<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended December 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
----- -----
Commission file number 0-26756
GEOGRAPHICS, INC.
(Exact Name of Registrant as Specified in Its Charter)
----------------
WYOMING 87-0305614
(State or Other Jurisdiction (I.R.S. Employer
Incorporation or Organization) Identification No.)
1555 ODELL ROAD, P. O. BOX 1750, BLAINE, WASHINGTON 98231
(Address and Zip Code of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code (360) 332-6711
----------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, NO PAR VALUE
Indicate by checkmark whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No |X|
The aggregate market value of the common stock held by nonaffiliates of
the registrant as of of January 21, 2000 was $19,359,955 based on a closing
sales price of $0.71875 per share on the NASDAQ OTC Bulletin Board on such date.
The number of shares outstanding of the registrant's common stock, no
par value, as of January 21, 2000 was 26,935,589.
DOCUMENTS INCORPORATED BY REFERENCE.
None.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION..........................................................................................1
ITEM 1. FINANCIAL STATEMENTS..................................................................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................1
FORWARD-LOOKING STATEMENTS.............................................................................1
RESULTS OF OPERATIONS..................................................................................2
LIQUIDITY AND CAPITAL RESOURCES........................................................................3
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...............................................4
PART II - OTHER INFORMATION.............................................................................................4
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................................4
ITEM 5 - OTHER INFORMATION.....................................................................................5
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K......................................................................5
SIGNATURE...............................................................................................................5
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Geographics, Inc. (the "Company" or "Geographics") has attached to this
Report and by this reference incorporated herein the consolidated balance sheets
as of December 31, 1999 (unaudited) and March 31, 1999 (audited), the unaudited
statements of operations for the three months and nine months ended December 31,
1999 and December 31, 1998, and the unaudited consolidated statements of cash
flows for the three months and nine months ended December 31, 1999 and December
31, 1998, together with the notes thereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto appearing
elsewhere in this Report.
FORWARD-LOOKING STATEMENTS
Statements herein concerning expectations for the future constitute
forward-looking statements which are subject to a number of known and unknown
risks, uncertainties and other factors which might cause actual results to
differ materially from those expressed or implied by such forward-looking
statements. Forward-looking statements herein include, but are not limited to,
those concerning anticipated growth in the preprint paper market; anticipated
growth in the Company's sales; anticipated growth in sales of file and storage
cabinets as a percentage of revenue; the Company's ability to increase its
market share within the preprint industry; the ability of the Company to
successfully implement price changes for the Company's products when and as
needed; trends relating to the Company's profitability and gross profits
margins; and the ability of the Company to increase its availability under its
existing revolving credit facility and to raise additional debt or equity
financing sufficient to meet its growing working capital requirements.
Relevant risks and uncertainties include, but are not limited to,
slower than anticipated growth of the preprint paper market; loss of certain key
customers; insufficient consumer acceptance of the Company's specialty paper
products and file and storage cabinets; unanticipated actions, including price
reductions, by the Company's competitors; unanticipated increases in the costs
of raw materials used to produce the Company's products; supply terms, reliable
and immediately available raw material supply and other favorable terms with
certain key vendors, failure to realize expected economic efficiencies of the
Company's automated production system; the inability to hire and retain key
personnel; unexpected increases in the overall costs of production as a result
of collective bargaining arrangements; and inability to secure additional
working capital when and as needed. Additional risks and uncertainties include
those described under "Risk Factors" in Part I of the Company's Annual Report on
Form 10-K for the year ended March 31, 1999 and those described from time to
time in the Company's other filings with the Securities and Exchange Commission,
press releases and other communications. All forward looking statements
contained in this Report reflect the Company's expectations at the time of this
Report only, and the Company disclaims any responsibility to revise or update
any such forward-looking statement except as may be required law.
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RESULTS OF OPERATIONS
Three Months Ended December 31, 1999 vs. Three Months Ended December 31, 1998
NET SALES. Net sales increased 66.1% to $7,734,460 in the quarter ended
December 31, 1999 from $4,656,638 in the quarter ended December 31, 1998. The
increase was primarily attributable to new business generated from Sam's Club
and a significant increase in the Company's seasonal programs at Office Depot
and Business Depot which collectively accounted for net sales for the quarter of
$2,240,025. In addition, the Company made higher accruals for customer program
costs and credits ($2,050,867 or 21.0% of gross sales for the quarter ended
December 31, 1999 compared to $749,911 or 13.9% of gross sales for the quarter
ended December 31, 1998). The higher accruals are primarily due to increased
sales return accruals due to the guaranteed sales associated with the seasonal
sales programs. The Company's new management has adopted a philosophy to accrue
the realistic amounts due under our customer programs throughout the year to
better reflect anticipated results.
GROSS MARGIN. Gross margin as a percentage of gross sales decreased to
22.1% in the quarter ended December 31, 1999, from 33.3% in the same period in
fiscal 1999. The lower gross margin percentage is primarily attributable to the
lower net sales as a result of the accruals of customer program costs (described
above), an increase in plant wages, and an increase in freight accruals, and
shipping costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. While selling, general
and administrative expenses increased to $1,747,236 in the quarter ended
December 31, 1999 from $1,444,952 in the same period in fiscal 1999, the Company
saw a decrease in these expenses as a percentage of sales to 17.9% in the
quarter ended December 31, 1999 from 26.7% during the quarter ended December 31,
1998. The increase is primarily attributable to an increase in administrative
salaries ($73,082), commissions and royalties ($66,875), catalog expenses
($80,124), and costs of refinancing ($85,316).
OTHER INCOME (EXPENSE). Other income for the quarter ended December 31,
1999 amounted to $72,970 compared to other income of $4,834 for the quarter
ended December 31, 1998. The change is due to the income recognized from
favorable settlements of amounts owed vendors and others.
INTEREST EXPENSE. Interest expense decreased to $266,231 (2.7% of gross
sales) during the quarter ended December 31, 1999, compared to $274,030 (5.1% of
gross sales) during the same period in fiscal 1999. The lower interest costs
were caused by a decrease in borrowings of the Company, which were refinanced
with the proceeds from the private placement of the Company's common stock,
partially offset by amounts borrowed for working capital. See "Liquidity and
Capital Resources."
NET INCOME. Net income for the quarter ended December 31, 1999 was
$221,391 or $0.0085 per share compared to $86,426 or $0.0088 per share for the
quarter ended December 31, 1998. Management reported profits at the end of each
of the first three quarters in the prior year but ended the year with a
$3,096,000 operating loss. The primary cause was a deficiency in accruing for
customer returns and allowances. For the first nine months last year, accruals
for returns and allowances were 14.0% whereas, accruals for returns and
allowances for the year was 16.8%.
Nine Months Ended December 31, 1999 vs. Nine Months Ended December 31, 1998
NET SALES. Net sales increased 26.9% to $18,826,679 in the nine months
ended December 31, 1999 from $14,831,070 in the nine months ended December 31,
1998. The increase was primarily attributable to new business generated from
Sam's Club and an increase in the Company's seasonal programs to Office Depot
and Business Depot which collectively accounted for net sales for the period of
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<PAGE> 5
$3,161,959. In addition, the Company made higher accruals for customer program
costs and credits ($4,634,492 or 19.8% of gross sales for the nine months ended
December 31, 1999 compared to $2,415,069 or 14.0% of gross sales for the nine
months ended December 31, 1998). The higher accruals are primarily due to
increased sales return accruals due to the guaranteed sales associated with the
seasonal sales programs. The Company's new management has adopted a philosophy
to accrue the realistic amounts due under our customer programs throughout the
year to better reflect anticipated results.
GROSS MARGIN. Gross margin as a percentage of gross sales decreased to
20.3% in the nine months ended December 31, 1999, from 30.6% in the same period
in fiscal 1999. The lower gross margin percentage is primarily attributable to
the lower net sales as a result of the accruals of customer program costs as
explained above, an increase in the cost of the Company's paper, plant wages and
supplies, and an increase in freight accruals, and shipping costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $4,323,101 (18.4% of gross sales) during
the nine months ended December 31, 1999 from $3,986,132 (23.1% of gross sales)
in the same period in fiscal 1999. The increase is primarily attributable to an
increase in travel expenses ($108,603), commissions and royalties ($65,200),
refinancing costs ($81,575), and product development expenses ($51,180).
OTHER INCOME (EXPENSE). Other income for the nine months ended December
31, 1999 amounted to $382,641 compared to other expense of $35,380 for the nine
months ended December 31, 1998. The change is due to the income recognized from
favorable settlements of amounts owed to vendors and others.
INTEREST EXPENSE. Interest expense decreased to $687,800 (2.9% of gross
sales) during the nine months ended December 31, 1999, compared to $881,939
(5.1% of gross sales) during the same period in fiscal 1999. The lower interest
costs were caused by a decrease in borrowings of the Company which were
refinanced with the proceeds from the private placement of the Company's common
stock. See "Liquidity and Capital Resources."
NET INCOME Net income decreased to $127,375 or $0.0075 per share for
the nine months ended December 31, 1999 compared to net income from continuing
operations of $368,497 or $0.0374 per share for the nine months ended December
31, 1998. Management reported profits at the end of each of the first three
quarters in the prior year but ended the year with a $3,096,000 operating loss.
The primary cause was a deficiency in accruing for customer returns and
allowances. For the first nine months last year, accruals for returns and
allowances were 14.0% whereas, accruals for returns and allowances for the year
was 16.8%. Accruals for this year to date are 19.8%. On a comparable basis,
applying the annual fiscal 1999 accruals rate of 16.8%, the loss for the first
nine months last year would have been $114,000 compared to this years profit of
$127,375.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the rapid growth of the Company's specialty papers,
capital expenditures relating to the purchase and installation of an automated
production system and a management information system, prior year operating
losses, the Company has required substantial external working capital. The
Company has previously experienced working capital shortfalls, which required
the Company to delay payments to certain vendors, institute internal cost
reduction measures and take other steps to conserve operating capital. The
recapitalization has alleviated this problem. For the year ended March 31, 1999,
operating losses totaled $3,096,106, however the Company experienced positive
operating cash flows of $1,554,310.
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At the date of this Report, the Company's available source of working
capital consisted of borrowings available under its revolving credit facility.
On December 22, 1999, the Company successfully refinanced its revolving credit
facility with US Bank, Milwaukee, Wisconsin. The revolving credit facility
permits borrowings of up to $7.5 million subject to a borrowing base limitation
of 75% of the Company's eligible accounts receivable and 50% of the value of its
inventory, net of certain reserves. Borrowings under the facility bear interest
at LIBOR plus 2.5% and are secured by substantially all of the Company's assets.
Under the terms of the facility, the Company is required to comply with a number
of financial covenants relating to, among other things, the maintenance of
minimum net worth, debt-to-equity ratios and cash flow coverage ratios.
As of the date of this Report, Geographics has received over $5,150,000
in a private placement of common stock through the Company and using culverwell
& Co., Inc. as placement agent, with proceeds to the Company at $0.30 per share.
The offering prices were determined after giving effect to liquidity and
minority discounts. The Company estimates that the effect of the Company's
recapitalization plan will result in a decrease in interest expense in excess of
$600,000 on an annualized basis.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Substantially all of the revenue and operating expenses of the
Company's foreign subsidiaries are denominated in local currencies and
translated into US dollars at rates of exchange approximating those existing at
the date of the transactions. Foreign currency translation impacts primarily
revenue and operating expenses as a result of foreign exchange rate
fluctuations. The Company's foreign currency transaction risk is primarily
limited to amounts receivable from its foreign subsidiaries, which are
denominated in local currencies. To minimize foreign currency transaction risk,
the Company ensures that its foreign subsidiaries remit amounts to the U.S.
parent in a timely manner. The Company does not currently utilize foreign
currency hedging contracts.
The Company also has foreign exchange translation exposures resulting
from the translation of foreign currency-denominated earnings into U.S. dollars
in the Company's consolidated financial statements. Foreign currency transaction
exposure arises when an operating unit transacts business denominated in a
currency that is not its own functional currency. The Company's transaction
risks are attributable primarily to inventory purchases from third party
vendors. The introduction of the Euro has significantly reduced such risks, and
transaction exposures on an overall basis are not material.
If the U.S. dollar uniformly increases in strength by 3% in fiscal year
2000 relative to the currencies in which the Company's sales are denominated,
income before taxes would decrease by $52,000 for the quarter ended December 31,
1999. This calculation assumes that each exchange rate would change in the same
direction relative to the U.S. dollar. In addition to the direct effects of
changes in exchange rates, which are a changed dollar value of the resulting
sales, changes in exchange rates also affect the volume of sales or the foreign
currency sales price as competitors' products become more or less attractive.
The Company's sensitivity analysis of the effects of changes in foreign currency
exchange rates does not factor in a potential change in sales levels or local
currency prices.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Sales Of Unregistered Securities
During the quarter ended December 31, 1999, the Company issued
1,520,000 shares of common stock in a private placement at $.30 per share,
pursuant to an exemption from registration under Sections
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4(2) and 4(6) of the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder. The following officers and directors of the Company
purchased shares pursuant to the offering:
<TABLE>
<CAPTION>
NAME POSITION SHARES
- ---- -------- ------
<S> <C> <C>
C. Joseph Barnette Director 170,000
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Total 170,000
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</TABLE>
The balance of the shares were issued to accredited investors who had been
solicited by Culverwell & Co., Inc. of Boston, Massachusetts. See "Liquidity and
Capital Resources."
ITEM 5 - OTHER INFORMATION
New Products
The Company has received substantial orders and commitments from
several key customers for its line of plastic ready to assemble filing and
storage cabinets. The Company expects these commitments to enhance its revenues
beginning in the next two fiscal quarters.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Loan and Security Agreement dated as of December 22, 1999
between the Company and U.S. Bank N.A. Milwaukee,
Wisconsin
27.1 Financial Data Schedule for the quarter ended December
31, 1999.
(b) There were no reports on Form 8-K filed during the
quarter ended December 31, 1999.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on this 31st day of
January, 2000.
GEOGRAPHICS, INC.
By: James L. Dorman
----------------------------------------
James L. Dorman
Chairman, Chief Executive Officer
By: William J. Paquin, Jr.
----------------------------------------
William J. Paquin, Jr.
Controller
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GEOGRAPHICS, INC.
