U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
---------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 1-14078
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BLUE FISH CLOTHING, INC.
- -----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Pennsylvania 22-2781253
------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
No. 3 Sixth Street, Frenchtown, New Jersey 08825
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(Address of Principal Executive Offices)
(908) 996-3844
--------------
(Issuer's Telephone Number, Including Area Code)
N/A
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 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 X NO
----- -----
State the number of shares outstanding of each of the
issuer's classes of common equity as of the latest practicable
date: As of August 13, 1997, 4,599,200 shares of Common Stock,
--------------------------------------------------------
$.001 par value per share, were issued outstanding.
- ---------------------------------------------------------------
Transitional Small Business Disclosure Format (check one):
YES NO X
----- -----
<PAGE>
BLUE FISH CLOTHING, INC.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets - December 31, 1996 and June 30, 1997 3
Statements of Operations - For the Three Months Ended
June 30, 1996 and June 30, 1997 4
Statements of Cash Flows - For the Three Months Ended
June 30, 1996 and June 30, 1997 5
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES 15
ITEM 3. DEFAULTS ON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 17
<PAGE>
BLUE FISH CLOTHING, INC.
BALANCE SHEETS
--------------
(unaudited)
December 31, June 30,
ASSETS 1996 1997
- ------ ------------ --------
CURRENT ASSETS
Cash and cash equivalents $1,887,994 $1,700,568
Restricted cash 40,346 98,143
Receivables, net of
allowance of $33,000
and $39,139 526,157 1,035,807
Inventories 3,005,717 3,071,202
Other current assets 63,013 188,208
Deferred income taxes 222,119 222,119
---------- ----------
Total current assets 5,745,346 6,316,047
PROPERTY AND EQUIPMENT
Property and equipment,
net of accumulated
depreciation of
$472,343 and $613,417 1,113,411 1,716,781
OTHER ASSETS:
Noncompete and consulting
agreement, net 56,667 32,111
Security deposits 197,884 52,982
Deferred income taxes 15,876 15,876
---------- ----------
$7,129,184 $8,133,797
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Line of credit $1,000,000 $ 500,000
Current portion of
long-term debt 193,698 167,683
Receivable purchase line
of credit 403,464 981,425
Accounts payable 849,667 932,300
Accrued expenses 432,099 485,309
---------- ----------
Total current
liabilities 2,878,928 3,066,717
---------- ----------
DEFERRED RENT -- 45,855
---------- ----------
LONG-TERM DEBT 482,982 1,196,144
COMMITMENTS AND CONTINGENCIES ========== ==========
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value
11,000,000 shares authorized,
6,647,896 and 4,599,200 shares
issued and 4,599,200 and
4,599,200 shares outstanding,
respectively 6,648 4,599
Additional paid-in capital 4,027,766 3,799,815
Retained earnings (37,140) 20,667
Less - Treasury stock,
2,048,696 common shares,
at cost (230,000) -
---------- ----------
Total stockholders' equity 3,767,274 3,825,081
---------- ----------
$7,129,184 $8,133,797
========== ==========
The accompanying notes are an integral part of these statements.
3
<PAGE>
BLUE FISH CLOTHING, INC.
STATEMENTS OF OPERATIONS
------------------------
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1997 1996 1997
---- ---- ---- ----
SALES $3,121,717 $3,900,007 $5,873,896 $7,342,862
COST OF GOODS SOLD 1,459,890 1,815,114 2,815,191 3,416,040
---------- ---------- ---------- ----------
Gross margin 1,661,827 2,084,893 3,058,705 3,926,822
OPERATING EXPENSES 1,472,275 1,913,668 2,942,993 3,624,425
---------- ---------- ---------- ----------
Income from operations 189,552 171,225 115,712 302,397
INTEREST EXPENSE, NET 31,259 49,774 94,239 111,669
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 158,293 121,451 21,473 190,728
INCOME TAX (BENEFIT)
PROVISION (149,427) 56,597 (163,109) 88,880
---------- ---------- ---------- ----------
NET INCOME $ 307,720 $ 64,854 $ 184,582 $ 101,848
========== ========== ========== ==========
NET INCOME PER SHARE $ 0.01 $ 0.02
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,777,466 4,775,681
PRO FORMA DATA unaudited:(Note 5)
Historical income before
income taxes $ 158,293 $ 21,473
Pro forma income tax
provision 77,089 10,457
---------- ----------
PRO FORMA NET INCOME $ 81,204 $ 11,016
========== ==========
PRO FORMA NET INCOME PER SHARE $ 0.02 $ 0.00
PRO FORMA WEIGHTED AVERAGE
SHARES OUTSTANDING 4,250,519 4,064,172
The accompanying notes are an integral part of these statements.
4
<PAGE>
BLUE FISH CLOTHING, INC.
STATEMENTS OF CASH FLOW
(unaudited)
Six Months Ended June 30,
-------------------------
1996 1997
---- ----
OPERATING ACTIVITIES:
Net income $ 184,582 $ 101,848
Adjustments to reconcile
net income to net cash
used in operating activities -
Depreciation and amortization 101,222 190,888
Deferred tax benefit (173,566) -
Provision for deferred rent - 45,855
Provision for losses
(recoveries) on
accounts receivable (10,024) 25,002
(Increase) decrease in
assets -
Accounts receivable 14,522 (534,652)
Inventory (324,003) (65,485)
Other assets (9,877) 19,707
Increase (decrease) in
liabilities -
Accounts payable (225,198) 82,633
Accrued expenses (6,304) 88,066
Accrued bonus-stock grant (219,625) -
---------- ----------
Net cash used in
operating activities (668,271) (46,138)
---------- ----------
INVESTING ACTIVITIES:
Payments for purchases of
property and equipment (57,545) (804,558)
---------- ----------
Net cash used in investing
activities (57,545) (804,558)
---------- ----------
FINANCING ACTIVITIES:
Net borrowings (repayments)
on line of credit 370,000 (500,000)
Receivable purchase
line of credit, net (114,171) 577,961
Borrowing on long-term debt 450,000 800,000
Repayments on long-term debt (109,464) (112,853)
Net cash proceeds received from
public offering 3,751,068 -
Stockholder cash distributions (463,926) (44,041)
---------- ----------
Net cash provided by financing
activities 3,883,507 721,067
---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 3,157,691 (129,629)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 205,878 1,928,340
---------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $3,363,569 $1,798,711
========== ==========
CASH PAID DURING THE PERIOD FOR:
Interest $ 91,543 $ 111,849
========== ==========
Taxes $ 2,426 $ 29,575
========== ==========
The accompanying notes are an integral part of these statements.
5
<PAGE>
BLUE FISH CLOTHING, INC.
Notes to Financial Statements
For the Period Ending March 31, 1997
------------------------------------
Note 1 - Basis of Financial Statement Presentation:
- --------------------------------------------------
The accompanying unaudited financial statements are presented in accordance
with the requirements for Form 10-QSB and do not include all the
disclosures required by generally accepted accounting principles for
complete financial statements. Reference should be made to the Blue Fish
Clothing, Inc.'s (the "Company") annual report on Form 10-KSB, as amended,
for additional disclosures including a summary of the Company's accounting
policies.
In the opinion of management of the Company, the financial statements
include all adjustments, consisting of only normal recurring accruals,
necessary for a fair presentation of the financial position of Blue Fish
Clothing, Inc. The results of operations for the three months and six
months ended June 30, 1997 or any other interim period, are not necessarily
indicative of the results to be expected for the full year.
Note 2 - Initial Public Offering:
- --------------------------------
On November 13, 1995, the Company commenced the sale of 800,000 shares of
common stock in a public offering at a price of $5.00 per share. The
offering was made directly by the Company on a "Minimum/Maximum" basis
subject to subscription and payment for not less than 500,000 shares (the
Minimum) and not more than 800,000 shares (the Maximum). The Minimum was
raised as of May 13, 1996, and the public offering was closed as of May 15,
1996, generating cash of approximately $3,215,000, net of transaction costs
of $721,000, of which approximately $247,000 was expended in 1995. Upon the
closing of the offering, offering costs deferred prior to the offering were
reclassified to stockholders' equity and the Company converted to C
Corporation status and recorded deferred income tax assets of $173,566 (see
Note 4). All S Corporation earnings were reclassified to additional paid
in capital.
Note 3 - Significant Accounting Policies and Disclosures:
- --------------------------------------------------------
Inventories
- -----------
The components of inventory as presented are as follows:
December 31, June 30,
1996 1997
------------ -----------
Raw materials $ 304,361 $ 549,907
Work-in-process 709,302 963,716
Finished goods 1,992,054 1,557,579
------------ -----------
$ 3,005,717 $ 3,071,202
============ ===========
6
<PAGE>
Earnings Per Share (EPS)
- ------------------------
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share", which the Company is required to adopt for both interim and annual
periods ending after December 15, 1997. SFAS No. 128 simplifies the EPS
calculation by replacing primary EPS with basic EPS. Basic EPS is computed
by dividing reported earnings available to common stockholders by weighted
average shares outstanding. Fully diluted EPS, now called diluted EPS, is
still required. Early application is prohibited, although footnote
disclosure of proforma EPS amounts computed is required. Under SFAS 128,
proforma basic EPS and diluted EPS for the three months and six months
ended June 30, 1997 would not have changed from the amount reported. All
other EPS amounts for the periods presented remain the same.
Major Customers and Concentration of Credit Risk
- ------------------------------------------------
The Company has one significant customer that accounted for 10.0% and 17.9%
of total sales for the six months ended June 30, 1996 and June 30, 1997,
respectively. This same customer accounted for 6.3% and 17.8% of net
accounts receivable at December 31, 1996 and June 30, 1997, respectively.
Note 4 - Income Taxes:
- ---------------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes," the objective of which is to recognize the amount of current and
deferred income taxes payable or refundable at the date of the financial
statements as a result of all events that have been recognized in the
financial statements as measured by enacted tax laws.
Prior to the closing of the Offering, the Company had elected to be taxed
under Subchapter S of the Internal Revenue Code. As a result, the Company
was not subject to federal income taxes, and the taxable income of the
Company was included in the stockholders' tax returns. The Company had also
elected S Corporation status in certain states and, therefore, had recorded
a provision for state income taxes for those states that do not recognize
or partially recognize S Corporation treatment.
Shortly before the closing of the Offering, the Company terminated its
status as an S Corporation and is now subject to federal and additional
state income taxes. The Company recorded a tax benefit of $173,566 as a
result of establishing deferred income tax assets upon its conversion to a
C Corporation.
