability company

Westbrook GP, LLC, a Texas limited liability company

Contractors Heating & Supply, LP, a Texas limited partnership

ACR Supply, LLC, a Nevada limited liability company

ACR Supply, LP, a Texas limited partnership.”

 

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Section 2.09 Amendment to Section 4.9 – FINANCIAL COVENANTS. Section 4.9(a) of
the Credit Agreement is hereby amended by deleting the chart set forth therein
in its entirety and replacing it with the following:

 

Fiscal Quarter Ending

  

Minimum

Tangible

Net Worth

8/31/2004

   $ 8,450,000

11/30/2004

   $ 8,825,000

2/28/2005

   $ 9,200,000

5/31/2005

   $ 9,575,000

8/31/2005

   $ 9,950,000

11/30/2005

   $ 10,325,000

2/28/2006

   $ 10,700,000

5/31/2006

   $ 11,075,000

8/31/2006

   $ 11,450,000

11/30/2006

   $ 11,825,000

2/28/2007

   $ 12,200,000

5/31/2007

   $ 12,575,000

8/31/2007

   $ 12,950,000

11/30/2007

   $ 13,325,000

2/28/2008

   $ 13,700,000

5/31/2008

   $ 14,075,000

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Section 2.10 Amendment to Section 5.10 – REPURCHASE OF STOCK. Section 5.10 of
the Credit Agreement is hereby amended by deleting the same in its entirety and
replacing it with the following:

“SECTION 5.10 REPURCHASE OF STOCK; NO VIOLATION OF REGULATION U. Borrower shall
not purchase or otherwise acquire its common stock or the common stock of any of
its Subsidiaries or affiliates in an amount in excess of $2,000,000 during any
fiscal year for Borrower and its Subsidiaries. Notwithstanding the foregoing
Borrower shall not use any of the proceeds of any advance pursuant to this
Agreement to “purchase” or “carry” “margin stock” (within the meaning of
Regulation U of the Federal Reserve Board of the United States of America
(12 CFR 221)) or in any way use any of such proceeds in violation of said
Regulation U.”

ARTICLE III

AMENDMENT TO TERM NOTE

Section 3.01 Amendment to Paragraph on BORROWING AND REPAYMENT. Subpart (a) of
the paragraph entitled “BORROWING AND REPAYMENT” in the Term Note is hereby
amended by striking from the third sentence thereof the following words:

“on August 31, 2007.”

and replacing such words with the following, which shall have the effect of
extending the maturity date of the Term Note to August 31, 2008:

“on August 31, 2008.”

ARTICLE IV

CONDITIONS

Section 4.01 Loan Documents. Bank shall have obtained or received multiple
original counterparts of the following documents, executed and delivered by a
duly authorized officer of Borrower and all other parties hereto:

(i) this Second Amendment;

(ii) the Second Amended and Restated Line of Credit Note dated of even date
herewith executed by Borrower;

(iii) a Continuing Guaranty dated of even date herewith executed by each of the
Subsidiaries;

 

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(iv) an Amended and Restated Security Agreement dated of even date herewith
executed by each of the Subsidiaries;

(v) an Amended and Restated Pledge Agreement dated of even date herewith
executed by Borrower (the “Amended and Restated Pledge Agreement”);

(vi) a Pledge Agreement of Partnership Interests dated of even date herewith
executed by each of Westbrook GP, LLC, ACR Supply, LLC, and Heating and Cooling
Supply, LLC, as to their interests in the ACR Supply, LP and Contractors
Heating & Supply, LP;

(vii) a Deed of Trust and Assignment of Rents and Leases dated of even date
herewith executed by ACR Supply, LP, a Texas limited partnership (and a
Subsidiary of Borrower) to Danny Oliver, Trustee for the benefit of Bank upon
certain real property located in Pasadena, Harris County, Texas and all
improvements thereon, all as further described therein (the “Pasadena
Property”);

(viii) Copy of the recorded deed from ACR Supply, Inc. conveying the Pasadena
Property to said ACR Supply, LP;

(ix) an Amended and Restated Deed of Trust and Assignment of Rents and Leases
dated of even date herewith executed by Lifetime Filter, Inc., a Texas
corporation (and a Subsidiary of Borrower) to Danny Oliver, Trustee for the
benefit of Bank upon certain real property located in Katy, Harris County, Texas
and all improvements thereon, all as further described therein;

(x) UCC-1, Financing Statements, as may be required by Bank;

