Summary of ZEP INC. - Yahoo! Finance

Entry into a Material Definitive Agreement, Creation of a Direct Financial Obligation or

Item 1.01. Entry into a Material Definitive Agreement.

On October 14, 2009, Acuity Enterprise, Inc. (the "Borrower") and Acuity Specialty Products, Inc. ("ASP") entered into a Loan and Security Agreement ("Loan Agreement") with Regions Bank ("Regions"), as administrative agent for the lenders who become a party to the Loan Agreement from time to time. The Loan Agreement provides for a revolving credit facility in a maximum principal amount at any time outstanding of up to $40.0 million ("Revolving Loan Commitment") and will mature on September 30, 2012, subject to any termination right exercised on an earlier date by the Borrower or Regions. The Loan Agreement is secured by the receivables and related security purchased by Borrower from ASP under a receivables sale agreement between such parties (the "Collateral").

The Loan Agreement limits borrowings at any time to the lesser of $40.0 million or the then current borrowing base, which fluctuates based on, among other things, ASP's current collections. Interest under the Loan Agreement is payable monthly at the LIBOR Index Rate plus an applicable margin ranging from 2.00% to 2.25% (each such loan bearing interest at this rate hereafter referred to as an "LIR Loan"). In the event it is not possible to determine LIBOR, LIBOR is no longer available or a default or event of default has occurred pursuant to the Loan Agreement (and Regions so elects to convert the LIR Loans into base rate loans), all then outstanding loans will bear interest at the "Base Rate," which will be equal to the greater of (a) the Federal Funds Rate in effect on such day plus 1/2 of 1%; (b) the Prime Rate in effect on such day or (c) 1.00%. The Borrower is also required to pay, (i) for each day, an unused line fee equal to (A) 0.35%, (B) divided by 360, times (C) the amount by which the Revolving Loan Commitment exceeded the aggregate principal amount of loans on such day, and
(ii) a one-time closing fee of $100,000 payable to Regions on the closing date.

The Loan Agreement includes customary covenants that restrict the Borrower's ability to, among other things, sell, assign or create liens or other encumbrances upon or with respect to the Collateral; enter into consolidations, mergers and transfers of assets; or make certain investments. The Loan Agreement also contains customary events of default for credit facilities of this type (with customary grace periods, as applicable), including, among other things, nonpayment of principal or interest when due. In addition, under the Loan Agreement, an event of default will be deemed to include: (1) a default ratio (as defined in the Loan Agreement) that exceeds 7.00% on a rolling three month basis, (2) a dilution ratio (as defined in the Loan Agreement) that exceeds 4.00% on a rolling three month basis, and (3) a delinquency ratio (as defined in the Loan Agreement) that exceeds 8.50% at the end of four consecutive months. The Loan Agreement also contains events of default related to ASP's role as servicer under the Loan Agreement, including, among other things, failing to pay collections it has received when required to be applied under the Loan Agreement.

In connection with the entry of the parties into the Loan Agreement, Zep Inc. (the "Company") executed a Performance Undertaking (the "Performance Undertaking"). In relevant part, under the Performance Undertaking, the Company has agreed to guaranty the performance of ASP in its role as originator under the receivables sale agreement referred to above, and in ASP's role as initial servicer under the Loan Agreement.

The Borrower is a wholly-owned subsidiary of ASP. Each of the Borrower and ASP are (directly or indirectly) wholly-owned subsidiaries of the Company. O.B. Grayson Hall, Jr., a director of the Company, is Vice Chairman and head of the General Banking Group of Regions and Regions Financial Corporation.

The foregoing description is a summary and is qualified in its entirety by reference to the Loan Agreement and the Performance Undertaking, which will be filed as exhibits to our annual report on Form 10-K for the year ended August 31, 2009.