7
<PAGE>
Note 5 - Pro Forma Information:
- ------------------------------
Pro Forma Statement of Operations Data
- --------------------------------------
For informational purposes, the accompanying statements of operations for
the quarter and six months ended June 30, 1996 include an unaudited pro
forma adjustment for the income taxes which would have been recorded if the
Company had not been an S Corporation, based on the tax laws in effect
during the respective period.
The differences between the federal statutory income tax rate and the pro
forma income tax rate for all periods presented are as follows:
1996
----
Federal statutory tax rate 34.0%
State income taxes, net of federal benefit 7.9
Other 6.8
-----
48.7%
=====
Pro Forma Net Income Per Share
- ------------------------------
Pro forma net income per share was calculated by dividing pro forma net
income by the weighted average number of shares of common stock outstanding
for the respective periods, adjusted for the dilutive effect of common
stock equivalents which consist of stock options. Pursuant to the
requirements of the Securities and Exchange Commission, common stock issued
by the Company during the twelve months immediately preceding the initial
public offering, plus the number of common equivalent shares which were
authorized and will become issuable during the same period pursuant to the
grant of common stock options, have been included in the calculation of the
shares used in computing pro forma net income per share as if they were
outstanding for all periods presented using the treasury stock method and
the offering price of $5.00 per share.
Note 6 - Financing Arrangements:
- -------------------------------
On June 25 and June 27, 1997, the Company refinanced its existing debt and
increased its borrowings. On June 25, 1997, the Company entered into a
Business Loan Agreement with a bank and received a promissory note in the
amount of $800,000. This note is subject to monthly interest payments
beginning July 25, 1997, with interest calculated on the unpaid principal
balances at an interest rate of two percentage points over the Index. The
Index represents the bank's one year certificate of deposit yield (5.9% at
June 30, 1997). Four principal payments of $50,000 are to be paid in annual
installments commencing June 25, 1998 through June 25, 2001, and one
principal payment of $600,000 is to be paid on June 25, 2002. This note is
secured by an $842,000 certificate of deposit and guaranteed by Jennifer
Barclay, a principal shareholder. This certificate of deposit is included
in cash and cash equivalents at June 30, 1997.
8
<PAGE>
As of June 27, 1997, the Company had an outstanding line of credit of
$1,000,000 subject to a maximum outstanding amount not to exceed 50% of
finished goods inventory plus 25% of work in process. On that date, the
Company modified this Note and Security Agreement and paid $500,000,
thereby reducing the outstanding principal balance due to $500,000 and
extended the term through April 1998. Interest shall be charged on the
outstanding principal balance of the loan from June 27, 1997, until the
full amount of principal due has been paid at a rate equal at all times to
the Prime Rate plus three quarters percent per annum. The Security
Agreement shall continue to be a first lien on the Collateral and shall
secure the Note as extended.
Note 7 - Commitments and Contingencies:
- --------------------------------------
Operating Leases
- ----------------
The Company has entered into a 10 year lease, commencing June 15, 1997, for
a 2,300 sq. ft. (approximately 2,000 selling sq. ft.) Westport, Connecticut
retail store at a monthly rent of $4,600 with an adjustment each year for
CPI.
Note 8 - Treasury Stock:
- -----------------------
The Company repurchased 2,048,696 shares of the Company's Common Stock.
These shares were held in Treasury by the Company (the "Treasury Stock").
Pursuant to a Security Agreement, the Treasury Stock, together with all
accounts receivable, inventories, work-in-progress, bank accounts,
trademarks, choses in action, leasehold interests, and fixed assets, served
as collateral to secure the Company's obligations under certain promissory
notes. The Company satisfied all of its obligations pursuant to the
Agreement and promissory notes on April 5, 1997. On April 20, 1997 the
Company retired the Treasury Stock and returned it to the status of
authorized but unissued shares.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS:
-----------------------------------
Six Months Ended June 30, 1997 ("1997 period") Compared to Six Months
Ended June 30, 1996 ("1996 period")
SALES. The Company's sales increased by $1,468,966 or 25.0% to
$7,342,862 in the 1997 period. The Company's wholesale sales increased by
20.9% from $4,100,940 in the 1996 period to $4,958,208 in the 1997 period,
its retail sales increased by 40.7% from $1,386,123 in the 1996 period to
$1,949,936 in the 1997 period and craft fair sales increased by 12.4% from
$386,833 in the 1996 period to $434,717 in the 1997 period. The Company
attributes the wholesale sales increase during the 1997 period primarily to
the enthusiastic customer response to the Spring and Summer lines, which
are particularly strong selling seasons for the Company, a 67.7% increase
in department store business, and to increased boutique account business
resulting from improved relations with existing wholesale accounts and new
business generated through the Messenger Program. The retail sales
increase was primarily due to a same store sales increase of $168,305 or
14.1%, and stores which opened in September 1996 and March 1997 generating
sales during the 1997 period. The Company attributes these results to
increased marketing efforts, personal shopping through its phone sales, and
repeat customer purchases. As a result of closing the Company's Taos, New
Mexico retail location in January 1997, sales at this location decreased
$165,132 to $27,563 in the 1997 period. The increase in craft fair sales
was due to the continued sale of past season and slightly damaged goods at
special showplaces.
9
<PAGE>
GROSS MARGIN. The major components affecting gross margin are raw
material and production costs, wholesale and retail maintained margins and
sales mix. The Company's gross margin increased, as a percentage of sales,
by 1.4 percentage points from 52.1% in the 1996 period to 53.5% in the 1997
period. The Company attributes this increase to fewer discounted sales and
increased initial mark-ups at its retail stores.
OPERATING EXPENSES. The Company's operating expenses increased by
$681,432 or 23.2% from $2,942,993 in the 1996 period to $3,624,425 in the
1997 period and decreased as a percentage of sales by 0.7 percentage points
from 50.1% in the 1996 period to 49.4% in the 1997 period. The increase in
operating expenses in the 1997 period was primarily due to the addition of
management team members and staff support, expenses of two new retail
stores offset by a discontinued store accounting for 44.6% of the total
dollar increase which did not exist in the 1996 period, and accounting and
legal expenses. Operating expenses related to general and administrative
functions have increased throughout 1996 and 1997, providing capacity for
future sales growth. The decline as a percent of sales is primarily
attributable to sales increasing at a faster rate than expenses.
INTEREST EXPENSE, NET. The Company's interest expense, net, increased
by $17,430 or 18.5% from $94,239 in the 1996 period to $111,669 in the 1997
period. Interest expense increased by $26,973 due to increased borrowings
for the Company's working capital needs, an increase in assigned wholesale
credit receivables as a result of increased wholesale sales, and an
increase in interest on capitalized leases. Interest income increased by
$9,543 as a result of the Company investing cash raised from the initial
public offering in interest bearing instruments in May 1996.
PRE-TAX INCOME. As a result of the foregoing, income before income
tax provision increased $169,255 or 788.2% from $21,473 in the 1996 period
to an income before income tax provision of $190,728 in the 1997 period.
INCOME TAX (BENEFIT) PROVISION. During the 1997 period the effective
tax rate was 46.6% primarily due to Federal and state taxes and the impact
of certain non-deductible expenditures. The benefit of $163,109 in the 1996
period was primarily due to the recording of a tax benefit of $173,566 as a
result of establishing deferred income tax assets upon the conversion of
the Company to a C Corporation shortly before the closing of the Offering.
10
<PAGE>
Three Months Ended June 30, 1997 ("1997 quarter") Compared to Three Months
Ended June 30, 1996 ("1996 quarter")
SALES. The Company's sales increased by $778,290 or 24.9% to
$3,900,007 in the 1997 quarter. The Company's wholesale sales increased by
23.9% from $1,900,254 in the 1996 quarter to $2,354,328 in the 1997
quarter, its retail sales increased by 43.5% from $842,611 in the 1996
quarter to $1,208,860 in the 1997 quarter and craft fair sales decreased by
10.6% from $378,852 in the 1996 quarter to $338,818 in the 1997 quarter.
The Company attributes the wholesale sales increase during the 1997 quarter
primarily to the enthusiastic response to the Summer line, which is a
particularly strong selling season for the Company, a 110.1% increase in
department store business, and to increased boutique account business
resulting from improved relations with existing wholesale accounts and new
business generated from through the Messenger Program. The retail sales
increase was primarily due to a same store sales increase of $58,000 or
8.0%, and stores which opened in September 1996 and March 1997 generating
sales during the 1997 quarter. The Company attributes these results to
increased marketing efforts, personal shopping through its phone sales, and
repeat customer purchases. As a result of closing the Company's Taos, New
Mexico retail location in January 1997, sales at this location decreased
$114,022 in the 1997 quarter. The decrease in craft fair sales was
primarily due to attending an event during the March 31, 1997 period which
previously occurred in the June 30, 1996 quarter.
GROSS MARGIN. The major components affecting gross margin are raw
material and production costs, wholesale and retail maintained margins and
sales mix. The Company's gross margin increased, as a percentage of sales,
by 0.2 percentage points from 53.2% in the 1996 period to 53.4% in the 1997
period. The Company attributes this increase to fewer discounted sales and
increased initial mark-ups at its retail stores and overall production
efficiencies.
OPERATING EXPENSES. The Company's operating expenses increased by
$441,393 or 30.0% from $1,472,275 in the 1996 quarter to $1,913,668 in the
1997 quarter and increased as a percentage of sales by 1.9 percentage
points from 47.2% in the 1996 period to 49.1% in the 1997 period. The
increase in operating expenses in the 1997 quarter was primarily due to the
addition of management team members and staff support, expenses of two new
retail stores offset by a discontinued store accounting for 53.6% of the
total dollar increase which did not exist in the 1996 quarter, and
accounting and legal expenses. Operating expenses related to general and
administrative functions have increased throughout 1996 and 1997, providing
capacity for future sales growth.
INTEREST EXPENSE, NET. The Company's interest expense, net, increased
by $18,515 or 59.2% from $31,259 in the 1996 quarter to $49,774 in the 1997
quarter. Interest expense increased by $11,204 due to increased borrowings
for the Company's working capital needs, an increase in assigned wholesale
credit receivables as a result of increased wholesale sales, and an
increase in interest on capitalized leases. Interest income decreased by
$7,311 as a result of spending a portion of the Company's initial
investment of approximately $3.9 million of cash raised from the initial
public offering in interest bearing instruments in the 1996 quarter.