(xi) a certificate of the Secretary of State of the relevant state of
organization confirming the due organization and existence and good standing of
each of the Subsidiaries;

(xii) as to each Subsidiary, a certificate of the Secretary of State of each
state in which such Subsidiary has qualified to do business confirming the good
standing of such Subsidiary;

(xiii) a certificate of the Secretary of State of the State of Nevada confirming
the merger of Contractors Heating and Supply, Inc., a Texas corporation, into
Heating and Cooling Supply, LLC, a Nevada limited liability company;

(xiv) as to each Subsidiary the stock certificates or other certificates
evidencing the member or other equity interests described in the Amended and
Restated Pledge Agreement (unless previously delivered to Bank), together with
stock powers for all of the foregoing to the extent applicable; and

(xv) title policies or endorsements of existing title policies as may be
required in order to confirm Bank’s first priority lien thereon.

 

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Section 4.02 Corporate Proceedings of Borrower and Guarantors. Bank shall have
received multiple copies of the resolutions, in form and substance reasonably
satisfactory to Bank, of the relevant governing body of Borrower and its
Subsidiaries, authorizing the execution, delivery and performance of this Second
Amendment and each of the other Loan Documents described in Section 4.01 above,
each such copy being attached to an original certificate of the Secretary or an
Assistant Secretary of Borrower or its Subsidiaries, as applicable, dated as of
the Effective Date, certifying (i) that the resolutions attached thereto are
true, correct and complete copies of resolutions duly adopted by written
consents or at meetings of the relevant governing body, (ii) that such
resolutions constitute all resolutions adopted with respect to the transactions
contemplated hereby and by such other Loan Documents, (iii) that such
resolutions have not been amended, modified, revoked or rescinded as of the
Effective Date, (iv) that the respective articles of incorporation and bylaws or
other organizational documents of Borrower and its Subsidiaries attached thereto
are true, correct and complete and have not been amended or otherwise modified,
except pursuant to any amendments attached thereto, and (v) as to the incumbency
and signature of the officers of Borrower or its Subsidiaries, as applicable,
executing this Second Amendment and such other Loan Documents.

Section 4.03 Representations and Warranties. Each of the representations and
warranties made by Borrower and the Subsidiaries in or pursuant to the Credit
Agreement and the other Loan Documents shall be true and correct as of the
Effective Date, as if made on and as of such date.

Section 4.04 No Default. No Default or Event of Default shall have occurred and
be continuing as of the Effective Date.

Section 4.05 No Change.

(a) No event shall have occurred since February 28, 2006, which, in the
reasonable opinion of Bank, could have a material adverse effect on the
condition (financial or otherwise), business, operations or prospects of
Borrower or its Subsidiaries.

(b) Neither Borrower nor any of its Subsidiaries shall have sold, leased or
otherwise disposed of any assets or other property since February 28, 2006,
except in the ordinary course of business and as permitted by the Credit
Agreement.

(c) No charge off or write down in excess of $100,000.00 of any assets or other
property of Borrower or any of its Subsidiaries reflected in the most recent
financial statements of Borrower and its Subsidiaries provided to Bank shall
have been taken.

(d) Borrower’s execution and delivery of this Second Amendment shall constitute
a representation and warranty by Borrower that the statements set forth in
Section 4.04 and Sections 4.05 (b) and (c) above are true and correct as of the
Effective Date and that no event has occurred since February 28, 2006, which
could have a material adverse effect on the financial or other condition of the
business, operations, or prospects of Borrower or its Subsidiaries.

 

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Section 4.06 Security Instruments. Each of the Security Documents shall be in
full force and effect and provide to Bank the security intended thereby to
secure the Obligations, as amended and supplemented hereby.

Section 4.07 Other Instruments or Documents. Bank shall receive such other
instruments or documents as it may reasonably request.

Section 4.08 Fees. All reasonable fees of Bank’s legal counsel and for issuance
of any title policies or endorsements thereof as referenced above shall be paid
upon execution of this Second Amendment; provided, however, that to the extent
any of the same are not paid upon consummation, the same shall continue to be
due and payable in full, and Borrower hereby agrees to pay the same upon demand.

ARTICLE V

MISCELLANEOUS

Section 5.01 Adoption, Ratification and Confirmation. Each of Borrower,
Subsidiaries and Bank does hereby adopt, ratify and confirm the Credit Agreement
and all other Loan Documents, each as amended hereby, and acknowledges and
agrees that the Credit Agreement and all other Loan Documents, each as amended
hereby, are and remain in full force and effect.