FORM 10-Q
EXHIBIT INDEX
FOR THE QUARTER ENDED DECEMBER 31, 1999
Exhibit
Number
- -------
10.1 Loan and Security Agreement dated as of December 22, 1999 between the
Company and U.S. Bank N.A. Milwaukee, Wisconsin
27.1 Financial Data Schedule
<PAGE> 9
GEOGRAPHICS, INC
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999 AND MARCH 31, 1999
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31, 1999
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<S> <C> <C>
CURRENT ASSETS
Cash $ 643,345 $ 130,967
Accounts receivable
Trade receivables, net 3,842,655 3,187,527
Other receivables 124,969 261,091
Inventory, net of allowance for obsolete inventory of
$647,000 and $862,000 at December 31 and March 31, 1999 respectively 4,632,431 3,532,684
Prepaid expenses, deposits, and other current assets 651,911 853,357
------------ ------------
Total current assets 9,895,311 7,965,626
PROPERTY, PLANT AND EQUIPMENT, NET 9,383,396 9,945,634
OTHER ASSETS 818,014 367,501
------------ ------------
TOTAL ASSETS $ 20,096,721 $ 18,278,761
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Bank overdrafts $ 168,502 $ 253,425
Note payable to bank 5,531,192 4,896,912
Accounts payable 3,199,232 2,961,079
Accrued liabilities 1,191,369 2,496,178
Current portion of long-term debt 1,202,568 3,072,601
------------ ------------
Total current liabilities 11,292,863 13,680,195
LONG-TERM DEBT 2,743,004 3,776,432
------------ ------------
Total liabilities 14,035,867 17,456,627
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
No par common stock - 100,000,000 authorized, 26,935,589 and 9,857,252
issued and outstanding at December 31 and March 31, 1999 respectively 20,920,946 15,769,018
Accumulated other comprehensive income (262,630) (157,223)
Accumulated deficit (14,597,462) (14,789,661)
------------ ------------
Total stockholders' equity (deficit) 6,060,854 822,134
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 20,096,721 $ 18,278,761
============ ============
</TABLE>
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GEOGRAPHICS, INC
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $ 9,785,327 $ 5,406,549 $ 23,461,171 $ 17,246,139
Allowances and Credits (971,037) (653,488) (2,850,525) (1,862,746)
Sales Returns (1,079,830) (96,423) (1,783,967) (552,323)
------------ ------------ ------------ ------------
Net Sales 7,734,460 4,656,638 18,826,679 14,831,070
Cost of Sales 5,572,572 2,856,064 14,071,044 9,559,122
------------ ------------ ------------ ------------
Gross Margin 2,161,888 1,800,574 4,755,635 5,271,948
S.G.& A. Expenses 1,747,236 1,444,952 4,323,101 3,986,132
------------ ------------ ------------ ------------
Operating Income 414,652 355,622 432,534 1,285,816
Other Income (Expense)
Interest Expense (266,231) (274,030) (687,800) (881,939)
Other Income (Expense) 72,970 4,834 382,641 (35,380)
------------ ------------ ------------ ------------
Total Other Income (Expense) (193,261) (269,196) (305,159) (917,319)
NET INCOME BEFORE TAX 221,391 86,426 127,375 368,497
DISCONTINUED OPERATIONS
Income from and gain on disposal of Signage Business -- -- -- 5,657,580
FEDERAL INCOME TAX BENEFIT -- -- -- --
------------ ------------ ------------ ------------
NET INCOME $ 221,391 $ 86,426 $ 127,375 $ 6,026,077
============ ============ ============ ============
Earnings Per Common and Common Equivalent Share
Basic $ 0.0085 $ 0.0088 $ 0.0075 $ 0.6113
Diluted $ 0.0085 $ 0.0088 $ 0.0075 $ 0.6113
Shares Used in Computing Earnings per Common and
Common Equivalent Share
Basic 25,922,256 9,857,252 16,940,957 9,857,252
Diluted 25,981,755 9,857,252 17,000,456 9,857,252
</TABLE>
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GEOGRAPHICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 127,375 $ 6,026,076
Adjustments to reconcile net income (loss) to net
cash flows from operating activities
Depreciation and amortization 989,450 1,138,905
(Gain) loss on sale/disposal of property and equipment 3,643 --
Changes in noncash operating assets and liabilities
Trade receivables (655,128) 518,675
Other receivables 136,122 76,663
Inventory (1,099,747) 1,441,238
Prepaid expenses, deposits and current assets 201,446 (84,168)
Accounts payable 238,153 (281,857)
Accrued liabilities (1,296,880) (853,163)
----------- -----------
Net cash flows from operating activities (1,355,566) 7,982,369
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in bank overdrafts (91,923) 84,517
Net borrowings on note payable to bank 634,280 (6,721,970)
Repayment of long-term debt (2,903,461) (1,007,055)
Proceeds from notes payable to officers and directors 100,000 --
Repayment of notes payable to officers and directors (100,000) --
Proceeds from the issuance of common stock 4,951,649 --
Proceeds from the issuance of common stock for assets 200,280 --
Net change, foreign currency translation (41,662) (136,949)
----------- -----------
Net cash flows from financing activities 2,749,162 (7,781,456)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment (251,541) (76,508)
Purchase of Innovative Storage Design Assets (261,163) --
Proceeds from sales of equipment 5,000 --
Increase in other assets (373,514) --
----------- -----------
Net cash flows from investing activities (881,218) (76,508)
NET CHANGE IN CASH 512,378 124,405
CASH, BEGINNING OF PERIOD 130,967 316,078
----------- -----------
CASH, END OF PERIOD $ 643,345 $ 440,483
=========== ===========
</TABLE>
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NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim unaudited consolidated financial statements of
Geographics, Inc. (the "Company" or "Geographics") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, such interim statements reflect all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the financial position and the results of operations and cash flows for
the interim periods presented. The results of operations for these interim
periods are not necessarily indicative of the results to be expected for the
full year. These statements should be read in conjunction with the audited
consolidated financial statements and footnotes included in the Company's
consolidated financial statements and notes thereto for the fiscal year ended
March 31, 1999.
The consolidated financial statements include the accounts of
Geographics and its wholly-owned subsidiaries: Geographics Marketing Canada
Inc., Geographics (Europe) Limited and Geographics Australia, Pty.
Limited. All intercompany balances and transactions have been eliminated.
F-4
<PAGE> 1
EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
Dated December 22, 1999
U.S. Bank National Association (the "Bank"), 201 West Wisconsin Avenue,
Milwaukee, Wisconsin 53259, and Geographics, Inc. (the "Borrower"), whose
principal place of business is located at 1555 Odell Road, Blaine, Washington,
agree as follows:
1. DEFINITIONS
All terms defined in Articles 1 through 9 of the applicable Uniform
Commercial Code, as it may be amended from time to time, shall have the meanings
specified therein unless otherwise defined herein or unless the context requires
otherwise. All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles
consistently applied, except as otherwise stated herein.
"Adjusted LIBOR Rate" means with respect to an Interest Period for
a LIBOR Rate Loan, a rate per annum (rounded upward, if necessary, to the
nearest 1/16 of 1%) determined pursuant to the following formula: Adjusted LIBOR
Rate = [LIBOR Rate / (1 - LIBOR Reserve Requirement)] + 2.5%.
"Affiliate" shall mean (a) a person or entity which directly or
indirectly owns, controls or holds with power to vote, 20% or more of the
outstanding voting securities of Borrower; (b) a corporation 20% or more of
whose outstanding voting securities are directly or indirectly owned, controlled
or held with power to vote, by Borrower, or by a person or entity which is an
Affiliate within the meaning of subclause (a) above; (c) a person or entity
which manages, operates or leases all or a material part of Borrower's business;
(d) any director, officer or controlling person of Borrower; (e) any partnership
in which Borrower is a general or limited partner; or (f) any limited liability
company in which Borrower is a member.
"Affiliated Company" shall mean any of the following: (1) any
company which is a member of a controlled group of corporations (determined
under Section 1563(a) of the Internal Revenue Code without regard to Section
1563(a)(4) and (e)(3)(C)) which also includes Borrower as a member, (2) any
trade or business under common control (as defined in Section 414(c) of the
Internal Revenue Code) with Borrower, (3) a member of an affiliated service
group (as defined in Section 414(m) of the Internal Revenue Code) which includes
Borrower, and (4) any other entity required to be aggregated with Borrower under
Section 414(o) of the Internal Revenue Code.
<PAGE> 2
"Blaine Property" shall mean the Borrower's building and real
estate located at 1555 Odell Road, Blaine, Washington.
"Borrowing Base Certificate" shall be a report of Borrower meeting
the requirements of Section 7.1.3 hereof.
"Cash Collateral Account" shall have the meaning provided in
Section 5.1 hereof.
"Code" or "Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time and any corresponding or succeeding
law, together with any regulations, interpretations, announcements or decisions
thereunder.
"Collateral" shall mean and include all property and assets of the
Borrower, including but not limited to all of the following, whether now owned
or existing or hereafter created or acquired, wheresoever located, together with
all additions and accessions and all proceeds and products of the following,
including without limitation cash, deposit accounts, negotiable instruments and
other instruments for the payment of money, chattel paper, rights to payment of
money, security agreements or other documents, and all proceeds of credit or
other forms of insurance coverage on any of the following, and all books and
records pertaining to any of the following:
(1) all of Borrower's Receivables, and all rights, title or
interest in any other real or personal property represented by or securing the
same, and all of Borrower's rights as an unpaid vendor or lienor, including
stoppage in transit, replevin or reclamation and any other items of real or
personal property in which Borrower has granted or may in the future grant a
lien or security interest to Bank hereunder or in any supplement hereto or
otherwise;
(2) all guarantees, mortgages on real or personal property, leases
or other agreements or property securing or relating to any of the items
referred to in Section (1) of this definition of "Collateral" or acquired for
the purpose of securing and enforcing any of such items;
(3) all of Borrower's Inventory;
(4) all of Borrower's General Intangibles;
(5) all of Borrower's instruments, including promissory notes, and
all of Borrower's documents;
(6) all of Borrower's Investment Property, excluding 35% of
Borrower's stock in its foreign Subsidiaries;
(7) all of Borrower's deposit accounts;
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(8) all of Borrower's machinery, equipment, motor vehicles of any
nature and description, furniture and fixtures and all assets which are
classified by Borrower as fixed assets for accounting purposes or which should
be classified as fixed assets in accordance with generally accepted accounting
principles;
(9) all of Borrower's leases, rents, issues and profits;
(10) all of Borrower's life insurance policies and their cash
surrender values;
(11) all supporting obligations, including all guaranties and
letter of credit rights;
(12) all of Borrower's post office boxes and all of Borrower's
rights in connection therewith;
(13) all computer and other data processing hardware, all software
programs, whether owned, licensed or leased, and all documentation for such
hardware and software;
(14) all of Borrower's books and records pertaining to any of the
foregoing, however produced, reproduced or recorded, including but not limited
to books and records stored or maintained on any type of computer and/or data
processing system or equipment (including but not limited to all related discs,
tapes, printouts and media);
(15) all of Borrower's real estate, including but not limited to
the Blaine Property; and
(16) the Cash Collateral Account.
"Collateral Agreements" shall mean and include all agreements,
instruments, documents and other papers delivered or to be delivered hereunder
or otherwise to create an assignment, security interest, mortgage or other lien
in or on any property to secure the Obligations.
"Customer" shall mean and include the account debtor with respect
to any of the Receivables or the prospective purchaser with respect to any
contract right or any party who enters into or proposes to enter into any
contract or other arrangement with Borrower, pursuant to which the Borrower is
to deliver any personal property or perform any services.
"Daily LIBOR Rate" shall mean the interest rate per annum equal to
the Adjusted LIBOR Rate for an Interest Period of one month, adjusted on each
day on which the LIBOR Rate changes.
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"Daily LIBOR Rate Loan" means any portion of the outstanding
balance of the Revolving Note bearing interest at the Daily LIBOR Rate.
"EBITDA" means for an entity or entities and for any period for
which such amount is being determined, the sum of amounts for such period of (a)
Net Income, and (b) to the extent deducted in determining Net Income, (i)
interest expense, (ii) provisions for taxes based on income, and (iii)
depreciation, amortization and other, similar noncash charges.
"EBIT" means for an entity or entities and for any period for
which such amount is being determined, the sum of amounts for such period of (a)
Net Income, and (b) to the extent deducted in determining Net Income, interest
expense and provisions for taxes based on income.
"Environmental Assessment" shall mean a review for the purpose of
determining whether the Borrower complies with Environmental Laws and whether
there exists any condition or circumstance which requires or will require a
cleanup, removal, or other remedial action under Environmental Laws on the part
of the Borrower including, but not limited to, some or all of the following:
(i) on site inspection including review of site geology,
hydrogeology, demography, land use and population;
(ii) taking and analyzing soil borings and installing ground
water monitoring wells and analyzing samples taken from such
wells;
(iii) taking and analyzing of air samples and testing of
underground tanks;
(iv) reviewing plant permits, compliance records and regulatory
correspondence, and interviewing enforcement staff at
regulatory agencies;
(v) reviewing Borrower's operations, procedures and
documentation; and
(vi) interviewing past and present employees of the Borrower.
"Environmental Laws" shall mean all federal, state and local laws
including statutes, regulations, ordinances, codes, rules and other governmental
restrictions and requirements relating to the discharge of air pollutants, water
pollutants or process waste water or otherwise relating to the environment or
hazardous substances including, but not limited to, the Federal Solid Waste
Disposal Act, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976, the Federal
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
regulations of the Environmental Protection Agency, regulations of the Nuclear
Regulatory Agency, and
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regulations of any state department of natural resources or state environmental
protection agency now or at any time hereafter in effect.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and any corresponding or succeeding law,
together with any regulations, interpretations, announcements or decisions
thereunder.
"General Intangibles" shall mean, without limitation, all general
intangibles; all payment intangibles; all goodwill; patents; know-how;
trademarks; trade names; copyrights; patent, trademark, trade name and copyright
registrations and applications; trade secrets; customer lists; franchises;
license agreements related to any of the foregoing (and income derived
therefrom); tax refund claims and all other contract rights and choses in
action.
"Interest Period" means with respect to any LIBOR Rate Loan, the
period commencing on the creation date with respect to such LIBOR Rate Loan and
ending one, two, or three months thereafter, as selected by the Borrower as
provided herein; provided, however, that (a) if any Interest Period otherwise
would end on a date for which there is no numerical equivalent in the applicable
calendar month, then it shall end instead on the last day of such calendar
month, and (b) no Interest Period may be selected which ends after the maturity
of the applicable principal amount.
"Interest Rate Agreement Liabilities" shall mean all obligations
and liabilities of Borrower to Bank under interest rate risk management
agreements, including but not limited to interest rate swap, cap and similar
agreements from time to time entered to by Borrower with Bank, as amended,
revised, supplemented or restated from time to time.
"Inventory" shall mean and include all inventory of Borrower, all
personal property of Borrower held for sale, lease or demonstration, or to be
furnished under contracts for service, goods leased to others, trade-ins and
repossessions, raw materials, work in process, materials and supplies used or
consumed in Borrower's business, and all additions and accessions to any of the
foregoing, including documents evidencing such property, and all such property
which may be returned to Borrower by its Customers or repossessed by Borrower.
"Investment Property" means all of Borrower's investment property,
and all other stock and other interest of Borrower in its Subsidiaries;
"Letter of Credit Liabilities" shall mean the total, without
duplication, of (1) the sum of the face amounts of all outstanding letters of
credit issued by Bank for the account of Borrower, plus (2) the aggregate
liability of Borrower for amounts owing as a result of advances pursuant to
letters of credit and all interest, collection costs, fees, expenses and other
amounts owing in connection with letters of credit.