12
<PAGE>
PRE-TAX INCOME. As a result of the foregoing, income before income
tax provision decreased $36,842 or 23.3% from $158,293 in the 1996 period
to an income before income tax provision of $121,451 in the 1997 period.
INCOME TAX (BENEFIT) PROVISION. During the 1997 quarter the effective
tax rate was 46.6% primarily due to Federal and state taxes and the impact
of certain non-deductible expenditures. The benefit of $149,427 in the 1996
quarter was primarily due to the recording of a tax benefit of $173,566 as
a result of establishing deferred income tax assets upon the conversion of
the Company to a C Corporation shortly before the closing of the Offering.
Liquidity and Capital Resources:
- -------------------------------
On November 13, 1995, the Company commenced the sale of 800,000 shares of
common stock in a public offering at a price of $5.00 per share. The
offering was made directly by the Company on a "Minimum/Maximum" basis
subject to subscription and payment for not less than 500,000 shares (the
Minimum) and not more than 800,000 shares (the Maximum). The Minimum was
raised as of May 13, 1996, and the offering was closed as of May 15, 1996.
The public offering provided approximately $3,215,000, net of transaction
costs of approximately $721,000.
At June 30, 1997, the Company had $1,798,711 in cash and cash equivalents
(of which $98,143 was restricted) from $1,928,340 in cash and cash
equivalents at December 31, 1996 (of which $40,346 was restricted), a
receivable purchase line of credit for up to $1,500,000 (with $981,425
outstanding and in transit) and a demand bank line of credit for up to
$500,000 (with a $500,000 outstanding balance). At June 30, 1997, the
Company had working capital of $3,249,330, reflecting an increase in
working capital of $382,912 from $2,866,418 on December 31, 1996 primarily
due to refinancing of debt. Working capital is defined as current assets
less current liabilities.
Net cash used in operations was ($46,138) during the six months ended June
30, 1997, consisting primarily of increases in accounts receivable of
$534,652 partially offset by net income before depreciation and
amortization of $292,736 and increases in accounts payable and accrued
expenses of $82,633 and $88,066 respectively. Net cash used in operating
activities during the same period for 1996 was ($668,271), which consisted
primarily of an increase in inventory of $324,003, and decreases in
accounts payable of $225,198, and accrued bonus-stock grant of $219,625.
Net cash used in investing activities in the 1997 and 1996 six month period
was $804,558 and $57,545, respectively, consisting of capital expenditures
to purchase property and equipment, including construction and buildout of
the Company's New York retail store which opened in March, 1997, and the
ongoing implementation of the Company's Management Information System. The
majority of the 1996 expenditures consisted of the buildout of the
wholesale showroom in New York.
Net cash provided by financing activities in the 1997 period was $721,067,
consisting primarily of an increase in the Company's receivable purchase
line of credit of $577,961 and additional net borrowings on long term debt
of $187,147. Net cash provided by financing activities in the 1996 period
was $3,883,507, consisting primarily of net cash proceeds received from the
public offering of $3,751,068, borrowings on the Company's line of credit
of $370,000, and $450,000 of borrowings from a majority stockholder. This
funding was offset in part by shareholder distributions of $463,926 as a
withdrawal of accumulated S corporation earnings.
The Company repurchased 2,048,696 shares of the Company's Common Stock.
These shares were held in Treasury by the Company (the "Treasury Stock").
Pursuant to a Security Agreement, the Treasury Stock, together with all
accounts receivable, inventories, work-in-progress, bank accounts,
trademarks, choses in action, leasehold interests, and fixed assets, served
as collateral to secure the Company's obligations under certain promissory
notes. The Company satisfied all of its obligations pursuant to the
Agreement and promissory notes on April 5, 1997. On April 20, 1997 the
Company retired the Treasury Stock and returned it to the status of
authorized but unissued shares.
The Company has a receivable purchase line of credit agreement with a bank
which provided for the assignment and processing of Company receivables
with recourse to a maximum outstanding assigned amount of $1,500,000. The
Company assigned 100% of its wholesale credit receivables under this
agreement, providing immediate cash availability of up to 88.3% of these
receivables. This line has been extended through December 1997.
On June 25 and June 27, 1997, the Company refinanced its existing debt and
increased its borrowings. On June 25, 1997, the Company entered into a
Business Loan Agreement with a bank and received a promissory note in the
amount of $800,000. This note is subject to monthly interest payments
beginning July 25, 1997, with interest calculated on the unpaid principal
balances at an interest rate of two percentage points over the Index. The
Index represents the bank's one year certificate of deposit yield (5.9% at
June 30, 1997). Four principal payments of $50,000 are to be paid in annual
installments commencing June 25, 1998 through June 25, 2001, and one
principal payment of $600,000 is to be paid on June 25, 2002. This note is
secured by an $842,000 certificate of deposit and guaranteed by Jennifer
Barclay, a principal shareholder. This certificate of deposit is included
in cash and cash equivalents at June 30, 1997.
13
<PAGE>
As of June 27, 1997, the Company had an outstanding line of credit of
$1,000,000 subject to a maximum outstanding amount not to exceed 50% of
finished goods inventory plus 25% of work in process. On that date, the
Company modified this Note and Security Agreement and paid $500,000,
thereby reducing the outstanding principal balance due to $500,000.
Interest shall be charged on the outstanding principal balance of the loan
from June 27, 1997, until the full amount of principal due has been paid at
a rate equal at all times to the Prime Rate plus three quarters percent per
annum. The Security Agreement shall continue to be a first lien on the
Collateral and shall secure the Note as extended.
The net proceeds of the Company's initial public offering, together with
the lines of credit described above and income generated from operations,
are expected to meet the Company's funding needs to achieve its objectives
and growth strategy for at least the next 12 months.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable
Item 2. Changes in Securities
---------------------
Not applicable
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
Item 5. Other Information
-----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.26 Agreement by and between Blue Fish Clothing, Inc.
(Sub-Tenant), Michael J. Herbst (Tenant) and
Charles F. Schaefer and Shirley Kaplan Mellor
(Landlords) effective June 25, 1997.
10.27 Business Loan Agreement by and between Blue Fish
Clothing, Inc. and Carnegie Bank, N.A. dated June
25, 1997.
10.28 Promissory Note in the principal amount of
$800,000 by and between Blue Fish Clothing, Inc.
and Carnegie Bank, N.A. dated June 25, 1997.
10.29 Assignment of Deposit Account by and between Blue
Fish Clothing, Inc. and Carnegie Bank, N.A. dated
June 25, 1997.
10.30 Note and Loan and Security Agreement Modification
Agreement by and between Blue Fish Clothing, Inc.
and Carnegie Bank, N.A. dated June 27, 1997.
27 Financial Data Schedule.
(b) Reports on Form 8-K
Not applicable
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant certifies that it has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of
Frenchtown in the State of New Jersey on August 14, 1997.
BLUE FISH CLOTHING, INC.
------------------------
(Registrant)
DATE: August 14, 1997 /s/ Marc Wallach
-----------------------------------
Marc Wallach
President and
Chief Executive Officer
DATE: August 14, 1997 /s/ Richard E. Swarttz
-----------------------------------
Richard E. Swarttz
Chief Financial Officer and
Treasurer
17
<PAGE>
INDEX TO EXHIBITS
10.26 Agreement by and between Blue Fish Clothing, Inc.
(Sub-Tenant), Michael J. Herbst (Tenant) and
Charles F. Schaefer and Shirley Kaplan Mellor
(Landlords) effective June 15, 1997.
10.27 Business Loan Agreement by and between Blue Fish
Clothing, Inc. and Carnegie Bank, N.A. dated June
25, 1997.
10.28 Promissory Note in the principal amount of
$800,000 by and between Blue Fish Clothing, Inc.
and Carnegie Bank, N.A. dated June 25, 1997.
10.29 Assignment of Deposit Account by and between Blue
Fish Clothing, Inc. and Carnegie Bank, N.A. dated
June 25, 1997.
10.30 Note and Loan and Security Agreement Modification
Agreement by and between Blue Fish Clothing, Inc.
and Carnegie Bank, N.A. dated June 27, 1997.
27 Financial Data Schedule.
AGREEMENT
---------
WHEREAS, BLUE FISH CLOTHING, INC., a Pennsylvania Corporation
(hereafter Sub-Tenant) by Agreement dated 30th of May, 1997 is willing to
undertake the obligation under a certain Lease between MICHAEL J. HERBST
(Tenant) CHARLES F. SCHAEFER and SHIRLEY KAPLAN MELLOR (Landlords) dated
March 25, 1993 (the "Lease"); and
WHEREAS, MICHAEL J. HERBST (Tenant) is desirous of subletting his
space to BLUE FISH CLOTHING, INC., (Sub-Tenant); and
WHEREAS, CHARLES F. SCHAEFER and SHIRLEY KAPLAN MELLOR (Landlords)
have agreed to said sublet,
NOW, THEREFORE, in consideration of One ($1.00) Dollar and other
valuable consideration it is agreed as follows:
1. Tenant agrees to sublet to the Subtenant the demised premises
known as 56-58 Post Road East, Westport, Connecticut on the following terms
and conditions:
a) Subtenant to pay to Tenant rent of $55,200.00 for the first
year at the rate of $4,600.00 per month with payment due on the first day
of each month, but not beginning until or about October 15, 1997, the first
four months of said rent having been abated. The term of this sublease
shall commence June 15, 1997 and terminate June 30, 2007.
b) Subtenant shall pay for its own utilities.
c) Subtenant shall accept the premises "as is" except that
Tenant shall deliver the premises in broom clean condition and free from
all trash and debris.
d) Subtenant shall be bound by all the terms and obligations of
the Lease dated May 25, 1993 as such shall relate to Subtenant and does
hereby assume all of the covenants and obligations of the Tenant contained
in said Lease and does hereby agree to indemnify and save the Tenant
harmless with respect to all such covenants and obligations, except for the
provisions of Article 2 and for the payment of rent and payments due under
Articles 29 and 30 of the lease by Tenant to Landlord, which obligations
shall remain with Tenant. In the event Tenant fails to pay rent to
Landlords in order to prevent termination of the lease. Any such payment
made by Subtenant to Landlords shall be an offset against the rent due to
Tenant under the Sublease.
e) Subtenant shall pay to the Tenant on the signing of this
Agreement the sum of Thirty Thousand ($30,000.00) Dollars and six months
from date of the agreement, shall pay an additional sum of Twenty Thousand
($20,000.00) Dollars, for a total of Fifty Thousand ($50,000.00) Dollars as
partial consideration for Tenant entering into this transaction.
f) Notwithstanding anything contained herein to the contrary,
in the event the premises is destroyed or taken by eminent domain, or if a
portion thereof is substantially destroyed or taken by eminent domain
resulting in the premises being untenantable or unfit to tenant's purposes
or the repair or restoration thereof cannot be accomplished within ninety
(90) days, Subtenant shall have the right to terminate the Sublease by
giving written notice thereof to Tenant with thirty (30) days after the
premises is destroyed or taken by eminent domain. Thereafter, the Sublease
shall terminate as of the date of such notice or on any later date set
forth therein and all obligations of the parties under the Sublease shall
cease and terminate.