Section 5.02 Successors and Assigns. This Second Amendment shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors and assigns permitted pursuant to the Credit Agreement.

Section 5.03 Counterparts; Delivery of Telecopy Signature Pages. This Second
Amendment may be executed by one or more of the parties hereto in any number of
separate counterparts, and all of such counterparts taken together shall be
deemed to constitute one and the same instrument and shall be enforceable as of
the Effective Date upon the execution and delivery of one or more counterparts
hereof by Borrower, the Guarantors and Bank. In this regard, each of the parties
hereto acknowledges that a counterpart of this Second Amendment containing a set
of counterpart executed signature pages reflecting the execution of each party
hereto shall be sufficient to reflect the execution of this Second Amendment by
each necessary party hereto and shall constitute one instrument. Delivery of an
executed signature page of this Second Amendment by facsimile transmission shall
be effective as delivery of an original executed signature page of this Second
Amendment.

Section 5.04 Entire Agreement. This Second Amendment constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof.
All prior understandings, statements and agreements, whether written or oral,
relating to the subject hereof are superseded by this Second Amendment.

Section 5.05 Invalidity. In the event that any one or more of the provisions
contained in this Second Amendment shall for any reason be held invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Second Amendment.

 

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Section 5.06 Titles of Articles, Sections and Subsections. All titles or
headings to Articles, Sections, subsections or other divisions of this Second
Amendment or the exhibits hereto, if any, are only for the convenience of the
parties and shall not be construed to have any effect or meaning with respect to
the other content of such Articles, Sections, subsections, other divisions or
exhibits, such other content being controlling as the agreement among the
parties hereto.

Section 5.07 Post Closing Covenant. Within thirty (30) days after the Effective
Date, Borrower and Subsidiaries shall fulfill to the satisfaction of Bank any
and all conditions set forth in Article IV above which were not satisfied on the
Effective Date.

Section 5.08 Governing Law. This Second Amendment shall be deemed to be a
contract made under and shall be governed by and construed in accordance with
the internal laws of the State of Texas.

THIS SECOND AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
AMONG THE PARTIES REGARDING THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

[Remainder of Page Intentionally Left Blank. Signatures on Following Pages.]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the Effective Date.

 

WELLS FARGO BANK, NATIONAL ASSOCIATION By:    

/s/ John Kallina

Name:     John Kallina Title:     Vice President ACR GROUP, INC. By:    

/s/ Alex Trevino, Jr.

Name:     Alex Trevino, Jr. Title:     President ACR SUPPLY, LLC By:    

/s/ A. Stephen Trevino

Name:     A. Stephen Trevino Title:     President TOTAL SUPPLY, INC. By:    

/s/ A. Stephen Trevino

Name:     A. Stephen Trevino Title:     Vice President FLORIDA COOLING SUPPLY,
INC. By:    

/s/ A. Stephen Trevino

Name:     A. Stephen Trevino Title:     Vice President HEATING AND COOLING
SUPPLY, LLC By:    

/s/ A. Stephen Trevino

Name:     A. Stephen Trevino Title:     Vice President VALLEY SUPPLY, INC. By:  
 

/s/ A.Stephen Trevino

Name:     A. Stephen Trevino Title:     Vice President

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WEST COAST HVAC SUPPLY, INC. By:  

/s/ A. Stephen Trevino

Name:   A. Stephen Trevino Title:   Vice President ETI TEXAS, INC. By:  

/s/ A. Stephen Trevino

Name:   A. Stephen Trevino Title:   Vice President LIFETIME FILTER, INC. By:  

/s/ A. Stephen Trevino

Name:   A. Stephen Trevino Title:   Vice President CAC DISTRIBUTORS, INC. By:  

/s/ A. Stephen Trevino

Name:   A. Stephen Trevino Title:   Vice President WESTBROOK GP, LLC By:  

/s/ A. Stephen Trevino

Name:   A. Stephen Trevino Title:   Vice President CONTRACTORS HEATING & SUPPLY,
LP By:   Westbrook GP, LLC,   its sole General Partner By:  

/s/ A. Stephen Trevino

Name:   A. Stephen Trevino Title:   Vice President ACR SUPPLY, LP By:  
Westbrook GP, LLC,   its sole General Partner By:  

/s/ A. Stephen Trevino

Name:   A. Stephen Trevino Title:   Vice President