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"LIBOR Rate" shall mean, for a LIBOR Rate Loan for the applicable
Interest Period, the offered rate for U.S. Dollar deposits of not less than
$1,000,000.00 for a period of time equal to the applicable Interest Period as of
11:00 A.M. City of London, England time two London Business Days prior to the
first date of each Interest Period as shown on the display designated as page
"LIBO" on the Reuter Monitor Money Rates Service ("Reuters Screen LIBO Page"),
or such other page or pages as may replace such pages on Reuters Screen LIBO
Page for the purpose of displaying such rate; provided, however, that if such
rate is not available on Reuters Screen LIBO Page then such offered rate shall
be otherwise reasonably determined by Bank from an alternate, substantially
similar independent source available to Bank or shall be calculated by Bank by a
substantially similar methodology as that theretofore used to determine such
offered rate in Reuters Screen LIBO Page. Each determination of a LIBOR Rate
made by Bank shall be final and conclusive, absent manifest error.
"LIBOR Rate Loans" means any portion of the outstanding balance of
the Revolving Note bearing interest at the Daily LIBOR Rate or the Periodic
LIBOR Rate.
"LIBOR Reserve Requirement" means, with respect to a LIBOR Rate
Loan for the applicable Interest Period, the percentage (expressed as a decimal)
equal to the maximum aggregate reserve requirements (including without
limitation, any marginal, special, emergency or supplemental reserves)
established by the Board of Governors of the Federal Reserve System for
"eurocurrency liabilities" (as defined in Regulation D of such Board) or for
other liabilities which include deposits of the type used in determining the
LIBOR Rate, having a term approximately equal to the applicable Interest Period.
"London Business Day" means any day other than a Saturday, Sunday
or a day on which banking institutions are generally authorized or obligated by
law or executive order to close in the City of London, England.
"Material Adverse Effect" means an adverse change in the financial
condition, business or results of the Borrower or its Subsidiaries which is
material to the Borrower and its Subsidiaries taken as a whole.
"Net Income" shall mean, for any fiscal period of an entity, net
income of such entity after provision for income taxes, determined in accordance
with generally accepted accounting principles, consistently applied, including
extraordinary losses and excluding extraordinary gains.
"Net Worth" for any entity or entities shall mean (1) the total of
all of such entity's or entities' assets, minus (2) the aggregate of all such
entity's or entities' liabilities and reserves of every kind and character, all
determined in accordance with generally accepted accounting principles
consistent with those followed in preparation of the financial statements
described in Section 7.1.1 and 7.1.2 hereof.
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"Obligations" shall mean all of Borrower's debts, notes
(specifically including but not limited to the Revolving Note), obligations and
liabilities (specifically including but not limited to Letter of Credit
Liabilities and Interest Rate Agreement Liabilities) of whatever nature or
amount (and any extensions, renewals, or modifications thereof) to Bank arising
out of this Agreement or other credit or financial accommodations of whatever
nature (contingent or otherwise) previously granted and not paid in full,
contemporaneously granted or granted in the future by Bank to Borrower, to
Borrower and another, or to another guaranteed or endorsed by Borrower, and the
performance of all covenants, conditions and agreements contained in this
Agreement, the Revolving Note, the Collateral Agreements or in any evidence of
or document relating to any of the foregoing, and, to the extent not prohibited
by law, costs and expenses of collection or enforcement of the Obligations,
including but not limited to actual attorneys' fees. Obligations shall include
but not be limited to letter of credit fees, Foreign Currency Contract fees, any
liability of Borrower resulting from advances pursuant to any letter of credit
issued by Bank on behalf of Borrower and any liability of Borrower resulting
from or arising out of any Foreign Currency Contract.
"Pension Plan" shall mean an employee pension benefit plan, within
the meaning of Section 3(2) of ERISA, which is maintained or sponsored by
Borrower or any Affiliated Company, or to which Borrower or any Affiliated
Company is required to contribute. The term "Pension Plan" also means any
multiemployer plan within the meaning of Section 3(37) of ERISA, which is
contributed to by Borrower or any Affiliated Company.
"Periodic LIBOR Rate Loan" means any portion of the outstanding
balance of the Revolving Note bearing interest at the Adjusted LIBOR Rate for
Interest Periods of one, two or three months.
"Permitted Liens" shall mean the liens and security interests
permitted pursuant to Section 8.2 hereof.
"Plan" shall mean either a Pension Plan or a Welfare Benefit Plan.
"Qualified Account" shall mean an account owing to Borrower, less
any amount reserved for discounts, which meets all of the following
specifications:
(1) Sale of Goods or Services Rendered. It arose from the
performance of services by Borrower, or from a bona fide sale or lease of goods,
which have been delivered or shipped to the Customer and for which Borrower has
genuine invoices, shipping documents or receipts, which sale is not a
consignment sale, a sale on approval or a sale or return.
(2) Age and Due Date. It is not more than 90 days past the date of
invoice. An invoice may not be dated prior to performance of the service or
delivery of the goods represented on that invoice.
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(3) Past Due Accounts of Customer. Not more than 25% (in dollar
amount) of the accounts owing by the Customer are more than 90 days past the
date of invoice.
(4) Ownership. It is owned by Borrower free of all liens and
encumbrances and security interests (except Bank's security interest and
subordinated Permitted Liens).
(5) Acceptance by Customer. It is enforceable against the Customer
and for the amount shown as owing in the statements furnished by Borrower to
Bank. No return, rejection or repossession has occurred. It and the transaction
out of which it arose comply with all applicable laws and regulations. The
merchandise or services have been fully accepted by the Customer without dispute
and are not subject to any setoff, credit allowance or adjustment, nor is it
subject to any defenses or counterclaims. Any account otherwise includable in
Qualified Accounts shall be reduced by any amount owing by Borrower to the
Customer and only the reduced amount shall be included in Qualified Accounts.
(6) Not a Foreign Receivable. The Customer has its principal place
of business in the United States or Canada, or such account is secured by a
transferable irrevocable letter of credit issued or confirmed by a United States
bank reasonably satisfactory to Bank.
(7) Affiliates. It is not due from an Affiliate.
(8) Government as Customer. It is not due from the United States
Government or any of its departments, agencies or instrumentalities, unless
Borrower has taken all steps necessary or reasonably requested by Bank to
perfect Bank's interest therein under with the Federal Assignment of Claims Act
or other applicable laws or regulations to the satisfaction of Bank.
(9) Satisfaction of Bank as to Financial Condition of Customer.
Bank is, and continues to be satisfied with the creditworthiness of the Customer
in relation to the amount of credit extended and has not notified Borrower,
orally or in writing, that the account or Customer is unsatisfactory.
(10) Satisfaction of Bank. Bank has not notified Borrower, orally
or in writing, that the account or Customer is unsatisfactory in any respect.
"Qualified Inventory" shall mean Inventory, including raw
materials, work-in-process, and finished goods, excluding display racks and slow
moving/obsolete inventory, which meet these specifications:
(1) Ownership. It is owned by Borrower free of all tax liens and
other liens, encumbrances and security interests (except Bank's security
interest and subordinated Permitted Liens) and it is located at one of the
locations listed on Schedule 6.3 hereto or otherwise permitted by Section 6.3
hereof.
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(2) Other Financing. No financing statement (other than Bank's and
those relating to subordinated Permitted Liens) is on file covering it or its
products or proceeds.
(3) Documents. If it is represented or covered by documents of
title, Borrower is the owner of the documents free of all tax liens and other
liens, encumbrances and security interests (other than Bank's security interest
and subordinated Permitted Liens).
(4) Condition. It is in good condition and, in the case of goods
held for sale (including, goods that have been returned to Borrower), it is new
and unused (except as Bank may otherwise consent in writing).
(5) Contra Accounts. Its value is calculated in a manner
reasonably acceptable to Bank net of any royalties and commissions (other than
sales commissions) owing on the Inventory or the sale thereof, any balance sheet
reserves for obsolete inventory and any inventory valuation reserves.
(5) Satisfaction of Bank. Bank has not notified Borrower, orally
or in writing, that any of the Inventory is unsatisfactory.
"Real Estate Sublimit" has the meaning set forth in Section 4.
"Receivables" shall mean and include all of Borrower's accounts,
receivables, including health-care-insurance receivables, contract rights,
instruments, drafts, documents, notes, acceptances, and chattel paper.
"Reference Rate" shall mean the rate of interest announced from
time to time by Bank as its reference rate for interest rate determinations,
which rate may not be the lowest rate charged by the Bank to its customers.
"Reference Rate Loan" means any portion of the outstanding balance
of the Revolving Note bearing interest at or by reference to the Reference Rate.
"Reserves for Returns" shall be the reserves established by Bank
from time to time to cover refunds, credits, offsets or similar adjustments
resulting from returns. In setting the Reserves for Returns, Bank may take into
account return histories, sales practices, return policies and any other factors
Bank deems relevant.
"Revolving Note" shall mean Borrower's promissory note,
substantially in the form attached hereto as Exhibit A.
"Revolving Credit Facility" has the meaning set forth in Section
2.1.
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"Subsidiary" shall mean (a) any corporation more than 50% of whose
outstanding stock having ordinary voting power shall at the time be owned or
controlled, directly or indirectly, by Borrower, or (b) any partnership, limited
liability company, association, joint venture or similar business organization
of which more than 50% of the ownership interest having ordinary voting power
shall at the time be owned or controlled, directly or indirectly, by Borrower.
"Systems" means devices, systems, machinery, information
technology, computer software and hardware, and other date sensitive technology
necessary for Borrower to carry on its business as presently conducted and as
contemplated to be conducted in the future.
"Welfare Benefit Plan" shall mean an employee welfare benefit
plan, within the meaning of Section 3(1) of ERISA, which is maintained or
sponsored by Borrower or any Affiliated Company, or to which Borrower or any
Affiliated Company is required to contribute.
"Year 2000 Compliant" means, with respect to any System or
Systems, that such System or Systems are designed to be used prior to, during
and after the Gregorian calendar year 2000 A.D. and will operate during each
such time period without error relating to date data, specifically including any
error relating to, or the product of, date data which represents or references
different centuries or more than one century, except for errors which will not
cause a Material Adverse Effect.
2. CREDIT FACILITIES
2.1 Revolving Credit Facility. Subject to the terms, conditions
and limitations hereof, and provided that no Event of Default has occurred and
is continuing hereunder, Bank agrees to lend (and upon repayment relend) money
to Borrower in such amounts as Borrower from time to time requests, up to the
maximum amount of Seven Million Five Hundred Thousand and no/100 Dollars
($7,500,000.00) (the "Revolving Credit Facility"), provided that the amount
available to be borrowed under the Revolving Credit Facility shall be reduced by
the amount of any Letter of Credit Liabilities.
Each advance under the Revolving Credit Facility shall be made upon Borrower's
giving Bank a written notice, which includes a Borrowing Base Certificate, which
notice must be received by Bank prior to 2:00 p.m. (Milwaukee, Wisconsin time)
for a Daily LIBOR Rate Loan request and prior to 2:00 p.m. (Milwaukee, Wisconsin
time) two business days prior to the requested borrowing date for Periodic LIBOR
Rate Loans, specifying: (a) the amount of the advance requested; (b) the
requested borrowing date, which shall be a business day; and (c) the interest
rate selected pursuant to Section 2.2 hereof. Advances by Bank hereunder shall
be made by deposits or transfers to Borrower's commercial demand account number
153503335488, maintained with the Bank. Loans so made shall be evidenced by
Borrower's Revolving Note, and, in addition, Bank shall maintain a loan account
ledger for Borrower, the debit balance of
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which shall reflect the amount of Borrower's indebtedness to the Bank from time
to time by reason of any loans, advances or financial accommodations made in
conformance with this Revolving Credit Facility. Each month the Bank shall
render to Borrower a statement of account as of the last day of the preceding
month, which statement shall be considered correct and accepted by Borrower and
conclusively binding upon Borrower unless Borrower notifies the Bank to the
contrary within thirty (30) days from the date of mailing of said statement,
absent manifest error. Borrower promises to pay to Bank interest in accordance
with Section 2.2 hereof and to pay all outstanding principal and accrued but
unpaid interest under Revolving Note in full on the date of the termination of
this Agreement.
2.2 Interest Rate.
2.2.1 Interest Rate and Payment. The interest rate hereunder on
the Revolving Note shall, at Borrower's option to be exercised pursuant to
Section 2.2.2(i) hereof, be equal to (a) the Daily LIBOR Rate, or (b) the
Periodic LIBOR Rate. The unpaid balances on Revolving Note shall bear interest
after an Event of Default and during the continuation thereof or after maturity
at three percentage points (3.0%) per annum in excess of the rate which would
otherwise apply. Interest shall be calculated for actual days elapsed based upon
a 360-day year and the applicable Daily LIBOR Rate or Periodic LIBOR Rate and
the outstanding loan balances as they exist at the end of each day. Interest for
each calendar month on the Revolving Note shall be due and payable to Bank by
Borrower as of the first day of the next succeeding month, and at Bank's sole
option may be debited to Borrower's loan account ledger for The Revolving Credit
Facility or debited against any commercial demand account maintained with Bank
by Borrower.
2.2.2 LIBOR Election.
(i) Continuation and Conversion Procedure. So long as
no Event of Default has occurred and is continuing, Borrower may elect from time
to time, subject to the terms and conditions of hereof, to convert all or a
portion of a Daily LIBOR Rate Loan to Periodic LIBOR Rate Loans (in each case,
in a minimum amount of $500,000 and in even increments of $100,000). A Daily
LIBOR Rate Loan shall continue as a Daily LIBOR Rate Loan unless and until
converted to a Periodic LIBOR Rate Loan as provided hereunder. At the end of the
applicable Interest Period for a Periodic LIBOR Rate Loan, such Periodic LIBOR
Rate Loan shall automatically be converted into a Daily LIBOR Rate Loan unless
Borrower shall have given Bank a Conversion/Continuation Notice in the form of
Exhibit B hereto (a "Conversion/Continuation Notice") requesting that, at the
end of such Interest Period, all or a portion of such Periodic LIBOR Rate Loan
be continued as a Periodic LIBOR Rate Loan. Each change in the rate to be
charged on the Revolving Note will become effective without notice on the
commencement of each Interest Period based upon the Adjusted LIBOR Rate then in
effect. Borrower shall give Bank a Conversion/Continuation Notice of each
conversion of a Daily LIBOR Rate Loan to a Periodic LIBOR Rate Loan or
continuation of a Periodic LIBOR Rate Loan not later than 2:00 p.m., Milwaukee
time, two London Business Days prior to the date of
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the requested conversion or continuation, specifying (i) the requested date of
such conversion or continuation, (ii) the amount of loan to be converted or
continued, and (iii) the duration of the Interest Period applicable thereto.
Each such request by Borrower shall be irrevocable.