2. In the event Tenant is unable to deliver the premises on June 15,
1997, the commencement date of the Sublease, rent shall be abated for each
day Tenant is unable to deliver the premises. If Tenant is able to obtain
necessary Town approvals by June 2, 1997 then Tenant shall deliver premises
to Subtenant no later than August 15, 1997. If Tenant is unable to obtain
the necessary Town approvals by July 2, 1997, Tenant shall notify Subtenant
by July 3, 1997 and thereafter Subtenant shall have the right to terminate
this Sublease and all deposits shall forthwith be refunded to the
Subtenant. If Tenant is unable to deliver the premises on or before August
15, 1997, Subtenant shall have the right to terminate the Sublease by
written notice to the Tenant, and thereafter the Sublease shall terminate
without recourse to the parties thereto and all deposits made thereunder
shall forthwith be returned to Subtenant.
3. If Subtenant is unable to obtain necessary Town approvals for
Subtenant's buildout of premises by June 2, 1997 Subtenant shall have the
right to terminate this sublease by a written notice thereof no later than
June 3, 1997 to Tenant and thereafter the Sublease shall terminate without
recourse to the parties thereto and all deposits made thereunder shall
forthwith be refunded to Subtenant.
Signed, Sealed and Delivered in the presence of:
TENANT, MICHAEL J. HERBST
By:
---------------------------
SUBTENANT, BLUE FISH CLOTHING, INC.
By:
------------------------------
BUSINESS LOAN AGREEMENT
|----------------------------------------------------------------------|
|Principal|Loan |Maturity|Loan No.|Call|Colla-|Account|Officer|Initials|
| |Date | | | |teral | | | |
|$800,000.|06-25|06-25 |0500006024| | | |EW | |
| |-1997|-2002 | | | | | | |
|----------------------------------------------------------------------|
|References in the shaded area are for Lender's use only and do not |
|limit the applicability of this document to any particular loan or |
|item. |
|----------------------------------------------------------------------|
Borrower: Blue Fish Clothing, Inc. Lender: CARNEGIE BANK, N.A.
3 Sixth Street FLEMINGTON BRANCH
Frenchtown, NJ 08825 619 ALEXANDER ROAD
PRINCETON, NJ 08540
======================================================================
THIS BUSINESS LOAN AGREEMENT between Blue Fish Clothing, Inc. ("Borrower")
and CARNEGIE BANK, N.A. ("Lender") is made and executed on the following
terms and conditions. Borrower has received prior commercial loans from
Lender or has applied to Lender for a commercial loan or loans and other
financial accommodations, including those which may be described on any
exhibit or schedule attached to this Agreement. All such loans and
financial accommodations, together with all future loans and financial
accommodations from Lender to Borrower, are referred to in this Agreement
individually as the "Loan" and collectively as the "Loans." Borrower
understands and agrees that: (a) in granting, renewing, or extending any
Loan, Lender is relying upon Borrower's representations, warranties, and
agreements, as set forth in this Agreement; (b) the granting, renewing, or
extending of any Loan by Lender at all times shall be subject to Lender's
sole judgment and discretion; and (c) all such Loans shall be and shall
remain subject to the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of June 25, 1997 and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement
shall have the meanings attributed to such terms in the Uniform Commercial
Code. All references to dollar amounts shall mean amounts in lawful money
of the United States of America.
Agreement. The word "Agreement" means this Business Loan Agreement,
as this Business Loan Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Business Loan Agreement from time to time.
Borrower. The word "Borrower" means Blue Fish clothing, Inc. The
word "Borrower" also includes, as applicable, all subsidiaries and
affiliates of Borrower as provided below in the paragraph titled
"Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
Collateral. The word "Collateral" means and includes without
limitation all property and assets granted as collateral security for
a Loan, whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted
in the form of a security interest, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien
or title retention contract, lease or consignment intended as a
security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
Event of Default. The words "Event of Default" mean and include
without limitation any of the Events of default set forth below in the
section titled "EVENTS OF DEFAULT."
Grantor. The word "Grantor" means and includes without limitation
each and all of the persons or entities granting a Security Interest
in any Collateral for the Indebtedness, including without limitation
all Borrowers granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well
as all claims by Lender against Borrower, or any one or more of them;
whether now or hereafter existing, voluntary or involuntary, due or
not due, absolute or contingent, liquidated or unliquidated; whether
Borrower may be liable individually or jointly with others; whether
Borrower may be obligated as a guarantor, surety, or otherwise;
whether recovery upon such Indebtedness may be or hereafter may become
barred by any statute of limitations; and whether such Indebtedness may
be or hereafter may become otherwise unenforceable.
Lender. The word "Lender" means CARNEGIE BANK, N.A., its successors
and assigns.
Loan. The word "Loan" or "Loans" means and includes without
limitation any and all commercial loans and financial accommodations
from Lender to Borrower, whether now or hereafter existing, and
however evidenced, including without limitation those loans and
financial accommodations described herein or described on any exhibit
or schedule attached to this Agreement from time to time.
Note. The word "Note" means and includes without limitation
Borrower's promissory note or notes, if any, evidencing Borrower's
Loan obligations in favor of Lender, as well as any substitute,
replacement or refinancing note or notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and
security interests secured indebtedness owed by Borrower to Lender;
(b) liens for taxes, assessments, or similar charges either not yet
due or being contested in good faith; (c) liens of materialmen,
mechanics, warehousemen, or carriers, or other like liens arising in
the ordinary course of business and securing obligations which are not
yet delinquent; (d) purchase money liens or purchase money security
interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the
date of this Agreement or permitted to be incurred under the paragraph
of this Agreement titled "Indebtedness and Liens;" (e) liens and
security interests which, as of the date of this Agreement, have been
disclosed to any approved by the Lender in writing; and (f) those
liens and security interests which in the aggregate constitute an
immaterial and insignificant monetary amount with respect to the net
value of Borrower's assets.
Related Documents. The words "Relating Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract,
or otherwise, evidencing, governing, representing, or creating a
Security Interest.
Security Interest. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the
form of a lien, charge, mortgage, deed of trust, assignment, pledge,
chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien or title retention contract,
lease or consignment intended as a security device, or any other
security or lien interest whatsoever, whether created by law,
contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the
initial Loan Advance and each subsequent Loan Advance under this Agreement
shall be subject to the fulfillment to Lender's satisfaction of all of the
conditions set forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender in form satisfactory
to Lender the following documents for the Loan: (a) the Note,
(b) Security Agreements granting to Lender security interests in the
Collateral, (c) Financing Statements perfecting Lender's Security
Interests; (d) evidence of insurance as required below; and (e) any
other documents required under this Agreement or by Lender or its
counsel, including without limitation any guaranties described below.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and
the Related Documents, and such other authorizations and other
documents and instruments as Lender or its counsel, in their sole
discretion, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as
specified in this Agreement or any Related Document.
Representations and Warranties. The representations and warranties
set forth in this Agreement, in the Related Documents, and in any
document or certificate delivered to Lender under this Agreement are
true and correct.
No Event of Default. There shall not exist at the time of any advance
a condition which would constitute an Event of Default under this
Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Lender, as of the date of this Agreement, as of the date of each
disbursement of Loan proceeds, as of the date of any renewal, extension or
modification of any Loan, and at all times any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the
Commonwealth of Pennsylvania and is validly existing and in good
standing in all states in which Borrower is doing business. Borrower
has the full power and authority to own its properties and to transact
the businesses in which it is presently engaged or presently proposes
to engage. Borrower also is duly qualified as a foreign corporation
and is in good standing in all states in which the failure to so
qualify would have a material adverse effect on its businesses or
financial condition.
Authorization. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly
authorized by all necessary action by Borrower; do not require the
consent or approval of any other person, regulatory authority or
governmental body; and do not conflict with, result in a violation of,
or constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied
to Lender truly and completely disclosed Borrower's financial
condition as of the date of the statement, and there has been no
material contingent obligations except as disclosed in such financial
statements.
Legal Effect. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective
terms.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender
and as accepted by Lender, and except for property tax liens for taxes
not presently due and payable, Borrower owns and has good title to all
of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements
relating to such properties. All of Borrower's properties are titled
in Borrower' s legal name, and Borrower has not used, or filed a
financing statement under, any other name for at least the last five
(5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous
substances," "disposal," "releases," and "threatened release," as used
in this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901, et seq., the New Jersey Industrial Site
Recovery Act, NJSA Section 13:1K-6 ("ISRA"), the New Jersey Spill
Compensation and Control Act, NJSA 58:10-23.11 et seq., or other
applicable state or Federal laws, rules, or regulations adopted
pursuant to any of the foregoing. Except as disclosed to and
acknowledged by lender in writing, Borrower represents and warrants
that: (a) During the period of Borrower's ownership of the properties,
there has been no use, generation, manufacture, storage, treatment,
disposal, release or threatened release of any hazardous waste or
substance by any person on, under, about or from any of the
properties. (b) Borrower has no knowledge of, or reason to believe
that there has been (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous
waste or substance on, under, about or from the properties by any
prior owners or occupants of any of the properties, or (ii) any actual
or threatened litigation or claims of any kind by any person relating
to such matters. (c) Neither Borrower nor any tenant, contractor,
agent or other authorized user of any of the properties shall use,
generate, manufacture, store, treat, dispose of, or release any
hazardous waste or substance on, under, about or from any of the
properties; and any such activity shall be conducted in compliance
with all applicable federal, state and local laws, regulations, and
ordinances including without limitation those laws, regulations and
ordinances described above. Borrower authorizes Lender and its agents
to enter upon the properties to make such inspections and tests as
Lender may deem appropriate to determine compliance of the properties
with this section of the Agreement. Any inspections or tests made by
Lender shall be at Borrower's expenses and for Lender's purposes only
and shall not be construed to create any responsibility or liability
on the part of Lender to Borrower or to any other person. The
representations and warranties contained herein are based on
Borrower's due diligence in investigating the properties for hazardous
waste and hazardous substances. Borrower hereby (a) releases and
waives any future claims against Lender for indemnity or contribution
in the event Borrower becomes liable for cleanup or other costs under
any such laws, and (b) agrees to indemnify and hold harmless Lender
against any and all claims, losses, liabilities, damages, penalties,
and expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Agreement or as a
consequence of any sue, generation, manufacture, storage, disposal,
release or threatened release occurring prior to Borrower's ownership
or interest in the properties, whether or not the same was or should
have been known to Borrower. The provisions of this section of the
Agreement, including the obligation to indemnify, shall survive the
payment of the Indebtedness and the termination or expiration of this
Agreement and shall not be affected by Lender's acquisition of any
interest in any of the properties, whether by foreclosure or
otherwise.