(ii) Additional LIBOR Rate Loan Provisions. If Bank
reasonably determines that the making or maintaining of a LIBOR Rate Loan would
violate any applicable law, rule, regulation or directive, whether or not having
the force of law, then the obligation of Bank to make, continue, maintain or
convert any LIBOR Rate Loan shall be suspended until Bank notifies Borrower that
the circumstances causing such suspension no longer exist. During any such
period, all LIBOR Rate Loans shall automatically convert into Reference Rate
Loans at the end of the applicable Interest Period or sooner if required by law.
If Bank is unable to determine the LIBOR Rate in respect of a requested Interest
Period or Bank is unable to obtain deposits of U.S. Dollars in the London
interbank market in the applicable amounts and for the requested Interest
Period, then, upon notice from Bank to Borrower, the obligation of Bank to make
any Daily LIBOR Rate Loan, or to convert any Daily LIBOR Rate Loan into a
Periodic LIBOR Rate Loan, shall be suspended until Bank notifies Borrower that
the circumstances causing such suspension no longer exist. Subject to the
following sentence, Borrower may prepay all or any portion of the principal
amount of the LIBOR Rate Loans. If Borrower makes any prepayment other than on
the last day of an Interest Period, or if Borrower fails to borrow or fail to
convert any amount in accordance with a Conversion/Continuation Notice, Borrower
shall pay all accrued interest on the principal amount prepaid with such
prepayment or the principal amount Borrower fails to borrow or convert, and, on
demand, shall reimburse Bank and hold Bank harmless from all losses and expenses
incurred by Bank as a result of such prepayment, including, without limitation,
any losses and expenses arising from the liquidation or reemployment of deposits
acquired to fund or maintain the principal amount prepaid, and any such demand
shall be accompanied by a written statement setting forth, in reasonable detail,
the basis for such losses and expenses. Such reimbursement shall be calculated
as though Bank funded the principal amount prepaid through the purchase of U.S.
Dollar deposits in the London, England interbank market having a maturity
corresponding to such Interest Period, whether in fact that is the case or not.
Bank's determination of the amount of such reimbursement shall be conclusive,
absent manifest error, unless Borrower notifies the Bank to the contrary within
sixty (60) days from the date of mailing of the aforementioned statement.
2.2.3 Unused Line Fee. In addition to all other amounts to be
paid by Borrower hereunder, Borrower shall pay Bank, on the first day of each
fiscal quarter of Borrower and on the date of termination of this Agreement, one
quarter of one percentage point (.25%) per annum of the difference between
$7,500,000.00 and the average daily aggregate debit balance of the Revolving
Credit Facility during the preceding fiscal quarter, (or partial quarter at the
beginning or end of the term hereof, as applicable) calculated on the basis of
the actual number of days elapsed in a year of 360 days.
2.2.4 Limitation on Interest. In no contingency or event
whatsoever shall the interest rate charged hereunder exceed the highest rate
permissible under any law which a court
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of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event such a court determines that Bank has received interest
hereunder in excess of the highest rate permissible under law, Bank shall
promptly refund such excess to Borrower without penalty or damages of any kind.
2.2.5 Interest Upon Default. After an Event of Default which
is continuing, including failure to pay upon final maturity, Bank, at its
option, may also, if permitted under applicable law, do one or both of the
following: (a) increase the applicable interest rate on each Note to three
percentage points (3.0%) per annum above that rate that would otherwise be in
effect, and (b) add any unpaid accrued interest to principal and such sum will
bear interest therefrom until paid at the rate provided in the applicable Note
(including any increased rate).
2.3 Application of Payments. Unless otherwise agreed to, in writing,
or otherwise required by applicable law, payments will be applied first to
accrued, unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs, late charges and other charges, provided, however,
after and Event of Default which is continuing Bank may apply payments among
principal, interest, late charges, collection costs and other charges at its
discretion. All prepayments shall be applied to the indebtedness owing hereunder
in such order and manner as Bank may from time to time determine in its sole
discretion.
3. SECURITY INTEREST AND PLEDGE
To secure the payment and performance of all of Borrower's Obligations
as herein defined, and as a contemporaneous exchange for value, Borrower hereby
grants, pledges, hypothecates and assigns to Bank a lien and security interest
in the Collateral, as herein defined, and all of its ledger sheets, files,
records, documents and instruments relating to the Collateral.
Borrower also grants Bank a security interest and lien in any credit
balance or other money now or hereafter owed Borrower by Bank and, in addition,
agrees that Bank may at any time after an occurrence and during the continuance
of an Event of Default, without notice or demand, set off against such credit
balance or other money any amount unpaid under the Obligations.
4. COLLATERAL-OBLIGATION RATIO
Without Bank's written consent, Borrower shall not at any time permit
the sum of the aggregate amount of those Obligations reflected by the loan
account ledger for The Revolving Credit Facility plus all Letter of Credit
Liabilities to exceed the lesser of $7,500,000.00 or the total sum of:
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4.1 Seventy-five percent (75%) of the amount owing on
Qualified Accounts (after deducting payments on Qualified Accounts
which are in the process of collection by the Bank); plus
4.2 Fifty percent (50%) of Qualified Inventory at cost or
wholesale market value, whichever is lower, up to a maximum of
$2,500,000.00; plus
4.3 the Real Estate Sublimit; less
4.4 the Reserves for Returns; less
4.5 such reserves as Bank, in its sole discretion, deems
necessary or appropriate, taking into account the Borrower's and
Borrower's Customers' financial condition and prospects, the nature and
condition of the Collateral, applicable contingencies and any other
factor deemed material by Bank.
In addition to other required payments, Borrower shall pay Bank, in
reduction of the Obligations owing to Bank at any time, such sums as may be
necessary from time to time to maintain the foregoing ratios and to comply with
the foregoing advance limits. Such ratio is stated only for the purpose of
advances under this Agreement and not for valuation of the Collateral.
The "Real Estate Sublimit" shall be $1,000,000. However, if Borrower
meets the Real Estate Sublimit Conditions, then the Real Estate Sublimit shall
increase to the lesser of (a) $2,400,000.00 or (b) 75% of the appraised value of
the Blaine Property.
"Real Estate Sublimit Conditions" shall mean:
(a) as of March 31, 2000, Borrower's EBITDA for the fiscal year ending
on such date is equal to or greater than $2,500,000;
(b) as of March 31, 2000, Borrower's ratio of total liabilities to Net
Worth is less than 2.25 to 1; and
(c) Borrower, at Borrower's expense, obtains and provides the Bank
with the following, each of which is in form and substance satisfactory to the
Bank:
(i) an ALTA survey from a surveyor licensed in Washington showing
the boundaries of the Blaine Property, the legal description of the Blaine
Property, the means of ingress to and egress from the Blaine Property, all
improvements on the Blaine Property, the flood plain status of the Blaine
Property, and all easements and encroachments affecting the Blaine Property;
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<PAGE> 15
(ii) a flood plain certification for the Blaine Property;
(iii) Environmental Assessments of the Borrower's Blaine Property,
which Environmental Assessments shall meet ASTM E1527-97 Standard Practice for
Phase 1 Environmental Site Assessments, and Bank's satisfaction with such
assessments; and
(iv) a real estate appraisal of the Blaine Property, established
from a written report prepared in accordance with the Uniform Standards of
Appraisal practice by an appraiser acceptable to Bank.
5. COLLECTIONS
5.1 Receipt and Credit for Collections. Until its authority to do so
is terminated by Bank, Borrower shall, at its own expense, collect all amounts
unpaid on Receivables, and deliver to Bank immediately upon receipt, all checks,
drafts, cash, notes, money orders, acceptances and other remittances
("Collections") received in part or full payment of or with respect to the
Collateral in precisely the form received (but endorsed by Borrower if necessary
for collection). All Collections in part or full payment of and with respect to
the Collateral received by Bank shall be processed and retained by Bank in a
depository account (the "Cash Collateral Account") for application to the
Obligations. The Cash Collateral Account shall be in Bank's name and Borrower
shall have no right to make withdrawals or transfers from the Cash Collateral
Account or otherwise have any right to access or control the Cash Collateral
Account. Until such delivery Borrower shall not commingle any Collection with
its own funds or any of its property or use the Collection in any way except to
pay its Obligations to Bank but shall hold the Collection in trust for Bank. In
the event that any such item, the amount of which has been credited against the
Obligations, is subsequently dishonored or otherwise returned unpaid to Bank,
Bank may retroactively debit the Borrower's loan account ledger for the
Revolving Credit Facility for the amount of such item, or debit the Borrower's
commercial demand account maintained with Bank for the amount of such item.
5.2 Verification and Notification. Bank may confirm and verify all
Receivables in any manner, and Borrower shall assist Bank in so doing. Bank may
terminate Borrower's authority to make Collection at any time. Bank may at any
time notify, or require the Borrower to notify, all of Borrower's Customers or
any of them to make payment directly to Bank and the Bank may enforce collection
of, settle, compromise, extend or renew the indebtedness of any or all of
Borrower's Customers without liability of any kind. Until Borrower's Customers
are otherwise notified, Borrower, as agent of Bank, shall make Collections on
the Receivables.
5.3 Authority to Perform for Borrower. To the fullest extent permitted
by law Borrower appoints each and every agent of Bank as Borrower's
attorney-in-fact to endorse the name of Borrower on any notes, acceptances,
checks, drafts, money orders or other instruments for the payment of money or
any security interest that may come into Bank's possession and to
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<PAGE> 16
sign Borrower's name on any invoice or bill of lading relating to any of the
Receivables, on drafts against Customers, and notices to Customers. This power,
because it is coupled with an interest, is irrevocable while any Obligation
remains unpaid. Bank is hereby authorized and empowered to accept the return of
goods represented by any of the Receivables, without notice to or the consent of
the Borrower, without discharging or in any way affecting Borrower's liability
hereunder. All acts of Bank or its appointee are hereby ratified and approved,
and Bank or its appointee shall not be liable for any acts of commission or
omission, nor for any error of judgment or mistake of fact or law, except for
the willful misconduct of Bank.
6. BORROWER'S WARRANTIES
Borrower warrants that while any of the Obligations are unpaid or
unsatisfied:
6.1 Accuracy of Information. All information, certificates or
statements given to Bank pursuant to this Agreement shall be true and complete
in all material respects when given, subject to year end adjustment, .
6.2 Accuracy of Financial Statements. As of the date hereof, no
material or adverse change has occurred or is about to occur which would affect
Borrower's fiscal 1999 year-end financial statements, or the Borrower's
September 30, 1999 interim financial statements. Borrower agrees to immediately
advise Bank of any material adverse changes to said financial statements.
6.3 Names; Addresses. The address appearing on page 1 hereof is
Borrower's principal place of business and the address of the office where
Borrower keeps its records concerning accounts and contract rights. Such
location shall not be changed without the prior written consent of Bank.
Schedule 6.3 hereto lists all of the locations at which Borrower keeps any
Collateral or records. Borrower's corporate name is Geographics, Inc. Schedule
6.3 hereto lists all prior corporate names and all trade names by which Borrower
is now known or was previously known within the past seven years.
6.4 Organization. Borrower is a duly organized, validly existing
corporation and in good standing under the laws of the State of Wyoming and is
duly qualified to do business and is in good standing in Washington and every
other jurisdiction in which Borrower is required under the laws of such
jurisdiction to qualify to do business or otherwise register, except for other
jurisdictions in which the failure to be so qualified and in good standing would
not have a Material Adverse Effect. Borrower has filed all reports required to
be filed by Borrower with the Secretary of State of the State of Wyoming in
order to maintain its charter and no proceeding is pending to revoke Borrower's
charter or dissolve Borrower.
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6.5 Other Agreements. Upon repayment of Borrower's existing credit
facility with Bank, Borrower and its Subsidiaries are not in default under any
agreement for the payment of money which agreement involved in excess of $50,000
in the aggregate for all such agreements.
6.6 Unfunded Liabilities - ERISA. All of Borrower's Plans are set
forth on Schedule 6.6. None of the Pension Plans has an accumulated funding
deficiency, as defined under Section 302 of ERISA and Section 412 of the
Internal Revenue Code whether or not waived, in excess of $50,000 in the
aggregate for all deficiencies. All of the Pension Plans are qualified under
Section 401(a) of the Internal Revenue Code and the related trusts are exempt
from tax under Section 501(a) of the Internal Revenue Code. Borrower has not
incurred and does not expect to incur any liability to the Pension Benefit
Guaranty Corporation ("PBGC"), or to any trustee appointed pursuant to ERISA
Section 4042, with respect to any Pension Plan, and the PBGC has not instituted
proceedings to terminate any Pension Plan or to have a trustee appointed under
ERISA Section 4042 to administer or terminate any Pension Plan. There are no
pending investigations by any government agency involving the Plans. Except as
set forth on Schedule 6.6 hereto, no event has occurred or no condition exists
which presents a material risk of termination of any Pension Plan or which could
result in any liability on the part of Borrower to the PBGC and there has been
no reportable event (as defined in Section 4043(b) of ERISA. Borrower has not
engaged in any "prohibited transaction" (as defined in ERISA Section 406 and
Section 4975 of the Internal Revenue Code), with respect to a Plan or any of the
related trusts, which may result in any civil penalty assessed pursuant to ERISA
Section 502(i) or a tax imposed by the Internal Revenue Code. Borrower has no
withdrawal liability assessed or contingently assessable under ERISA as to any
Pension Plan which is a multiemployer Plan. Except as set forth on Schedule 6.6,
Borrower does not maintain unfunded Welfare Benefit Plans (within the meaning of
ERISA Section 3(1)) for employees of Borrower which cannot be terminated without
further financial obligation on the part of Borrower upon notice of not more
than thirty (30) days. Each of the Plans has been administered at all times, and
in all material respects, in accordance with its terms. Borrower has fully
complied in all material respects with the notice and continuation of coverage
requirements of Sections 601 through 608 of ERISA and Section 4980B of the
Internal Revenue Code. All reports, statements, returns, and other information
required to be furnished or filed with respect to the Plans have been furnished
or filed, or both, in accordance with Sections 101 through 105 of ERISA and
Section 6057 through 6059 of the Internal Revenue Code, and they are true and
correct. Records of the Plans have been maintained in accordance with Section
107 of ERISA. The Borrower and all other fiduciaries (as defined in Section
3(21) of ERISA) with respect to any of the Plans do not have any material
liability for any breach of any fiduciary duties under Sections 404, 405 or 409
of ERISA. No action, proceeding or claim has been asserted, or is pending or
threatened, against Borrower or any Plan fiduciary with respect to any Plan and
no basis exists therefor. For purposes of this Section 6.6, "Borrower" shall
include Borrower and any Affiliated Company.
6.7 Ownership. Borrower is the exclusive owner of the Collateral free
of all encumbrances, security interests, liens and interests of third parties
whatsoever (except Bank's security interest and Permitted Liens), and chattel
paper constituting Collateral evidences a
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<PAGE> 18
perfected security interest in the goods covered by it, free from all other
encumbrances and security interests, and no financing statement or assignment
(absolute or conditional), or notice thereof (other than Bank's or one giving
rise to an Permitted Liens) is on file covering the Collateral or any of it. If
Inventory is represented or covered by documents of title, Borrower is the owner
of the documents, free of all encumbrances and security interests other than
Bank's security interest and Permitted Liens. Borrower is duly authorized to
sell, transfer, pledge and grant a security interest in each and every item of
the Collateral.
6.8 Litigation. There is no litigation or proceeding pending or, to
the knowledge of any of Borrower's officers, threatened against Borrower or any
of its Subsidiaries which is reasonably likely to result in a Material Adverse
Effect.
6.9 Fiscal Year. Borrower's and its Subsidiaries' fiscal years end
March 31.
6.10 Validity of Agreement. The execution and delivery of this
Agreement to Bank will not violate or constitute a breach of Borrower's Articles
of Incorporation, By-Laws or other incorporation papers or any indenture,
agreement or undertaking to which Borrower is a party or is subject, except
where such breach or violation would not result in a Material Adverse Effect.
6.11 Dump Sites. With respect to the period during which Borrower owned
or occupied its real estate, and to the Borrower's knowledge with respect to the
time before Borrower owned or occupied its real estate, no person or entity has
caused or permitted materials to be stored, deposited, treated, recycled or
disposed of on, under or at any real estate owned or occupied by the Borrower,
which materials, if known to be present, would require cleanup, removal or some
other remedial action under Environmental Laws, except where the cleanup,
removal or remedial action would cost less than $50,000 in the aggregate for all
such materials.
6.12 Tanks. There are not now, nor to the Borrower's knowledge have
there ever been, tanks or other facilities on, under, or at any real estate
owned or occupied by the Borrower which contained materials which, if known to
be present in soils or ground water, would require cleanup, removal or some
other remedial action under Environmental Laws, except where the cleanup,
removal or remedial action would cost less than $50,000 in the aggregate for all
such tanks or other facilities.
6.13 Other Environmental Conditions. To the Borrower's knowledge, there
are no conditions existing currently or likely to exist during the term of this
loan which would subject Borrower to damages, penalties, injunctive relief or
cleanup costs under any Environmental Laws or which require or are likely to
require cleanup, removal, remedial action or other response pursuant to
Environmental Laws by the Borrower, except where the cleanup, removal or
remedial action would cost less than $50,000 in the aggregate for all such
conditions.
6.14 Environmental Judgments, Decrees and Orders. Borrower is not
subject to any judgment, decree, order or citation related to or arising out of
Environmental Laws and has not
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been named or listed as a potentially responsible party by any governmental body
or agency in a matter arising under any Environmental Laws, where such judgment,
decree, order, citation or matter is reasonably likely to cost, in the aggregate
for all such judgments, decrees, orders and citations, more than $50,000 to
remedy or otherwise address.
6.15 Environmental Permits and Licenses. Borrower has all permits,
licenses and approvals required under Environmental Laws, including all permits,
licenses and approvals relating to air emissions or disposal of hazardous waste
or wastewater, except where the failure to obtain such permits, licenses and
approvals would cost the Borrower less than $50,000 in the aggregate for all
such permits, licenses and approvals to remedy or otherwise address.
6.16 Employee Controversies. There are no controversies pending or, to
the best of the Borrower's knowledge, threatened or anticipated between the
Borrower or any of its Subsidiaries and any such entity's employees, other than
employee grievances arising in the ordinary course of business which are not
reasonably likely to have a Material Adverse Effect.
6.17 Labor Matters. There are no strikes or other labor disputes
against the Borrower or any of its Subsidiaries pending or, to Borrower's
knowledge, threatened. The hours worked and payment made to employees of the
Borrower have not been in material violation of the Fair Labor Standards Act or
any other applicable law dealing with such matters. All payments due from
Borrower, or for which any claim may be made against the Borrower, on account of
wages and employee health and welfare insurance and other benefits have been
paid or accrued as a liability on the books of the Borrower. The consummation of
the transactions contemplated by this Agreement will not give rise to a right of
termination or right of renegotiation on the part of any union under any
collective bargaining agreement to which the Borrower is a party or by which the
Borrower is bound.
6.18 Patents, Licenses. The Borrower and its Subsidiaries possess
adequate assets, licenses, patents, patent applications, copyrights, service
marks, trademarks and trade names to continue to conduct its business as
heretofore conducted. All of the following that are federally registered or for
which Borrower and its Subsidiaries has made application for federal
registration, whether owned by or licensed to Borrower or any of its
Subsidiaries, are listed on Schedule 6.18 hereto: patents, patent applications,
copyrights, service marks, trademarks and trade names.
6.19 Investment Company. Borrower is not an "investment company" or a
company controlled by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
6.20 Consignments. None of the Inventory in Borrower's possession was
obtained by Borrower on consignment or approval.
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6.21 Year 2000 Compliance. All of the Systems of the Borrower are Year
2000 Compliant or will be Year 2000 Compliant within a period of time calculated
to result in no material disruption of any of the Borrower's business
operations.
6.22 Compliance Process. The Borrower has:
(i) undertaken a detailed inventory, review and assessment of
all areas within its business and operations that could be adversely affected by
the failure of the Borrower to be Year 2000 Compliant on a timely basis; and
(ii) developed a detailed plan and time line for becoming Year
2000 Compliant on a timely basis; and
(iii) to date, implemented that plan in accordance with that
timetable in all material respects.
6.23 Compliance by Third Parties. The Borrower has made written inquiry
of Unisource Worldwide, Inc. and has obtained in writing confirmation from it as
to whether it has initiated programs to become Year 2000 Compliant and on the
basis of such confirmation, Borrower reasonably believes that it will be or
become so compliant. Borrower warrants that Unisource Worldwide, Inc. is the
only supplier or vendor of the Borrower whose business failure would, with
reasonable probability, result in a material adverse change in the business,
properties, conditions (financial or otherwise) or prospects of the Borrower.
7. BORROWER'S AFFIRMATIVE COVENANTS
During the term of this Agreement, and until the Obligations are paid
or satisfied in full, Borrower covenants and agrees as follows:
7.1 Business Records; Reports. Borrower and its Subsidiaries shall
maintain a standard and modern system of business records prepared in accordance
with generally accepted principles of accounting consistently applied throughout
all accounting periods and shall furnish Bank such reports respecting the
business, assets and financial condition of Borrower and its Subsidiaries as
Bank may reasonably request, all of which reports shall be certified, in form
satisfactory to Bank, by a principal officer of Borrower and its Subsidiaries
or, when requested by Bank after the occurrence and during the continuance of an
Event of Default, audited by an independent certified public accountant who is
reasonably satisfactory to Bank. Bank shall have the right at any time during
normal business hours, upon 24 hours notice or such lesser notice as may be
reasonable under the circumstances, to verify, check, inspect and make abstracts
and copies of all of Borrower's books, accounts, records, audits, orders,
correspondence, corporate minute books and other legal records and such other
papers, computer files, discs, tapes,
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printouts and other media as Bank may desire. In addition to the foregoing,
Borrower agrees to deliver to Bank:
7.1.1 Within ninety (90) days after the end of each fiscal year of
Borrower, an audited balance sheet of Borrower as of the close of such fiscal
year and related audited statements of earnings, retained earnings and
statements of cash flows for such year, each with comparative figures for the
preceding fiscal year, all in reasonable detail satisfactory to the Bank,
prepared in accordance with generally accepted accounting principles
consistently applied, certified by an independent public accountant reasonably
satisfactory to Bank.
7.1.2 Within thirty (30) days after the end of each fiscal month,
a balance sheet and related statements of earnings, retained earnings and
statements of cash flows for such month, in each case with comparative figures
for the same month in the preceding fiscal year, prepared on the same basis as
the most recent annual statement provided pursuant to clause (1) above,
certified by the Chief Executive Officer or Chief Financial Officer of Borrower.
7.1.3 As often as requested by Bank, but at least weekly, a report
in the form required by the Bank reflecting the Collateral-Obligation Ratio
(based on weekly Qualified Accounts and monthly Qualified Inventory figures) as
of the end of the prior business day, together with such information relating to
the Collateral as Bank may request, certified by an authorized signatory of
Borrower.
7.1.4 Upon receipt by Borrower, copies of all management letters
and detailed audit reports submitted to Borrower by independent accountants.
7.1.5 With each statement delivered under Section 7.1.1 or 7.1.2
hereof, a statement on the form of Exhibit C hereto certified by the Chief
Executive Officer or Chief Financial Officer of Borrower, in form and content
satisfactory to Bank, representing the warranting that (a) the representations
and warranties contained in this Agreement are true and correct as of the date
of such statement, except for changes permitted or contemplated by this
Agreement which have been disclosed in writing to Bank; (b) no condition, event,
act or omission has occurred or exists which constitutes an Event of Default
under this Agreement; (c) no condition, event, act or omission has occurred
which, with the giving of notice or the passage of time, will constitute an
Event of Default under this Agreement; and (d) Borrower is in compliance with
the following Sections of this Agreement: 7.25, 7.26, 7.27 and 7.28.
7.2 Conduct of Business; State of Incorporation. (a) Borrower shall
maintain current filings of its Articles of Incorporation in all states in which
Borrower is qualified to do business, and do all things necessary for the
Borrower to remain duly organized and validly existing as a Wyoming corporation
and maintain all requisite authority to conduct its business in Wyoming,
Washington and in all other states as may be required, except as to such other
states where the failure to be so qualified would not have a Material Adverse
Effect, (b) Borrower shall not
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change its state of incorporation, and (c) Borrower shall obtain all requisite
authority to conduct its business in Wisconsin prior conducting any such
business.
7.3 Changes in Status of Collateral. Borrower shall promptly notify
Bank if any Qualified Account or Qualified Inventory ceases to be qualified.
7.4 Chattel Paper, Instruments, etc. Chattel Paper, instruments,
drafts, notes, acceptances, and other documents which constitute Collateral
shall be on forms reasonably satisfactory to the Bank. Borrower shall promptly
mark all such forms of Collateral to indicate conspicuously the Bank's interest
and immediately deliver them to the Bank.
7.5 Collateral Records and Statements. Borrower shall keep accurate
and complete books and records pertaining to the Collateral in such detail and
form as Bank requires and in accordance with generally accepted principles of
accounting consistently applied, including but not limited to, schedules of
inventory, original orders, invoices, and shipping documents. At the request of
Bank, Borrower shall furnish to Bank a statement, certified by Borrower and in
such form and containing such information as may be prescribed by Bank, showing
the current status and value of the Collateral.
7.6 Taxes and Expenses. Any taxes (excluding income taxes of the Bank)
payable or ruled payable by Federal or State authority in respect of this
Agreement, the Revolving Note or the Collateral Agreements shall be paid by the
Borrower, together with interest and penalties, if any. However, (a) Borrower
shall be allowed to contest, in good faith, taxes which in the aggregate total
$50,000 or less and (b) Borrower shall be allowed to contest, in good faith,
taxes which in the aggregate total more than $50,000 provided that (i) Borrower
maintains adequate reserves therefor, (ii) Borrower gives Bank notice thereof,
and (iii) Bank's prospect of payment of the Obligations is not impaired.
Borrower shall also reimburse the Bank for all reasonable fees and out-of-pocket
expenses and disbursements incurred by Bank in connection with this Agreement,
including reasonable fees and expenses incurred by Bank in connection with any
inspection of Collateral pursuant to Section 7.7 below, and including the
reasonable legal fees and expenses of the Bank's legal counsel. Borrower also
agrees to pay the reasonable fees and expenses incurred by the Bank in
connection with any subsequent amendment or modification of this Agreement, the
Revolving Note or any of the Collateral Agreements, or their collection and/or
enforcement (including, but not limited to, reasonable attorney fees and
reasonable time charges of attorneys who may be employees of the Bank).
7.7 Inspection of Collateral. At reasonable times Bank may examine the
Collateral and have full access to, and right to audit, check, inspect and make
abstracts and copies from Borrower's books and records pertaining to it,
wherever located; and Borrower shall assist Bank in so doing.
7.8 Insurance. Borrower shall procure forthwith and maintain insurance
against loss, theft, destruction and damage to the Collateral for the full
insurable value thereof, with such
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companies as are acceptable to the Bank for the life of this Agreement, plus
other insurance thereon in the amounts and against such risks as the Bank may
specify, and promptly deliver an original copy of each policy to the Bank, with
a standard Lender's Loss Payable Clause and Mortgagee Clause in favor of Bank.
Loss or damage to the Collateral shall not release Borrower from any of its
Obligations to Bank. Bank is authorized, but not obligated, in the name of
Borrower or otherwise, to make, adjust, settle claims under or cancel any
insurance on the Collateral and apply all insurance proceeds against the
Obligations. All policies of insurance shall provide for at least ten (10)
days prior written notice of cancellation to Bank. In addition, Borrower
agrees to maintain business interruption, workman's compensation and life
insurance on key officers in reasonable amounts designated at any time or from
time to time by Bank.
7.9 Maintenance of Collateral. Borrower shall maintain the Collateral
and every part thereof in good condition and repair and not permit its value to
be impaired (excepting only reasonable wear and tear); keep it free from all tax
liens and other liens, encumbrances and security interests (other than Bank's
security interest and Permitted Liens); defend it at its own expense against all
claims and legal proceedings by persons other than Bank; pay and discharge when
due all taxes, levies and other charges or fees levied or assessed upon it,
provided, however, that Borrower shall be allowed to contest the same in good
faith so long as (1) Borrower maintains adequate reserves therefor, (2) Borrower
gives Bank notice thereof, and (3) the Bank will not be adversely affected
thereby; not lease, sell, transfer it from the premises where now located, or
otherwise dispose of it or permit it to become a fixture or accession to other
goods, without the prior written approval of Bank, except for sales or leases of
Inventory in
<PAGE> 24
the ordinary course of business; not permit it to be used in
violation of any applicable law, regulations, or policy of insurance; and, as to
Collateral consisting of instruments, chattel paper and General Intangibles,
preserve rights in it against prior parties. Preservation of rights against
prior parties includes, without limitation, defense of lawsuits, arbitrations,
oppositions, reexaminations, interferences, public use proceedings and the like
in any court of law, administrative agency or other tribunal and the like. In
the event Bank is named or impleaded in any of the aforementioned proceedings,
Borrower shall hold Bank harmless and indemnify Bank for all losses, expenses
and attorneys' fees the Bank incurs in participating in same or otherwise
preserving its legal rights and complying with any legal or procedural
requirements associated with same, except to the extent resulting from Bank's
willful misconduct. Borrower will mark all of its chattel paper with a legend
acceptable to Bank indicating that Bank has a security interest in the chattel
paper.