Litigation and Claims. No litigation, claim, investigation,
administrative proceeding or similar action (including those for
unpaid taxes) against Borrower is pending or threatened, and no other
event has occurred which may materially adversely affect Borrower's
financial condition or properties, other than litigation, claims, or
other events, if any, that have been disclosed to and acknowledged by
Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and
reports of Borrower that are or were required to be filed, have been
filed, and all taxes, assessments and other governmental charges have
been paid in full, except those presently being or to be contested by
Borrower in good faith in the ordinary course of business and for
which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or indirectly
securing repayment of Borrower's Loan and Note, that would be prior or
that may in any way be superior to Lender's Security Interests and
rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note
and all of the Related Documents are binding upon Borrower as well as
upon Borrower's successors, representations and assigns, and are
legally enforceable in accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plans as to which
Borrower may have any liability complies in all material respects with
all applicable requirements of law and regulations, and (i) no
Reportable Event nor Prohibited Transaction (as defined in ERISA) has
occurred with respect o any such plan, (i) Borrower has not withdrawn
from any such plan or initiated steps to do so, (iii) no steps have
been taken to terminate any such plan, and (iv) there are no unfunded
liabilities other than those previously disclosed to Lender in
writing.
Location of Borrower's Offices and Records. Borrower's place of
business, or Borrower's chief executive office, if Borrower has more
than one place of business, is located at 3 Sixth Street, Frenchtown,
NJ 08825. Unless Borrower has designated otherwise in writing this
location is also the office or offices where Borrower keeps its
records concerning the Collateral.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to lender for the purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
Survival of Representations and Warranties. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in making the above
referenced Loan to Borrower. Borrower further agrees that the
foregoing representations and warranties shall be continuing in nature
and shall remain in full force and effect until such time as
Borrower's Indebtedness shall be paid in full, or until this Agreement
shall be terminated in the manner provided above, whichever is the
last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that,
while this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all
existing and all threatened litigation, claims, investigations,
administrative proceedings or similar actions affecting Borrower or
any Guarantor which could materially affect the financial condition of
Borrower or the financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent
basis, and permit Lender to examine and audit Borrower's books and
records at all reasonable times.
Financial Statements. Furnish Lender with, as soon as available, but
in no event later than ninety (90) days after the end of each fiscal
year, Borrower's balance sheet and income statement for the year ended,
audited by a certified public accountant satisfactory to Lender. All
financial reports required to be provided under this Agreement shall
be prepared in accordance with generally accepted accounting
principles, applied on a consistent basis, and certified by Borrower
as being true and correct.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations as Lender may request from time to time.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages
and with insurance companies reasonably acceptable to Lender.
Borrower, upon request of Lender, will deliver to Lender from time to
time the policies or certificates of insurance in form satisfactory to
lender, including stipulations that coverages will not be canceled or
diminished without at least thirty (30) days' prior written notice to
Lender. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Borrower or any other person.
In connection with all policies covering assets in which Lender holds
or is offered a security interest for the Loans, Borrower will provide
Lender with such loss payable or other endorsements as Lender may
require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports
on each existing insurance policy showing such information as Lender
may reasonably request, including without limitation the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the properties insured; (e) the then current property
values on the basis of which insurance has been obtained, and the
manner of determining those values; and (f) the expiration date of the
policy. In addition, upon request of Lender (however not more often
than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value
or replacement cost of any Collateral. The cost of such appraisal
shall be paid by Borrower.
Guaranties. Prior to disbursement of any Loan proceeds, furnish
executed guaranties of the Loans in favor of Lender, executed by the
guarantor named below, on Lender's forms, and in the amount and under
the conditions spelled out in those guaranties.
Guarantor Amount
Jennifer P. Barclay $800,000.00
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and
any other party and notify Lender immediately in writing of any
default in connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon any
of Borrower's properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such
assessment, tax, charge, levy, lien or claim so long as (a) the
legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books
adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish
to Lender evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate
governmental official to deliver to Lender at any time a written
statement of any assessments, taxes, charges, levies, liens and claims
against Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in
a timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under
this Agreement or under any of the Related Documents.
Operations. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; provide written notice to Lender
to any change in executive and management personnel; conduct its
business affairs in a reasonable and prudent manner and in compliance
with all applicable federal, state and municipal laws, ordinances,
rules and regulations respecting its properties, charters, businesses
and operations, including without limitations, compliance with the
Americans With Disabilities Act and with all minimum funding standards
and other requirements of ERISA and other laws applicable to
Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable
time to inspect any and all Collateral for the Loan or Loans and
Borrower's other properties and to examine or audit Borrower's books,
accounts, and records and to make copies and memoranda of Borrower's
books, accounts, and records. If Borrower now or at any time
hereafter maintains any records (including without limitation computer
generated records and computer software programs for the generation of
such records) in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free
access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide
Lender at least annually and at the time of each disbursement of Loan
proceeds with a certificate executed by Borrower's chief financial
officer, or other officer or person acceptable to Lender, certifying
that the representations and warranties set forth in this Agreement
are true and correct as of the date of the certificate and further
certifying that, as of the date of the certificate, no Event of
Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all
respects with all environmental protection federal, state and local
laws, statutes, regulations and ordinances; not cause or permit to
exist, as a result of an intentional or unintentional action or
omission on its part or on the part of any third party, on property
owned and/or occupied by Borrower, any environmental activity where
damage may result in the environment, unless such environmental
activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within
thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intention or
unintentional action or omission on Borrower's part in connection with
any environmental activity whether or not there is damage to the
environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while
this Agreement is in effect, Borrower shall not, without the prior written
consent of Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated by
this Agreement, create, incur or assume indebtedness for borrowed
money, including capital leases, (b) except as allowed as a Permitted
Lien, sell, transfer, mortgage, assign, pledge, lease, grant a
security interest in, or encumber any of Borrower's assets, or (c)
sell with recourse any of Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
business, (c) pay any dividends on Borrower's stock (other than
dividends payable in its stock), provided, however that
notwithstanding the foregoing, but only so long as no Event of Default
has occurred and is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as defined in
the Internal Revenue Code of 1986, as amended), Borrower may pay cash
dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and
make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as
Shareholders of a Subchapter S Corporation because of their ownership
of shares of stock of Borrower, or (d) purchase or retire any of
Borrower's outstanding shares or alter or amend Borrower's capital
structure.
Loans, Acquisitions and Guaranties. (a) Loan, Invest in or
advance money or assets, (b) purchase, create or acquire any interest
in any other enterprise or entity, or (c) incur any obligation as
surety or guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan
to Borrower, whether under this Agreement or under any other agreement,
Lender shall have no obligation to make Loan Advances or to disburse Loan
proceeds if: (a) Borrower or any Guarantor is in default under the terms of
this Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor
becomes insolvent, files a petition in bankruptcy or similar proceedings,
or is adjudged a bankrupt; (c) there occurs a material adverse change in
Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; or (d) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such Guarantor's guaranty of the Loan or any other loan with Lender.
DEFAULT INTEREST RATE. In the event of default, including failure to pay
upon final maturity, Lender at its option, if permitted by applicable law,
may increase interest rate on the Loan, for a period beginning thirty (30)
days after written notice of such default and ending upon the curing of
said noticed default, one half of one percent (.50%) for the first thirty
(30) days of said default and increase an additional one half of one
percent (.50%) during each thirty (30) day period thereafter during which
the noticed default continues. Such default interest rates shall apply to
the outstanding principal balance of the Loan. Upon curing of the notice
default, the interest rate on the Loan shall revert to the initially
agreed-upon interest rate effective on the date on which the default is
cured.
REQUEST FOR FINANCIALS. Borrower and Guarantor(s) agree to provide signed
financial statements and tax returns on an annual basis. Failure to
provide updated financial statements and tax returns shall be considered as
a default of the Note.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to,
Borrower's accounts with Lender (whether checking, savings, or some other
account), including without limitation all accounts held jointly with
someone else and all accounts Borrower may open in the future, excluding
however all IRA and Keogh accounts, and all trust accounts for which the
grant of a security interest would be prohibited by law. Borrower
authorizes Lender, to the extent permitted by applicable law, to charge or
setoff all sums owing on the Indebtedness against any and all such
accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment
when due on the Loans.
Other Defaults. Failure of Borrower or any Guarantor to comply with
or to perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
Default in Favor of Third Parties. Should Borrower or any Guarantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of the
Borrower's property or Borrower's or any Guarantor's ability to repay
the Loans or perform their respective obligations under this Agreement
or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Guarantor under
this Agreement or the Related Documents is false or misleading in any
material respect at the time made or furnished, or becomes false or
misleading at any time thereafter.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as
a going business, the Insolvency of Borrower, the appointment of a
receiver for any part of Borrower's property, any assignment for the
benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency laws
by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Guarantor against any collateral securing the
Indebtedness, or by any governmental agency. This includes a
garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender. However, this Event of Default shall not apply
if there is a good faith dispute by Borrower or Guarantor, as the case
may be, as to the validity or reasonableness of the claim which is the
basis of the creditor of forfeiture proceeding, and if Borrower or
Guarantor gives Lender written notice of the creditor of forfeiture
proceeding and furnishes reserves or a surety bond for the creditor of
forfeiture proceeding satisfactory to Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor
dies or becomes incompetent, or revokes or disputes the validity of,
or liability under, any Guaranty of the Indebtedness. Lender, at its
option, may, but shall not be required to, permit the Guarantor's
estate to assume unconditionally the obligations arising under the
guaranty in a manner satisfactory to Lender, and in doing so, cure the
Event of Default.