7.10 Maintenance of Security Interest. Borrower shall pay all expenses
and, upon request, take any action reasonably deemed advisable by Bank to
preserve the Collateral or to establish priority of, perfect, continue
perfected, terminate or enforce Bank's interest in it or rights under this
Agreement. Borrower shall execute and deliver to Bank any and all documents Bank
reasonably requests to perfect its security interest in any or all Collateral.
7.11 Notice of Changes. Borrower shall promptly notify Bank in writing
of any change of its officers, directors or key employees; change of location of
its principal offices;
23
<PAGE> 25
change of location of any of its assets (except the shipment, temporary storage
or temporary use in its manufacturing processes of Inventory in the ordinary and
normal course of Borrower's business); change of Borrower's name or use of any
trade name not listed on Schedule 6.3 hereto, acquisition of any federally
registered patents, patent applications, copyrights, service marks, trademarks
or trade names; application for registration of any patents, patent
applications, copyrights, service marks, trademarks or trade names; death of any
guarantors; any sale or purchase not in the regular course of Borrower's
business; or any other material change in the business or financial affairs of
Borrower.
7.12 Return and Repossession. In the event of any return, reclamation
or repossession of any Collateral, Borrower shall reflect such return,
reclamation or repossession on its collateral reports delivered to Bank.
7.13 Use of Proceeds. Advances by Bank to Borrower under this or other
agreements shall be used exclusively by Borrower for operating capital and other
valid corporate purposes.
7.14 Compliance with Laws. Borrower and its Subsidiaries shall comply
in all material respects with all material laws, rules, regulations, orders,
writs, judgments, injunctions, decrees or awards to which it may be subject.
7.15 Notice of Default. Borrower shall give prompt notice in writing to
Bank of the occurrence of any default or of any other development, financial or
otherwise, which might materially adversely affect its business, properties or
affairs or the ability of Borrower to perform the Obligations.
7.16 Further Assurances. Borrower authorizes Bank to file financing
statements describing the Collateral. Borrower shall cooperate in Bank's efforts
to comply with or address any amendments to the Article 9 of the Uniform
Commercial Code that may be in effect from time to time. Upon the reasonable
request of the Bank from time to time, Borrower shall execute and deliver to
Bank in form acceptable to Bank's counsel (i) all such further documents and
assurances in order to perfect and/or maintain any assignment, security interest
or mortgage granted to the Bank, (ii) collateral assignments of all leases of
real or personal property, and all patents and patent applications, acquired by
Borrower after the date of this Agreement, (iii) mortgage and security
agreements covering all General Intangibles acquired by the Borrower, (iv)
mortgages covering all real estate acquired by the Borrower after the date
hereof, (v) motor vehicle lien applications and other documentation reasonably
requested by Bank to cause Bank to be named as a secured party on the titles to
Borrower's vehicles, and (vi) assignments of life insurance, (vii) agreements
from third parties who may be holding Collateral that they are holding the
Collateral for the benefit of Bank, and (viii) control agreements in form and
substance satisfactory to Bank with respect to Collateral consisting of deposit
accounts, investment property, letter of credit rights and electronic chattel
paper.
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7.17 Maintain Deposits. Borrower shall maintain all its commercial
demand deposit and other accounts with the Bank. Such accounts shall at all
times have deposits in sufficient amounts to pay all bank charges and fees
charged by Bank, including but not limited to all deposit account charges, all
lockbox charges and all fees for treasury management services.
7.18 Margin Security. As of the execution hereof, the Borrower does not
own any margin security and none of the loans advanced hereunder will be used
for the purpose of purchasing or carrying any margin securities or for the
purpose of reducing or retiring any indebtedness which was originally incurred
to purchase any margin securities or for any other purpose not permitted by
Regulation U of the Board of Governors of the Federal Reserve System.
7.19 Compliance with Environmental Laws. Borrower shall timely comply
in all material respects with all applicable Environmental Laws.
7.20 Orders, Decrees and Other Documents. Borrower shall provide to the
Bank immediately upon receipt copies of any correspondence, notice, pleading,
citation, indictment, complaint, order, decree, or other document from any
source asserting or alleging a circumstance or condition which requires or may
require a financial contribution by Borrower or a cleanup, removal, remedial
action, or other response by or on the part of the Borrower under Environmental
Laws which seeks damages or civil, criminal or punitive penalties from Borrower
for an alleged violation of Environmental Laws.
7.21 Agreement to Update. Borrower shall advise the Bank in writing as
soon as Borrower becomes aware of any condition or circumstance which makes the
environmental warranties contained in this Agreement incomplete or inaccurate.
7.22 Additional Information. Borrower shall furnish such additional
information, statements and other reports with respect to the Borrower's Year
2000 Compliance (and its approach to and progress toward becoming Year 2000
Compliant) as Bank may request from time to time.
7.23 Notice of Changes. In the event of any change in circumstances
that causes or will likely cause any of the representations and warranties set
forth in Sections 6.21, 6.22, and 6.23 ("Year 2000 Compliance") to no longer be
true (hereinafter referred to as a "Change in Circumstances") then Borrower
shall promptly, and in any event within ten (10) days of receipt of information
regarding a Change in Circumstances, provide Bank with written notice (the
"Notice") that describes in reasonable detail the Change in Circumstances and
how such Change in Circumstances caused or will likely cause the representations
and warranties set forth in Sections 6.21, 6.22, and 6.23 hereof to no longer be
true. Borrower shall, within ten (10) days of a request, also provide Bank with
any additional information Bank requests of Borrower in connection with the
Notice and/or a Change of Circumstances.
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7.24 Sales on Consignment. Borrower shall promptly notify Bank of all
sales of Inventory on consignment, on sale or return or on sale or approval, and
Borrower shall take all steps requested by Bank to protect Borrower's interest
in such Inventory and to perfect Bank's security interest in such Inventory.
7.25 Net Income. Borrower and its Subsidiaries shall, on a consolidated
basis, achieve Net Income of at least $1.00 in each fiscal year of Borrower.
7.26 Net Worth. Borrower and its Subsidiaries shall maintain a Net
Worth, on a consolidated basis, of at least $5,500,000 as of the end of each
fiscal quarter of Borrower.
7.27 Debt Service. Borrower and its Subsidiaries shall maintain, on a
consolidated basis, a ratio of (1) Borrower's EBITDA, to (2) Borrower's
principal payments made or coming due plus interest expense, of at least 1.20 to
1 for each fiscal year of Borrower, beginning with the fiscal year ending March
31, 2001.
7.28 EBIT/Interest. Borrower and its Subsidiaries shall maintain, on a
consolidated basis, a ratio of (1) Borrower's EBIT, to (2) Borrower's interest
expense, of at least 1.10 to 1 measured as of the end of each fiscal quarter of
Borrower for the period commencing on the prior April 1 and ending on the last
day of such fiscal quarter of Borrower.
8. BORROWER'S NEGATIVE COVENANTS
During the term of this Agreement, and until the Obligations are paid
or satisfied in full, Borrower, and to the extent expressly referenced below,
its Subsidiaries, covenant and agree that no such entity will, except with the
prior written approval of Bank, do any of the following:
8.1 Indebtedness. Become or remain liable in any manner in respect
of any indebtedness or contractual liability (including, without limitation,
notes, bonds, debentures, loans, guaranties, endorsements, obligations of
partnerships, and pension liabilities, in each case whether or not contingent
and whether or not subordinated), except:
8.1.1 Indebtedness arising under this Agreement;
8.1.2 Secured indebtedness corresponding to Permitted Liens;
8.1.3 Unsecured indebtedness, other than for money borrowed
for the purchase of a capital asset, incurred in the ordinary course of its
business, which becomes due and must be fully satisfied within twelve (12)
months after the date on which it is incurred;
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8.1.4 Indebtedness arising out of the lease or purchase of
goods constituting equipment and either unsecured or secured only by a lessor's
lien or purchase money security interest securing purchase money indebtedness;
8.1.5 Indebtedness repaid in full concurrently with the
initial credit utilization hereunder;
8.1.6 Indebtedness existing on the date hereof and listed on
Schedule 8.1.6 and any refinancings thereof;
8.1.7 Contingent obligations arising out of endorsement of
instruments for deposit or collection;
8.1.8 Indebtedness not otherwise permitted hereby aggregating
not more than $100,000 at any one time outstanding.
8.2 Liens. Create, incur or cause to exist any mortgage, security
interest, encumbrance, lien or other charge of any kind upon any of its property
or assets, whether now owned or hereafter acquired, except:
8.2.1 The interests created by this Agreement and other
documents between the Borrower and the Bank in favor of the Bank;
8.2.2 The security interests granted by Borrower in all or
part of the Collateral to the parties listed on Schedule 8.2.2 hereto. Such
security interests shall secure only debt owing to the parties listed above on
September 30, 1999 and shall be limited only to security interests in the
property described in Uniform Commercial Code Financing Statements listed on
Schedule 8.2.2 hereto.
8.2.3 Liens for taxes or assessments not yet due or contested
in good faith by appropriate proceedings;
8.2.4 A purchase money security interest or lessor's interest
securing indebtedness permitted to be outstanding or incurred under Section
8.1.4 hereof;
8.2.5 Construction lien claims arising from work done pursuant
to construction contracts, provided that Borrower is not in material default
under such construction contracts;
8.2.6 Easements, restrictions, minor title irregularities and
similar matters which have no material adverse effect upon the ownership or use
of Borrower's property, and matters disclosed on the First American Title
Insurance Company Title Commitment No. 83943 relating to the Blaine Property;
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8.2.7 Liens in connection with workers compensation,
unemployment insurance or other insurance or to secure performance of bids,
trade contracts, leases, public or statutory obligations, surety or appeal bonds
or other obligations of like nature incurred in the ordinary course of business,
provided that Borrower is not in material default under or delinquent in any of
the foregoing agreements or obligations;
8.2.8 Other liens, rights of others, charges and encumbrances
incidental to the conduct of its business or the ownership of its property
(including, without limitation, warehousemen's and grower's liens and attorneys'
and statutory landlords' liens) which were not incurred in connection with the
borrowing of money or the purchase of property on credit and which do not in the
aggregate materially detract from the value of its property or materially impair
the use thereof in its business;
8.2.9 Liens (other than any lien imposed by ERISA) in the
aggregate amount of $75,000 or less incurred on deposits to secure the
performance of bids, trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds, performance bonds, utility
payments and other obligations of a like nature incurred in the ordinary course
of business;
8.2.10 Attachment, judgment or other similar liens and
encumbrances arising in connection with court or arbitration proceedings or
involving individually or in the aggregate, no more than $50,000 at any one time
for all of the foregoing, provided that the same are discharged, or that
execution or enforcement thereof is stayed pending appeal, within 60 days;
8.2.11 Carrier liens, warehouse liens, and bailee liens;
8.2.12 Extensions, renewals and replacements of any lien,
encumbrance or other security interest described in Sections 8.2.1 through
8.2.10, provided that the principal amount of the indebtedness secured thereby
is not increased and such extension or renewal is limited to the property so
encumbered (and improvements or attachments thereto).
8.3 Sale of Assets. Sell, lease, or otherwise dispose of all or
any substantial part of its property, except for (a) sales of Inventory in the
ordinary course of business, (b) sales, leases or other dispositions of
machinery and equipment that is obsolete, unusable or not needed in its
business, or (c) as otherwise permitted herein.
8.4 Recapitalization and Merger. Recapitalize its corporate
structure, consolidate or merge with any other corporation, acquire any
business, acquire stock of any corporation, or enter into any partnership or
joint venture, except that Borrower may merge with any of its Subsidiaries, so
long as Borrower is the surviving entity.
8.5 Conduct of Business. Substantially alter the nature of the
business in which it has advised Bank it plans to engage.
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8.6 Distributions. Directly or indirectly declare or pay any
dividends or make any distributions or payments on account of stock, including
preferred stock, to shareholders, relatives of shareholders or Affiliates of
shareholders (except dividends payable solely in its capital stock); purchase or
redeem any of its capital stock or purchase or redeem any interest or property
of any of its shareholders, relatives of shareholders or Affiliates of
shareholders; or enter into any agreement for any of the foregoing.
8.7 Investments. In the case of Borrower and its Subsidiaries,
purchase stock or securities of, extend credit to (other than that expressly
permitted in Section 8.10 hereof) or make investments in, become liable as
surety for, or guarantee or endorse any obligation of, any person, firm or
corporation, except
(a) Investments in direct obligations of the United States and
commercial bank deposits with Bank and extensions of credit reflected by trade
accounts receivables arising for goods sold by Borrower or its Subsidiaries in
the ordinary course of its business;
(b) Investments by Borrower in the amounts permitted under
Section 8.19 hereof in Borrower's Subsidiaries;
(c) Investments in certificates of deposit issued by Bank or
any United States commercial bank having capital and surplus of not less than
$250,000,000, and investments in Eurodollar deposits with branches or offices
located outside of the United States of any bank;
(d) Investments in commercial paper rated P-1 by Moody's
Investors Service, Inc. or A-1 by Standard & Poor's Ratings Group, a division of
McGraw Hill Companies maturing within 270 days of the date of issuance thereof;
(e) Investments, loans and advances existing on the date
hereof and listed on Schedule 8.7;
(f) Shares of so-called "money market funds" registered under
the Investment Company Act of 1940, as amended, organized and operating in the
United States of America, having total net assets of $250,000,000 or more;
(g) Advances, deposits, down payments and prepayments on
account of firm purchase orders made in the ordinary course of business; and
(h) Investments, loans and advances not otherwise permitted
hereby aggregating not more than $50,000 at any one time outstanding.
8.8 Discounts and Allowances. After notice of default from Bank,
grant any discount, credit or allowance to any customer of Borrower or accept
any return of goods sold.
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8.9 Restricted Transfers. Except as expressly permitted hereunder,
and except for transfers from Borrower's Subsidiaries to Borrower, in the case
of Borrower and its Subsidiaries, in any manner transfer any property without
prior or present receipt of full and adequate consideration.
8.10 Restricted Payments. In the case of Borrower and its
Subsidiaries, permit any amount to be owing to it by its respective officers,
directors or shareholders or by any of its Affiliates, or members of their
families, excepting (a) any reasonable loans and advances to employees and
agents in the ordinary course of business, (b) amounts advanced to Borrower from
its Subsidiaries, and (c) loans and advances listed on Schedule 8.10.
8.11 Salaries. In the case of Borrower and its Subsidiaries, pay
excessive or unreasonable salaries, bonuses, commissions, consultant fees, or
other compensation.
8.12 Guarantees. Make or suffer to exist any guarantees, except by
endorsement of instruments for deposit or collection in the ordinary course of
business.
8.13 ERISA. Except as set forth on Schedule 6.6, become a party to,
or directly or contingently liable under, any Plan.
8.14 Obligations to Third Parties. Permit, or suffer any Subsidiary
to permit, any breach, default or event of default to occur under any note, loan
agreement, indenture, lease, mortgage, contract for deed, security agreement or
other contractual obligation binding upon Borrower or its Subsidiaries which
would result in a Material Adverse Effect.