Change in Ownership. Any change in ownership of twenty-five percent
(25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness in impaired.
Right to Cure. If any default, other than a Default on Indebtedness,
is curable and if Borrower or Guarantor, as the case may be, has not
been given a notice of a similar default within the preceding twelve
(12) months, it may be cured (and no Event of Default will have
occurred) if Borrower or Guarantor, as the case may be, after receiving
written notice from Lender demanding cure of such default: (a) cures
the default within fifteen (15) days; or (b) if the cure requires more
than fifteen (15) days, immediately initiates steps which Lender deems
in Lender's sole discretion to be sufficient to cure the default and
thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate and, at
Lender's option, all Indebtedness immediately will become due and payable,
all without notice of any kind to Borrower, except that in the case of an
Event of Default of the type described in the "Insolvency" subsection
above, such acceleration shall be automatic and not optional. In addition,
Lender shall have all the rights and remedies provided in the Related
Documents or available at law, in equity, or otherwise. Except as may be
prohibited by applicable law, all of Lender's rights and remedies shall be
cumulative any may be exercised singularly or concurrently. Election by
obligation of Borrower or of any Guarantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a
part of this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in writing
and signed by the party or parties sought to be charged or bound by
the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of New Jersey. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of
the courts of HUNTERDON County, the State of New Jersey. This
Agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to
Lender's sale or transfer, whether now or later, of one or more
participation interests in the Loans to one or more purchasers,
whether related or unrelated to Lender. Lender may provide, without
any limitation whatsoever, to any one or more purchasers, or potential
purchasers, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower
hereby waives any rights to privacy it may have with respect to such
matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of
such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as
the absolute owners of such interests in the Loans and will have all
the rights of offset or counterclaim that it may have now or later
against Lender or against any purchaser of such a participation
interest and unconditionally agrees that either Lender or such
purchaser may enforce Borrower's obligation under the Loans
irrespective of the failure or insolvency of any holder of any
interest in the Loans. Borrower further agrees that the purchaser of
any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of
Lender's expenses, including without limitation attorneys' fees,
incurred in connection with the preparation, execution, enforcement,
modification and collection of this Agreement or in connection with
the Loans made pursuant to this Agreement. Lender may pay someone
else to help collect the Loans and to enforce this Agreement, and
Borrower will pay that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal
expenses, whether or not there is a lawsuit, including attorneys' fees
for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-
judgment collection services. Borrower also will pay any court costs,
in addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement shall
be given in writing, may be sent by telefacsimile, and shall be
effective when actually delivered or when deposited with a nationally
recognized overnight courier or deposited in the United States mail,
first class, postage prepaid, addressed to the party to whom the
notice is to be given at the address shown above. Any party may
change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of
the notice is to change the party's address. To the extent permitted
by applicable law, if there is more than one Borrower, notice to any
Borrower will constitute notice to all Borrowers. For notice
purposes, Borrower will keep Lender informed at all times of
Borrower's current address(es).
No Joint Venture or Partnership. The relationship of Borrower and
Lender created by this Agreement is strictly that of debtor-creditor,
and nothing contained in this Agreement or in any of the Related
Documents shall be deemed or construed to create a partnership or
joint venture between Borrower and Lender.
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances. If
feasible, any such offending provision shall be deemed to be modified
to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and
all other provisions of this Agreement in all other respects shall
remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of
any provisions of this Agreement makes it appropriate, including
without limitation any representation, warranty or covenant, the word
"Borrower" as used herein shall include all subsidiaries and
affiliates of Borrower. Notwithstanding the foregoing however, under
no circumstances shall this Agreement be construed to require Lender
to make any Loan or other financial accommodation to any subsidiary or
affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or
on behalf of Borrower shall bind its successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower
shall not, however, have the right to assign its rights under this
Agreement or any interest therein, without the prior written consent
of Lender.
Survival. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be
considered to have been relied upon by Lender and will survive the
making of the Loan and delivery to Lender of the Related Documents,
regardless of any investigation made by Lender or on Lender's behalf.
Time is of the Essence. Time is of the essence in the performance of
this Agreement.
Waiver. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A
waiver by Lender of a provision of this Agreement shall not prejudice
or constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any of Lender's rights or
of any obligations of Borrower or of any Grantor as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance
shall not constitute continuing consent in subsequent instances where
such consent is required, and in all cases such consent may be granted
or withheld in the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
JUNE 25, 1997.
BORROWER:
Blue Fish Clothing, Inc.
By:_____________________________
Jennifer P. Barclay, Chairman
ATTEST:
(Corporate Seal)
________________________________
Secretary or Assistant Secretary
LENDER:
CARNEGIE BANK, N.A.
By:_____________________________
Authorized Officer
PROMISSORY NOTE
|----------------------------------------------------------------------|
|Principal|Loan |Maturity|Loan No.|Call|Colla-|Account|Officer|Initials|
| |Date | | | |teral | | | |
|$800,000.|06-25|06-25 |0500006024| | | |EW | |
| |-1997|-2002 | | | | | | |
|----------------------------------------------------------------------|
|References in the shaded area are for Lender's use only and do not |
|limit the applicability of this document to any particular loan or |
|item. |
|----------------------------------------------------------------------|
Borrower: Blue Fish Clothing, Inc. Lender: CARNEGIE BANK, N.A.
3 Sixth Street FLEMINGTON BRANCH
Frenchtown, NJ 08825 619 ALEXANDER ROAD
PRINCETON, NJ 08540
======================================================================
Principal Amount: $800,000.00 Date of Note: June 25, 1997
PROMISE TO PAY. Blue Fish Clothing, Inc. ("Borrower") promises to pay to
CARNEGIE BANK, N.A. ("Lender"), or order, in lawful money of the United
States of America, the principal amount of Eight Hundred Thousand & 00/100
Dollars ($800,000.00), together with interest on the unpaid principal
balance from June 25, 1997, until paid in full, together with all
applicable fees and expenses.
PAYMENT. Subject to any payment changes resulting from changes in the
Index, Borrower will pay this loan in accordance with the following payment
schedule:
12 consecutive monthly interest payments, beginning July 25, 1997,
with interest calculated on the unpaid principal balances at an
interest rate of 2.000 percentage points over the Index described
below; 1 principal payment of $50,000.00 on June 25, 1998, with
interest calculated on the unpaid principal balances at an interest
rate of 2.000 percentage points over the Index described below; 12
consecutive monthly interest payments, beginning July 25, 1998, with
interest calculated on the unpaid principal balances at an interest
rate of 2.000 percentage points over the Index described below; 1
principal payment of $50,000.00 on June 25, 1999, with interest
calculated on the unpaid principal balances at an interest rate of
2.000 percentage points over the Index described below; 12 consecutive
monthly interest payments, beginning July 25, 1999, with interest
calculated on the unpaid principal balances at an interest rate of
2.000 percentage points over the Index described below; 1 principal
payment of $50,000.00 on June 25, 2000, with interest calculated on
the unpaid principal balances at an interest rate of 2.000 percentage
points over the Index described below; 12 consecutive monthly interest
payments, beginning July 25, 2000, with interest calculated on the
unpaid principal balances at an interest rate of 2.000 percentage
points over the Index described below; 1 principal payment of
$50,000.00 on June 25, 2001, with interest calculated on the unpaid
principal balances at an interest rate of 2.000 percentage points over
the Index described below; 12 consecutive monthly interest payments,
beginning July 25, 2001 with interest calculated on the unpaid
principal balances at an interest rate of 2.000 percentage points over
the Index described below; and 1 principal payment of $600,000.00 on
June 25, 2002, with interest calculated on the unpaid principal
balances at an interest rate of 2.000 percentage points over the Index
described below. This estimated final payment is based on the
assumption that all payments will be made exactly as scheduled and that
the Index does not change; the actual final payment will be for
all principal and accrued interest not yet paid, together with any
other unpaid amounts under this Note.
Interest on this Note is computed on a 365/360 simple interest basis; that
is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other place as Lender
may designate in writing. Unless otherwise agreed or 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
and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to
change from time to time based on changes in an index which is the CARNEGIE
BANK 1 YR CD YIELD (the "Index"). ONE(1) YEAR CERTIFICATE OF DEPOSIT
YIELD. Lender will tell Borrower the current Index rate upon Borrower's
request. Borrower understands that Lender may make loans based on other
rates as well. The interest rate change will not occur more often than
ANNUALLY. The Index currently is 5.900% per annum. The interest rate or
rates to be applied to the unpaid principal balance of this Note will be
the rate or rates set forth above in the "Payment" section. NOTICE: -
Under no circumstances will the interest rate on this Note be more than the
maximum rate allowed by applicable law. Notwithstanding the above
provisions, the maximum increase or decrease in the interest rate at any
one time on this loan will not exceed 2.000 percentage points. Whenever
increases occur in the interest rate, Lender, at its option, may do one or
more of the following: (a) increase Borrower's payments to ensure
Borrower's loan will pay off its original final maturity date, (b) increase
Borrower's payments to cover accruing interest, (c) increase the number of
Borrower's payments, and (d) continue Borrower's payments at the same
amount and increase Borrower's final payment.
PREPAYMENT. Borrower may pay all or a portion of the amount owed earlier
than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make
payments under the payment schedule. Rather, they will reduce the
principal balance due and may result in Borrower making fewer payments.
LATE CHARGE. If a payment is 15 days or more late, Borrower will be
charged 5.000% of the unpaid portion of the regularly scheduled payment.