8.15 Subsidiaries. Create or permit to exist any Subsidiaries of
Borrower, other than (i) Geographics (Europe) Limited, (ii) Geographics Pty
Limited, and (iii) Geographics Marketing Canada, Inc.
8.16 Fiscal Year. Change its fiscal year.
8.17 Modification. Alter, modify, extend, renew or cancel any
Collateral, except in the ordinary course of business.
8.18 Change of Name or Location. Without at least 30 days' prior
written notice to Bank, change its name, its principal office, its office where
its records concerning Receivables are kept or the location of any of its assets
(except the shipment or temporary storage of Inventory in the ordinary and usual
course of Borrower's business).
8.19 Transfers to Borrower's Affiliates. In any manner transfer, or
permit any Subsidiary to transfer, any property to any of such entity's
Affiliates without prior or present receipt of full and adequate consideration
of cash or cash equivalent, except for transfers from Borrower's Subsidiaries to
Borrower.
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8.20 Transactions with Borrower's Affiliates. Engage, or permit any
Subsidiary to engage, in any transaction with any of its Affiliates, other than
on terms at least as favorable as would occur in an arms length transaction and
other than as permitted under Section 8.19.
9. DEFAULT
Upon the occurrence of one or more of the following events of default
(each an "Event of Default"):
9.1 Insolvency, Bankruptcy, et. al. The commencement by the
Borrower of a voluntary case under the federal bankruptcy laws, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or the
consent by either of them to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of the Borrower or of any substantial part of its property, or
the making by Borrower of any assignment for the benefit of creditors or the
failure of the Borrower generally to pay its debts as such debts become due; in
addition, the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Borrower in an involuntary case
under the federal bankruptcy laws or any other applicable federal or state
bankruptcy, insolvency or other similar law, or the appointment by a court of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Borrower or of any substantial part of the property of
Borrower, or the ordering by a court of the winding-up of Borrower's affairs or
liquidation of Borrower's affairs or assets and the continuance of any such
decree or order unstayed, uncontested by Borrower in good faith and in effect
for a period of sixty (60) consecutive days;
9.2 Nonperformance.
9.2.1 Borrower fails to (a) pay when due any principal or
interest owing under any of the Obligations or (b) pay any fees owing pursuant
to this Agreement within five (5) business days after notice by Bank;
9.2.2 Borrower shall fail to observe or perform any of the
covenants, agreements or conditions contained in Sections 7.2(a), 7.6, 7.14,
7.19, 7.20, 7.21, 7.22, 7.23, 7.24, 8.13, and 8.14 of this Agreement which
failure continues for a period of thirty (30) days following delivery of notice
by Bank to Borrower;
9.2.3 Borrower fails to perform any warranty, covenant or
undertaking by Borrower in this Agreement (other than the sections for which
Borrower has a cure period pursuant to Section 9.2.1 (b) or 9.2.2 above) or the
Obligations; or fails to perform pursuant to or breaches any provisions of any
Collateral Agreement or any other agreement with Bank;
9.3 Inability to Perform. Borrower ceases to exist or becomes
insolvent;
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9.4 Misrepresentation. Any representation, whether oral or
written, made to induce Bank to extend credit to Borrower, under this Agreement
or otherwise, is false in any material respect when made;
9.5 Judgments. Any judgment in an aggregate amount in excess of
$50,000 for all judgments shall be entered or filed against Borrower or against
any of its property or assets and remain unstayed and undischarged for a period
of 30 days from the date of its entry;
9.6 Acceleration of Indebtedness. Any event shall arise which
results in the acceleration of the maturity of the indebtedness in excess of
$50,000 for all such accelerated debt of Borrower to others under any indenture,
note, agreement or other form of undertaking;
9.7 Control of Borrower. (a) A group including one or more of
James L. Dorman, William T. Graham and C. Joseph Barnette fails to retain
control of Borrower's board of directors, or (b) James L. Dorman fails to remain
Borrower's Chief Executive Officer; or
9.8 Material Adverse Change. There shall be a material adverse
change in the Collateral or there shall be any change in Borrower's business
that results in a Material Adverse Effect;
then all of the Obligations shall, at the option of Bank and without any notice
or demand, become immediately due and payable; and Bank shall have (i) the
rights and remedies provided for in the Collateral Agreements, (ii) all rights
and remedies for default provided by the applicable Uniform Commercial Code, as
well as any other applicable law, INCLUDING WITHOUT LIMITATION THE RIGHT TO
REPOSSESS, RENDER UNUSABLE OR DISPOSE OF THE COLLATERAL WITHOUT JUDICIAL
PROCESS, WHICH IS HEREBY EXPRESSLY WAIVED BY BORROWER and the right to foreclose
the security interest granted herein by any available judicial procedure to the
fullest extent permitted by law. With respect to such rights and remedies:
9.9 Assembling Collateral. Bank may require Borrower to assemble
the Collateral and to make it available to Bank at any convenient place
designated by Bank, and Borrower hereby consents to the entry of any injunctive
order, or other appropriate equitable relief, compelling Borrower to assemble
the Collateral and to make it available to Bank at any convenient place
designated by Bank. Borrower waives any bond or undertaking which might
otherwise be required in connection with such relief. Bank may enter any
premises of the Borrower, or wherever the Collateral may be located, and keep
and store the same on said premises without charge, until sold.
9.10 Collection and Handling of Receivables. Bank may receive, open
and dispose of all mail addressed to Borrower and notify the Post Office
authorities to change the address for delivery of mail addressed to Borrower to
such address as Bank may designate and may, pursuant to the power of attorney
granted herein, endorse the name of Borrower on any notes,
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acceptances, checks, drafts, money orders or other instruments for the payment
of money or any document relating to any security interest that may come into
Bank's possession and sign Borrower's name on any invoice or bill of lading
relating to any of the Receivables, on drafts against Customers and notices to
Customers. The Bank may without notice to Borrower, collect, by legal
proceedings or otherwise, extend the time of payment of, or compromise or settle
for cash, credit or otherwise upon any terms, any of the Receivables or any
security interest, instrument or insurance applicable thereto or release the
obligor thereon and release and/or impair Collateral. Nothing in this Agreement
shall be construed to constitute the Bank as Borrower's agent for any purpose.
The Bank shall not be liable for any error or omission or delay of any kind
occurring in the settlement, collection or payment of any of the Receivables or
any instrument received in payment thereof or for any damages resulting
therefrom, except for Bank's willful misconduct.
9.11 Expenses and Application of Proceeds. Borrower shall reimburse
the Bank for any expense incurred by Bank in protecting or enforcing its rights
under this Agreement, including without limitation, reasonable attorneys' fees
incurred in the efforts made to enforce payment or otherwise effect collection
of any Receivables, as well as reasonable attorneys' fees and legal expenses
incurred in instituting, maintaining, preserving, enforcing and foreclosing the
security interest in any of the Collateral, whether through judicial proceedings
or otherwise or in defending or prosecuting any actions or proceedings arising
out of or relating to Borrower's transactions with Bank, including reasonable
attorneys' fees on appeal, all reasonable expenses of taking possession,
holding, preparing for disposition and disposing of the Collateral, and all
other reasonable collection expenses, whether or not in a legal proceeding.
After deduction of such expenses, Bank may apply the proceeds of disposition to
the Obligations in such order and amounts as it elects.
9.12 Jurisdiction and Venue. Borrower consents to the venue and
jurisdiction of any Circuit Court of Milwaukee County Civil Division in the
State of Wisconsin and agrees that all actions, proceedings or other matters
arising directly or indirectly hereunder may be initiated in such courts and
expressly consents that any service of process may be made by personal service
upon Borrower wherever Borrower can be located or by certified or registered
mail directed to Borrower at Borrower's address set forth herein to the full
extent permitted by law.
9.13 Notice of Disposition of Collateral. Written notice, when
required by law, sent to any address of Borrower in this Agreement, at least ten
(10) calendar days (counting the day of mailing) before the date of a proposed
disposition of the Collateral is reasonable notice.
9.14 Protection or Preservation of Collateral. The Bank has no duty
to protect, insure, collect or realize upon the Collateral or preserve rights in
it against prior parties. The Bank shall not be responsible nor liable for any
shortage, discrepancy, damage, loss or destruction of any part of the Collateral
regardless of the cause thereof. Bank has no obligation to clean the Collateral
or otherwise prepare the Collateral for sale.
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9.15 Waiver. Bank may, at its option, take such action, in
Borrower's name or otherwise, as may be necessary or desirable to fully or
partially remedy such default, including without limitation signing Borrower's
name or paying any amount so required, and the cost shall be debited to
Borrower's loan account ledger for The Revolving Credit Facility and treated for
all purposes as an advance made by Bank hereunder, or the Bank may permit
Borrower to remedy any default, each without waiving any other subsequent or
prior default by Borrower. Bank may permit Borrower to remedy any default
without waiving any other subsequent or prior default by Borrower. Borrower
waives any right it may have to required Bank to pursue any third person for any
of the Obligations.
9.16 Compliance with Other Laws. Bank may comply with any applicable
state or federal law requirements in connection with a disposition of the
Collateral and compliance will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral.
9.17 Warranties. Bank may sell the Collateral without giving any
warranties as to the Collateral. Bank may specifically disclaim any warranties
of title or the like. This procedure will not be considered to adversely affect
the commercial reasonableness of any sale of the Collateral.
10. TERM AND TERMINATION
This Agreement may be terminated by Bank by written notice to the
Borrower at any time after the occurrence and during the continuance of an Event
of Default. In the absence of such termination by the Bank, this Agreement shall
continue in effect until December 22, 2001 (the "Termination Date").
Notwithstanding the termination of this Agreement, the security interests and
other liens granted to Bank, all rights of Bank and all Borrower's duties,
obligations and liabilities to Bank shall continue in full force and effect
until all of the Obligations have been paid, performed or otherwise satisfied in
full.
11. INDEMNIFICATION
In consideration of the execution and delivery of this
Agreement by Bank and the agreement to extend the credit provided hereunder,
Borrower hereby agrees to indemnify, exonerate and hold free and harmless Bank
and each of the officers, directors, employees and agents of Bank (collectively,
herein called the "Bank Parties") free and harmless from and against any and all
actions, causes of action, suits, losses, liabilities, damages and expenses,
including, without limitation, reasonable attorneys' fees and disbursements
(collectively, and including all of the foregoing based upon contract, tort or
otherwise, herein called the "Indemnified Liabilities"), incurred by the Bank
Parties or any of them as a result of, or arising out of, or relating to (a) the
execution, delivery, performance, enforcement or administration of this
Agreement, the Revolving Note, the Collateral Agreements, or any other document
or
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instrument executed or delivered in connection with this Agreement, (b) the
relationship of the parties as Borrower and Bank, or (c) the noncompliance by
Borrower or by any property of Borrower with Environmental Laws. Notwithstanding
the foregoing, Borrower shall not be required to indemnify Bank for any such
Indemnified Liabilities arising on account of the willful misconduct of Bank,
and if and to the extent that the foregoing undertaking may be unenforceable for
any reason, Borrower hereby agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
12. INCREASED COSTS; CAPITAL ADEQUACY
12.1 Increased Costs. If (i) the amendment of Regulation D of the
Board of Governors of the Federal Reserve System, or (ii) after the date hereof,
the adoption of any applicable law, rule or regulation, or any change therein,
or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Bank with any request
or directive (whether or not having the force of law) of any such authority,
central bank or comparable agency issued after the date hereof,
12.1.1 shall subject Bank to any tax, duty or other charge
with respect to the Credit Facilities, the Revolving Note or Bank's obligation
to make or maintain any extension of credit hereunder, or shall change the basis
of taxation of payments to Bank of the principal of or interest on the Credit
Facilities or any other amounts due under this Agreement in respect of any
extension of credit hereunder or Bank's obligation to make or maintain any
extension of credit hereunder (except for changes in the rate of tax on the
overall net income of Bank imposed by the jurisdiction in which the Bank's
principal executive office is located); or
12.1.2 shall impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by the Board of Governors of
the Federal Reserve System), special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended hereunder by,
Bank; or
12.1.3 shall impose on Bank any other condition affecting any
extension of credit hereunder, the Revolving Note or Bank's obligation to make
or maintain any extension of credit hereunder;
or and the result of any of the foregoing is to increase the cost to (or to
impose a cost on) Bank of making or maintaining any extension of credit
hereunder or to reduce the amount of any sum received or receivable by Bank
under this Agreement or under the Revolving Note with respect thereto, then upon
demand by Bank (which demand shall be accompanied by a statement setting forth
the basis of such demand which shall be binding except in the case of manifest
error), Borrower shall pay directly to Bank such additional amount or amounts as
Bank shall reasonably
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determine are sufficient to compensate and indemnify Bank for such increased
cost or such reduction.
12.2 Capital Adequacy. If either (i) the introduction of or any
change in or in the interpretation of any law or regulation, or (ii) compliance
by Bank with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or would
affect the amount of capital required or expected to be maintained by Bank or
any corporation controlling Bank and Bank determines that the amount of such
capital is increased by or based upon the existence of Bank's commitment to make
or maintain extensions of credit hereunder and other commitments of this type,
then, upon demand by Bank, Borrower shall immediately pay to Bank, from time to
time as specified by Bank, additional amounts sufficient to compensate Bank in
light of such circumstances, to the extent that Bank reasonably determines such
increase in capital to be allocable to the existence of Bank's commitment to
make or maintain extensions of credit hereunder.
13. PERSONS BOUND
This Agreement benefits the Bank, its successors and assigns, and binds
Borrower and Borrower's successors and assigns.
14. INTERPRETATION
All of the terms and conditions hereof and the rights, duties and
remedies of the parties hereto are governed by the laws of Wisconsin, except to
the extent that the uniform commercial code and real property laws of the States
of Washington and Wyoming are applicable to Collateral located in such state.
The provisions of this Agreement are severable, and invalidity of any provision
of this Agreement shall not affect the validity of any other provisions. The
decision by Bank at any time or times hereafter to not enforce strict
performance by Borrower relative to any of the provisions, warranties, terms and
conditions contained in this Agreement or any other agreement between Borrower
and Bank shall not waive, affect, or diminish the right of Bank thereafter to
demand strict compliance and performance therewith. None of the provisions,
warranties, terms and conditions contained in this Agreement or any other
agreement now or hereafter executed between Borrower and Bank shall be deemed to
have been waived by any act or knowledge of Bank unless in writing and signed by
an officer of Bank and directed to Borrower specifying such waiver. The titles
of sections in this Agreement are for convenience only and do not limit or
construe the meaning of any section.
15. NOTICES
Any notice required to be given to either party hereunder shall be
deemed given when placed in the U.S. mail, certified or registered, and properly
addressed with postage prepaid, or when delivered by hand delivery or overnight
courier, to the following address:
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If to Bank:
U.S. Bank National Association
201 West Wisconsin Avenue
Milwaukee, Wisconsin 53259
Attn: Dennis J. Ciche, Assistant Vice President
If to Borrower:
Geographics, Inc.
1555 Odell Road
Blaine, Washington 98231
Attn: James L. Dorman, CEO
With a copy to (which copy shall not constitute notice):
Tod B. Linstroth, Esq.
Michael Best & Friedrich LLP
One South Pinckney Street
Suite 700
Madison, Wisconsin 53703
16. RETURN OF DOCUMENTS, SCHEDULES AND INVOICES
Any documents, schedules, invoices or other papers delivered to the
Bank by Borrower, other than Collateral, may be destroyed or otherwise disposed
of by the Bank three months after they are delivered to or received by the Bank
unless Borrower requests, in writing, the return of said documents, schedules,
invoices or other papers and makes arrangements for such return, at Borrower's
expense.
17. PARTICIPATING LENDERS
Borrower agrees that Bank may, at its option, grant to one or more
other financial institutions the right to participate in the loan advances
described in this Agreement, provided however that Bank shall alone retain the
right to amend, modify, waive, or enforce the provisions of this Agreement. If
any Participating Lender shall at any time participate with Bank in making any
loan advances hereunder, Borrower hereby grants to such Participating Lender (in
addition to any other rights which such Participating Lender may have) both a
continuing lien and security interest in any money, security and other personal
property of Borrower which is in the possession of such Participating Lender,
and an express, contractual right of setoff therein, for the benefit of all
Participating Lender(s) and the Bank (such interests, rights and the proceeds
-37-
<PAGE> 39
thereof to be shared on a pro-rata basis by the Participating Lenders and Bank
according to their respective outstanding balances). Bank may disclose to any
Participating Lender, or any potential or prospective Participating Lender, any
financial, credit or confidential information or documents of or concerning
Borrower.
18. CONDITIONS PRECEDENT
18.1 Initial Credit Extension. Bank will not lend any money to
Borrower hereunder until this Agreement has been executed by Borrower, and Bank
shall have received the following documents fully executed, where applicable,
and in form satisfactory to Bank and its counsel:
18.1.1 Certificates of Status for the Borrower certified by
the Secretary of State of Washington and the Secretary of State of Wyoming;
18.1.2 The Revolving Note;
18.1.3 UCC Financing Statements;
18.1.4 The Collateral Agreements;
18.1.5 Completed requests for information establishing to the
satisfaction of the Bank that the financing statements have been effectively
filed and/or recorded in all appropriate offices providing the Bank with a
perfected first priority security interest in the personal property and fixtures
Collateral described herein;
18.1.6 A deed of trust on the Blaine Property;
18.1.7 A commitment for title insurance from a reputable title
insurance company obligating such company to issue a title insurance policy in
the amount of $3,040,000 insuring the deed of trust on the Blaine Property as a
first priority lien against the Blaine Property;
18.1.8 Copies of evidence satisfactory to the Bank to the
effect that the Bank is the loss payee and, if applicable, insured mortgagee
under the policies of insurance required by this Agreement;
18.1.9 A copy of the resolutions of the Board of Directors of
the Borrower authorizing the execution, delivery and performance of this
Agreement, the Revolving Note, the Collateral Agreements, and all other matters
contemplated hereby, certified for accuracy and due adoption by the Secretary of
the Borrower as of the date hereof, together with such other necessary corporate
action as the Bank shall reasonably request;
-38-
<PAGE> 40
18.1.10 A certificate, dated of even date herewith, signed by
the Secretary of the Borrower as to the incumbency and signature of the person
or persons authorized to execute and deliver this Agreement, the Revolving Note,
the Collateral Agreements, and any other instrument or agreement contemplated
hereby;
18.1.11 A copy of the Articles of Incorporation and By-Laws of
the Borrower existing on the date hereof and copies of any documents creating,
evidencing or relating to preferred shareholders' rights, certified for accuracy
and due adoption by the Secretary of the Borrower;
18.1.12 The Bank's satisfaction that at least $5,000,000.00 in
new equity has been contributed to Borrower prior to closing;
18.1.13 A favorable written opinion, dated of even date
herewith, of Michael Best & Friedrich LLP, counsel for the Borrower, in form and
substance satisfactory to Bank;
18.1.14 Payoff letters and evidence of release of liens of all
those lenders of Borrower listed on Schedule 18.1.14;
18.1.15 Borrowing Base Certificate;
18.1.16 Designation of Authority to act on behalf of Borrower;
and
18.1.17 Assignment of Business Interruption Insurance.
18.2 Each Extension of Credit. Bank shall not be obligated to lend
money to Borrower unless all of the following are met:
18.2.1 No Event of Default has occurred and is continuing or
will exist upon the lending of the amount requested.
18.2.2 The representations and warranties contained in Section
6 hereof shall be true and correct with the same force and effect as if made on
the date of the request for an advance.
18.2.3 Borrower shall have delivered to the Bank a certificate
as of the close of business of the preceding day which indicates that the amount
requested by Borrower will not cause the aggregate amount of the Obligations, as
increased by the amount requested, to exceed the Collateral-Obligation ratio set
forth in Section 4 hereof.
18.2.4 If there is a reasonable likelihood that an
environmental condition exists that would subject Borrower to damages,
penalties, injunctive relief or cleanup costs under any Environmental Laws or
which shall require or are likely to require cleanup, removal, remedial
-39-
<PAGE> 41
action or other response pursuant to Environmental Laws by the Borrower (except
where the cleanup, removal or remedial action would cost less than $50,000 in
the aggregate), Borrower shall have permitted, at Borrower's expense, at the
reasonable request of the Bank, an Environmental Assessment solely for the
benefit of the Bank, to be conducted by the Bank or an independent agent
selected by the Bank. This provision shall not relieve the Borrower from
conducting its own Environmental Assessments or taking any other steps necessary
to comply with Environmental Laws.
18.2.5 In the reasonable opinion of the Bank there does not
exist (1) any uncorrected material violation by the Borrower of an Environmental
Law, or (2) any condition which requires, or may require, a cleanup, removal or
other remedial action by the Bank or Borrower under any Environmental Laws,
except where the cleanup, removal or remedial action would cost less than
$50,000 in the aggregate.
19. ARBITRATION
Bank and Borrower agree that upon the written demand of Borrower or
Bank, whether made before or after the institution of any legal proceedings, but
prior to the rendering of any judgment in that proceeding, all disputes, claims
and controversies between or among them, whether individual, joint, or class in
nature, arising from this Agreement, the Revolving Note, any Collateral
Agreement, any Guaranty, any other related document, or arising from the
relation of the parties as borrower, guarantor and lender or otherwise,
including without limitation contract disputes and tort claims, shall be
resolved by binding arbitration pursuant to the Commercial Rules of the American
Arbitration Association ("AAA"). Any arbitration proceeding held pursuant to
this arbitration provision shall be conducted in the city nearest the Borrower's
address having an AAA regional office, or at any other place selected by mutual
agreement of the parties. No act to take or dispose of any Collateral shall
constitute a waiver of this arbitration agreement or be prohibited by this
arbitration agreement. This arbitration provision shall not limit the right of
either party during any dispute, claim or controversy to seek, use, and employ
ancillary, or preliminary rights and/or remedies, judicial or otherwise, for the
purposes of realizing upon, preserving, protecting, foreclosing upon or
proceeding under forcible entry and detainer for possession of, any real or
personal property, and any such action shall not be deemed an election of
remedies. Such remedies include, without limitation, obtaining injunctive relief
or a temporary restraining order, invoking a power of sale under any deed of
trust or mortgage, obtaining a writ of attachment or imposition of a
receivership, or exercising any rights relating to personal property, including
exercising the right of set-off, taking or disposing of such property with or
without judicial process pursuant to the Uniform Commercial Code. Any disputes,
claims or controversies concerning the lawfulness or reasonableness of an act,
or exercise of any right or remedy concerning any Collateral, including any
claim to rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated; provided, however that no arbitrator shall
have the right or the power to enjoin or restrain any act of either party.
Judgment upon any award rendered by any arbitrator may be entered in any court
-40-
<PAGE> 42
having jurisdiction. The statute of limitations, estoppel, waiver, laches and
similar doctrines which would otherwise be applicable in an action brought by a
party shall be applicable in any arbitration proceeding, and the commencement of
an arbitration proceeding shall be deemed the commencement of any action for
these purposes. The Federal Arbitration Act (Title 9 of the United States Code)
shall apply to the construction, interpretation, and enforcement of this
arbitration provision.
20. LIMITATION ON DAMAGES
The Borrower and Bank hereby voluntarily, knowingly, irrevocably and
unconditionally (a) agree that they shall be limited to actual, compensatory
damages other than those waived pursuant to the following clause (b), and (b)
waive any right to claim or recover from the other party any special, exemplary,
punitive, indirect or consequential damages, in the case of the foregoing (a)
and (b) for any claim (including contract, tort and all other claims) between or
among the Borrower and Bank arising out of or in any way related to this
Agreement, the Revolving Note, the Collateral Agreements, or any other related
document, or arising out of or in any way related to the relationship among the
parties as Borrower and Bank or otherwise. This provision is a material
inducement for Bank to provide the financing described herein.
21. WAIVER OF JURY
THE BORROWER AND BANK HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND
UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE
BORROWER AND BANK ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, THE
REVOLVING NOTE, THE COLLATERAL AGREEMENTS, OR ANY OTHER RELATED DOCUMENT, OR
ARISING OUT OF OR IN ANY WAY RELATED TO THE RELATIONSHIP AMONG THE PARTIES AS
BORROWER AND LENDER OR OTHERWISE. THIS PROVISION IS A MATERIAL INDUCEMENT TO
BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN.
-41-
<PAGE> 43
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the 22nd day of December, 1999.
BORROWER:
Geographics, Inc.
By
----------------------------------------
James L. Dorman, Chief Executive Officer
BANK:
U.S. Bank National Association
By
----------------------------------------
Dennis J. Ciche, Assistant Vice President
-42-
<PAGE> 44
EXHIBIT A
REVOLVING NOTE
Dated: as of December 22, 1999 Executed at Milwaukee, Wisconsin
Stated Principal: $7,500,000
FOR VALUE RECEIVED, Geographics, Inc., a Wyoming corporation
("Borrower"), hereby promises to pay to the order of U.S. Bank National
Association, its successors and assigns (the "Lender") at its Milwaukee office
at 201 West Wisconsin Avenue, Milwaukee, Wisconsin 53259, the principal sum of
Seven Million Five Hundred Thousand Dollars ($7,500,000.00) or the aggregate
unpaid principal amount of all advances made by the Lender hereunder pursuant to
the Loan Agreement hereinafter referred to, whichever is less, and to pay
interest from the date hereof on the unpaid balances hereof at the rate and at
the times provided in the Loan Agreement hereinafter referred to. All principal
and accrued but unpaid interest shall be due and payable on the Termination Date
(as defined in the Loan Agreement).
All payments received hereunder shall be applied first to interest
accrued and unpaid to date of receipt and then to repay principal.
No deferral of time of payment shall be valid unless the holder
consents in writing and if such deferral is granted, the deferred balance
including interest thereon at the rate applicable hereunder after default shall
be an additional obligation under this Note. The undersigned and each endorser
and guarantor hereby waives presentment, protest, and notice of dishonor and
give consent to the holder to extend time and to compound, release or delay
enforcement of rights against the undersigned or the security.
This Note is the Revolving Note referred to in the Loan and Security
Agreement dated as of the date hereof, between the undersigned and the Lender
(as the same may be amended, modified, supplemented or restated from time to
time, the "Loan Agreement"). This Note may be paid in full only upon payment of
the prepayment premium, if any, called for in the Loan Agreement. This Note is
secured by certain collateral referred to in the Loan Agreement.
GEOGRAPHICS, INC.,
a Wyoming corporation
By:
-----------------------
James L. Dorman
Chief Executive Officer
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<PAGE> 45
EXHIBIT B
U.S. Bank National Association
201 West Wisconsin Avenue
Milwaukee, Wisconsin 53259
Attn: Dennis J. Ciche, Assistant Vice President
Re: LIBOR Rate Continuation/Conversion Notice
Ladies and Gentlemen:
Reference is made to that certain Loan and Security Agreement dated
December 22, 1999 between U.S. Bank National Association ("Bank") and
Geographics, Inc. ("Borrower") (as it may be amended from time to time, the
"Loan Agreement"). Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to such terms in the Loan Agreement. This LIBOR Rate
Continuation/Conversion Notice is delivered pursuant to Section 2.2.2 of the
Loan Agreement.
1. Borrower hereby requests that $ of the
outstanding amounts under the Loan Agreement be Continued/Converted to
Periodic LIBOR Rate Loans on (as to such amount, the
"Effective Date").
2. The Interest Period shall be months from the Effective Date.
3. Borrower represents and warrants that no Event of Default exists and no
condition exists that with the giving of notice or the passage of time
or both would constitute an Event of Default.
Very truly yours,
Geographics, Inc.
By:
-44-
<PAGE> 46
EXHIBIT C
COMPLIANCE SUMMARY AND CERTIFICATE
[Covenant Calculations]
Enclosed are the monthly financial statements of the Borrower for the month
ended , along with the above schedule detailing my review of the
financial covenants of the Loan and Security Agreement between U.S. Bank
National Association (the "Bank") and the Borrower dated December 22, 1999 (the
"Loan Agreement").
The Borrower has reviewed the provisions of the Loan Agreement and the
activities of the Borrower during the month covered by the enclosed financial
statements.
I hereby represent and warrant as follows:
(1) the representations and warranties contained in the Loan Agreement are true
and correct as of the date hereof, except for changes permitted or contemplated
by the Loan Agreement which have been disclosed in writing to the Bank.
(2) no condition, event, act or omission has occurred or exists which
constitutes an Event of Default under the Loan Agreement.
(3) no condition, event, act or omission has occurred, which, with the giving of
notice or passage of time, or both, will constitute an Event of Default under
the Loan Agreement.
(4) Borrower is in compliance with the following Sections of the Loan Agreement:
7.25, 7.26, 7.27, and 7.28.
Dated this day of , .
-45-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 643,345
<SECURITIES> 0
<RECEIVABLES> 5,406,014
<ALLOWANCES> 1,663,359
<INVENTORY> 4,632,431
<CURRENT-ASSETS> 9,895,311
<PP&E> 14,987,130
<DEPRECIATION> 5,603,734
<TOTAL-ASSETS> 20,096,721
<CURRENT-LIABILITIES> 11,292,863
<BONDS> 2,743,004
0
0
<COMMON> 20,920,946
<OTHER-SE> (14,860,092)
<TOTAL-LIABILITY-AND-EQUITY> 20,096,721
<SALES> 7,734,460
<TOTAL-REVENUES> 7,734,460
<CGS> 5,572,572
<TOTAL-COSTS> 1,747,236
<OTHER-EXPENSES> (72,970)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 266,231
<INCOME-PRETAX> 221,391
<INCOME-TAX> 0
<INCOME-CONTINUING> 221,391
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 221,391
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