This late charge shall be paid to Lender by Borrower for the purpose of
defraying the expense incident to the handling of the delinquent payment.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any
promise Borrower has made to Lender, or Borrower fails to comply with or to
perform when due any other term, obligation, covenant, or condition
contained in this Note or any agreement related to this Note, or in any
other agreement or loan Borrower has with Lender. (c) Borrower defaults
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property of Borrower's
ability to repay this Note or perform Borrower's obligations under this
Note or any of the Related Documents. (d) Any representation or statement
made or furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect either now or at the time made or
furnished. (e) Borrower becomes insolvent, a receiver is appointed for any
part of Borrower's property, Borrower makes an assignment for the benefit
of creditors, or any proceeding is commenced either by Borrower or against
Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of or levy on any of
Borrower's accounts with Lender. (g) Any guarantor dies or any of the
other events described in this default section occurs with respect to any
guarantor of this Note. (h) A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
If any default, other than a default in payment, is curable and if Borrower
has not been given a notice of breach of the same provisions of this Note
within the preceding twelve (12) months, it may be cured (and no event of
default will have occurred) if Borrower, after receiving written notice
from Lender demanding cure of such default; (a) cures the default within
fifteen (15) days; or (b) if the cure requires more than fifteen (15) days,
immediately initiates steps which Lender deems in Lender's sole discretion
to be sufficient to cure the default and thereafter continues and completes
all reasonable and necessary steps sufficient to produce compliance as soon
as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid
principal balance on this Note and all accrued unpaid interest immediately
due, without notice, and then Borrower will pay that amount. Lender may
hire or pay someone else to help collect this Note if Borrower does not
pay. Borrower also will pay Lender that amount. This includes, subject to
any limits under applicable law, Lender's attorneys' fees and Lender's
legal expenses whether or not there is a lawsuit, including attorneys' fees
and legal expenses for bankruptcy proceedings (including efforts to modify
or vacate any automatic stay or injunction) appeals, and any anticipated
post-judgment collection services. If not prohibited by applicable law,
Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by
Lender in the State of New Jersey. If there is a lawsuit, Borrower agrees
upon Lender's request to submit to the jurisdiction of the courts of
HUNTERDON County, the State of New Jersey. This Note shall be governed by
and construed in accordance with the laws of the State of New Jersey.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to,
Borrower's accounts with Lender (whether checking, savings, or some other
account), including without limitation all accounts held jointly with
someone else and all accounts Borrower may open in the future, excluding
however all IRA and Keogh accounts, and all trust accounts for which the
grant of a security interest would be prohibited by law. Borrower
authorizes Lender, to the extent permitted by applicable law, to charge or
setoff all sums owing on this Note against any and all such accounts.
COLLATERAL. This Note is secured by Carnegie Bank Certificate of Deposit
#100019396.
DEFAULT INTEREST RATE. In the event of default, including failure to pay
upon final maturity, Lender at its option, if permitted by applicable law,
may increase the interest rate on the Loan, for a period beginning thirty (30)
days after written notice of such default and ending upon the curing of
said noticed default, one half of one percent (.50%) for the first thirty
(30) days of said default and increase an additional one half of one
percent (.50%) during each thirty (30) day period thereafter during which
the noticed default continues. Such default interest rates shall apply to
the outstanding principal balance of the loan. Upon curing of the noticed
default, the interest rate on the Loan shall revert to the initially
agreed-upon interest rate effective on the date on which the default is
cured.
REQUEST FOR FINANCIALS. Borrower and Guarantor(s) agree to provide signed
financial statements and tax returns on an annual basis. Failure to
provide updated financial statements and tax returns shall be considered as
a default of the Note.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to the extent allowed
by law, waive presentment, demand for payment, protest and notice of
dishonor. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that lender may renew or extend
(repeatedly and for any length of time) this loan, or release any party or
guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All
such parties also agree that Lender may modify this loan without the
consent of or notice to anyone other than the party with whom the
modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED
COPY OF THE NOTE.
BORROWER:
Blue Fish Clothing, Inc.
By:_____________________________
Jennifer P. Barclay, Chairman
ATTEST:
(Corporate Seal)
________________________________
Secretary or Assistant Secretary
LENDER:
CARNEGIE BANK, N.A.
By:_____________________________
Authorized Officer
ASSIGNMENT OF DEPOSIT ACCOUNT
|----------------------------------------------------------------------|
|Principal|Loan |Maturity|Loan No.|Call|Colla-|Account|Officer|Initials|
| |Date | | | |teral | | | |
|$800,000.|06-25|06-25 |0500006024| | | |EW | |
| |-1997|-2002 | | | | | | |
|----------------------------------------------------------------------|
|References in the shaded area are for Lender's use only and do not |
|limit the applicability of this document to any particular loan or |
|item. |
|----------------------------------------------------------------------|
Borrower: Blue Fish Clothing, Inc. Lender: CARNEGIE BANK, N.A.
3 Sixth Street FLEMINGTON BRANCH
Frenchtown, NJ 08825 619 ALEXANDER ROAD
PRINCETON, NJ 08540
======================================================================
INDEX. The following index is for convenience purposes only and is not to
be used to interpret or to define any provisions of this Assignment of
Deposit Account.
1. ASSIGNMENT
2. DEFINITIONS
3. GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE
COLLATERAL
4. LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO THE COLLATERAL
5. EXPENDITURES BY LENDER
6. LIMITATIONS ON OBLIGATIONS OF LENDER
7. EVENTS OF DEFAULT
8. RIGHTS AND REMEDIES ON DEFAULT
9. MISCELLANEOUS PROVISIONS
THIS ASSIGNMENT OF DEPOSIT ACCOUNT is entered into between Blue Fish
Clothing, Inc. (referred to below as "Grantor"); and CARNEGIE BANK, N.A.
(referred to below as "Lender").
1. ASSIGNMENT. For valuable consideration, Grantor assigns and grants to
Lender a security interest in the Collateral, including without limitation
the deposit accounts described below, to secure the Indebtedness and agrees
that Lender shall have the rights stated in this Agreement with respect to
the Collateral, in addition to all other rights which Lender may have by
law.
2. DEFINITIONS. The following words shall have the following meanings
when used in this Agreement. Terms not otherwise defined in this Agreement
shall have the meanings attributed to such terms in the Uniform Commercial
Code. All references to dollar amounts shall mean amounts in lawful money
of the United States of America.
Account. The word "Account" means the deposit account described below
in the definition for "Collateral."
Agreement. The word "Agreement" means this Assignment of Deposit
Account, as this Assignment of Deposit Account may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Assignment of Deposit Account from time to time.
Collateral. The word "Collateral" means the following described
deposit account:
Carnegie Bank Certificate of Deposit # 100019396 issued by Lender in
an amount not less than $842,000.00.
together with (a) all interest, whether now accrued or hereafter
accruing; (b) all additional deposits hereafter made to the Account;
(c) any and all proceeds from the Account; and (d) all renewals,
replacements and substitutions for any of the foregoing.
In addition, the word "Collateral" includes all property of Grantor
(however owned if owned by more than one person), in the possession of
Lender (or in the possession of a third party subject to the control
of Lender), whether existing now or later and whether tangible or
intangible in character, including without limitation each and all of
the following:
(a) All property to which Lender acquires title or documents of
title.
(b) All property assigned to Lender.
(c) All promissory notes, bills of exchange, stock certificates,
bonds, savings passbooks, time certificate of deposit, insurance
policies, and all other instruments and evidences of an obligation.
(d) All records relating to any of the property described in this
Collateral section, whether in the form of writing, microfilm,
microfiche, or electronic media.
Event of Default. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below in the
section titled "Events of Default."
Grantor. The word "Grantor" means Blue Fish Clothing, Inc., its
successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness
evidenced by the Note, including all principal and interest, together
with all other indebtedness and costs and expenses for which Grantor
is responsible under this Agreement or under any of the Related
Documents. In addition, the word "Indebtedness" includes all other
obligations, debts and liabilities, plus interest hereon, of Grantor,
or any one or more of them, to Lender, as well as all claims by Lender
against Grantor, or any one or more of them, whether existing now or
later; whether they are voluntary or involuntary, due or not due,
direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually or jointly
with others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such
indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such indebtedness may be or hereafter may
become otherwise unenforceable.
Lender. The word "Lender" means CARNEGIE BANK, N.A., its successors
and assigns.
Note. The word "Note" means the note or credit agreement dated June
25, 1997, in the principal amount of $800,000.00 from Blue Fish
Clothing, Inc. to Lender, together with all renewals of, extensions
of, modifications of, refinancings of, consolidations of and
substitutions for the note or credit agreement.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the indebtedness.
3. GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE
COLLATERAL. With respect to the Collateral, Grantor represents and
warrants to Lender that:
Ownership. Grantor is the lawful owner of the Collateral free and
clear of all loans, liens, encumbrances, and claims except as
disclosed to and accepted by Lender in writing.
Right to Grant Security Interest. Grantor has the full right, power,
and authority to enter into this Agreement and to assign the
Collateral to Lender.
No Further Transfer. Grantor will not sell, assign, encumber, or
otherwise dispose of any of Grantor's rights in the Collateral except
as provided in this Agreement.
No Defaults. There are no defaults relating to the Collateral, and
there are no offsets or counterclaims to the same. Grantor will
strictly and promptly do everything required of Grantor under the
terms, conditions, promises, and agreements contained in or relating
to the Collateral.
Proceeds. Any and all replacement or renewal certificates,
instruments, or other benefits or proceeds related to the Collateral
that are received by Grantor shall be held by Grantor in trust for
Lender and immediately shall be delivered by Grantor to Lender to be
held as part of the Collateral.
4. LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO THE COLLATERAL. While
this Agreement is in effect, Lender may retain the rights to possession of
the Collateral, together with any and all evidence of the Collateral, such
as certificates or passbooks. This Agreement will remain in effect until
(a) there no longer is any Indebtedness owing to Lender; (b) all other
obligations secured by this Agreement have been fulfilled; and (c) Grantor,
in writing, has requested from Lender a release of this Agreement.
5. EXPENDITURES BY LENDER. If not discharged or paid when due, Lender
may (but shall not be obligated to) discharge or pay any amounts required
to be discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may
(but shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by
Lender for such purposes will then bear interest at the rate charged under
the Note preserving the Collateral. All such expenditures incurred or paid
by Lender for such purposes will then bear interest at the rate charged
under the Note from the date incurred or paid by Lender to the date of
repayment by Grantor. All such expenses shall become a part of the
Indebtedness and, at Lender's option, will (a) be payable on demand, (b) be
added to the balance of the Note and be apportioned among and be payable
with any installment payments to become due during either (i) the term of
any applicable insurance policy or (ii) the remaining term of the Note, or
(c) be treated as a balloon payment which will be due and payable at the
Note's maturity. This Agreement also will secure payment of these amounts.
Such right shall be in addition to all other rights and remedies to which
Lender may be entitled upon the occurrence of an Event of Default.
6. LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary
reasonable care in the physical preservation and custody of any certificate
or passbook for the Collateral but shall have no other obligation to
protect the Collateral or its value. In particular, but without
limitation, Lender shall have no responsibility (a) for the collection or
protection of any income on the Collateral, (b) for the preservation of
rights against issuers of the Collateral or against third persons; (c) for
ascertaining any maturities, conversions, exchanges, offers, tenders, or
similar matters relating to the Collateral; nor (d) for informing the
Grantor about any of the above, whether or not Lender has or is deemed to
have knowledge of such matters.
7. EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when
due on the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any
other term, obligations, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other agreement
between Lender and Grantor.
Default in Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of
the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement,
the Note or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any collateral documents to create a valid and perfected security
interest or lien) at any time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as
a going business, the insolvency of Grantor, the appointment of a
receiver for any part of Grantor's property, any assignment for the
benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency laws
by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Grantor as
to the validity or reasonableness of the claim which is the basis of
the creditor or forfeiture proceeding and if Grantor gives Lender
written notice of the creditor or forfeiture proceeding and deposits
with Lender monies or a surety bond for the creditor or forfeiture
proceeding, in an amount determined by Lender, in its sole discretion,
as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies or becomes incompetent.
Adverse Change. A material adverse change occurs in Grantor's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
Right to Cure. If any default, other than a Default on Indebtedness,
is curable and if Grantor has not been given a prior notice of a
breach of the same provision of this Agreement, it may be cured (and
no Event of Default will have occurred) if Grantor, after Lender sends
written notice demanding cure of such default, (a) cures the default
within fifteen (15) days; or (b), if the cure requires more than
fifteen (15) days, immediately initiates steps which Lender deems in
Lender's sole discretion to be sufficient to cure the default and
thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
8. RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of an Event of
Default, or at any time thereafter, Lender may exercise any one or more of
the following rights and remedies that may be available at law, in equity,
or otherwise:
Accelerate Indebtedness. Lender may declare all Indebtedness of
Grantor to Lender immediately due and payable, without notice of any
kind to Grantor.
Application of Account Proceeds. Lender may obtain all funds in the
Account from the issuer of the Account and apply them to the
Indebtedness in the same manner as if the Account had been issued by
Lender. If the Account is subject to an early withdrawal penalty,
that penalty shall be deducted from the Account before its application
to the Indebtedness, whether the Account is with Lender or some other
institution. Any excess funds remaining after application of the
Account proceeds to the Indebtedness will be paid to Grantor as the
interests of Grantor may appear. Grantor agrees, to the extent
permitted by law, to pay any deficiency after application of the
proceeds of the Account to the indebtedness. Lender also shall have
all the rights of a secured party under the New Jersey Uniform
Commercial Code, even if the Account is not otherwise subject to such
Code concerning security interest, and the parties to this Agreement
agree that the provisions of the Code giving rights to a secured party
shall nonetheless be a part of this Agreement.
Collect the Collateral. Lender may collect any of the Collateral and,
at Lender's option and to the extent permitted by applicable law, may
retain possession of the Collateral while suing on the Indebtedness.
Sell the Collateral. Lender may sell the Collateral, at Lender's
discretion, as a unit or in parcels, at one or more public or private
sales. Unless the Collateral is perishable or threatens to decline
speedily in value, Lender shall give or mail to Grantor, or any of
them, notice at least ten (10) days in advance of the time and place
of public sale, or of the date after which private sale may be made.
Grantor agrees that any requirement of reasonable notice is satisfied
if Lender mails notice by ordinary mail addressed to Grantor, or any
of them, at the last address Grantor has given Lender in writing. If
public sale is held, there shall be sufficient compliance with all
requirements of notice to the public by a single publication in any
newspaper of general circulation in the county where the Collateral is
located, setting forth the time and place of sale and a brief
description of the property to be sold. Lender may be a purchaser at
any public sale.
Register Securities. Lender may register any securities included in
the Collateral in Lender's name and exercise any rights normally
incident to the ownership of securities.
Sell Securities. Lender may sell any securities included in the
Collateral in a manner consistent with applicable federal and state
securities laws, notwithstanding any other provision of this or any
other agreement. If, because of restrictions under such laws, Lender
is or believes it is unable to sell the securities in an open market
transaction, Grantor agrees that (a) Lender shall have no obligation
to delay sale until the securities can be registered, (b) Lender may
make a private sale to a single person or restricted group of persons,
even though such sale may result in a price that is less favorable
than might be obtained in an open market transaction, and (c) such a
sale shall be considered commercially reasonable. If any securities
held as Collateral are "restricted securities" as defined in the Rules
of the Securities and Exchange Commission (such as Regulation D or
Rule 144) or state securities departments under state "Blue Sky" laws,
or if Grantor, or any of them (if more than one), is an affiliate of
the issuer of the securities, Grantor agrees that Grantor will neither
sell nor dispose of any securities of such issuer without obtaining
Lender's prior written consent.
Transfer Title. Lender may effect transfer of title upon sale of all
or part of the Collateral. For this purpose, Grantor irrevocably
appoints Lender as its attorney-in-fact to execute endorsements,
assignments and instruments in the name of Grantor an each of them (if
more than one) as shall be necessary or reasonable.
Application of Proceeds. Lender may apply any cash which is part of
the Collateral, or which is received from the collection or sale of
the Collateral, to (a) reimbursement of any expenses, including any
costs of any securities registration, commissions incurred in
connection with a sale, attorney fees as provided below and court
costs, whether or not there is a lawsuit and including any fees on
appeal, incurred by Lender in connection with the collection and sale
of such Collateral, and (b) to the payment of the Indebtedness of
Grantor to Lender, with any excess funds to be paid to Grantor as the
interests of Grantor may appear.
Other Rights and Remedies. Lender shall have and may exercise any or
all of the rights and remedies of a secured creditor under the
provisions of the New Jersey Uniform Commercial Code, at law, in
equity, or otherwise.
Deficiency Judgment. If permitted by applicable law, Lender may
obtain a judgment for any deficiency remaining in the Indebtedness due
to Lender after application of all amounts received from the exercise
of the rights provided in this section.
Cumulative Remedies. All of Lender's rights and remedies, whether
evidenced by this Agreement or by any other writing, shall be
cumulative and may be exercised singularly or concurrently. Election
by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to
perform an obligation of Grantor under this Agreement, after Grantor's
failure to perform, shall not affect Lenders right to declare a
default and to exercise its remedies.
9. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are
a part of this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in writing
and signed by the party or parties sought to be charged or bound by
the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of New Jersey. If there is a lawsuit,
Grantor agrees upon Lender's request to submit to the jurisdiction of
the courts of HUNTERDON County, State of New Jersey. This Agreement
shall be governed by and construed in accordance with the laws of the
State of New Jersey.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's
legal expenses, incurred in connection with the enforcement of this
Agreement. Lender may pay someone else to help enforce this Agreement
and Grantor shall pay the costs and expenses of such enforcement.
Costs and expenses include Lender's attorneys' fees and legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (and including efforts to modify
or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Grantor also shall pay
all court costs and such additional fees as may be directed by the
court.
No Joint Venture or Partnership. The relationship of Grantor and
Lender created by this Agreement is strictly that of debtor-creditor,
and nothing contained in this Agreement or in any of the Related
Documents shall be deemed or construed to create a partnership or
joint venture between Grantor and Lender.
Notices. All notices required to be given under this Agreement shall
be given in writing, may be sent by telefacsimile, and shall be
effective when actually delivered or when deposited with a nationally
recognized overnight courier or deposited in the United States Mail,
first class, postage prepaid, addressed to the party to whom the
notice is to be given at the address shown above. Any party may
change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of
the notice is to change the party's address. To the extent permitted
by applicable law, if there is more than one Grantor, notice to any
Grantor will constitute notice to all Grantors. For notice purposes,
Grantor will keep Lender informed at all times of Grantor's current
address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of substitution
to do the following: (a) to demand, collect, receive, receipt for,
sue and recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the Collateral; (c)
to settle or compromise any and all claims arising under the
Collateral, and, in the place and stead of Grantor, to execute and
deliver its release and settlement for the claim; and (d) to file any
claim or claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seems to be necessary
or advisable. This power is given as security for the Indebtedness,
and the authority hereby conferred is and shall be irrevocable and
shall remain in full force and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances. If
feasible, any such offending provision shall be deemed to be modified
to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and
all other provisions of this Agreement in all other respects shall
remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A
waiver by Lender of a provision of this Agreement shall not prejudice
or constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing
between Lender and Grantor, shall constitute a waiver of any of
Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance
shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted
or withheld in the sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS ASSIGNMENT OF
DEPOSIT ACCOUNT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 25,
1997.
GRANTOR:
Blue Fish Clothing, Inc.
By:_____________________________
Jennifer P. Barclay, Chairman
ATTEST:
________________________________ (Corporate Seal)
Secretary or Assistant Secretary
NOTE AND LOAN AND SECURITY AGREEMENT
MODIFICATION AGREEMENT
------------------------------------
THIS NOTE AND LOAN AND SECURITY AGREEMENT MODIFICATION AGREEMENT (the
"Agreement") made as of this 27th day of June, 1997, by and between BLUE
FISH CLOTHING, INC., a Pennsylvania corporation, having an address located
at P.O. Box 36, #3 Sixth Street, Frenchtown, New Jersey 08825 (hereinafter
"Borrower"), and CARNEGIE BANK, N.A., having an address at 619 Alexander
Road, Princeton, New Jersey 08543 (the "Bank").
WITNESSETH:
-----------
WHEREAS, the Bank is the holder of a certain Revolving Note (the
"Note") dated February 9, 1996, made by the Borrower to the Bank in the
principal amount of up to One Million and 00/100 ($1,000,000.00) DOLLARS
(the "Loan"); and
WHEREAS, the Note is secured by a Loan and Security Agreement (the
"Security Agreement") dated February 9, 1996, which Security Agreement
grants a lien on all inventory and receivables more accurately described in
the Schedule "A" attached thereto (the "Collateral") (the Note, the
Security Agreement, and all other documents executed or delivered in
connection with the Loan, henceforth collectively referred to as the "Loan
Documents"); and
WHEREAS, the Borrower and the Bank extended the term of the Note and
the Loan and Security Agreement pursuant to a certain Note and Loan and
Security Agreement Extension Agreement dated as of February 9, 1997; and
WHEREAS, the Borrower has requested that the Bank decrease the
principal loan amount which may be outstanding under the Note and the
Security Agreement; and
WHEREAS, the Bank is willing to decrease the principal loan amount
which may be outstanding under the Note and the Security Agreement, on
certain terms and conditions as hereinafter provided.
NOW, THEREFORE, for and in consideration of the premises (which are
deemed herein contained) and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:
1. PRINCIPAL AMOUNT OF LOAN.
The Borrower acknowledges that the outstanding principal balance due
by the Borrower under the Note is, as of June 27, 1997, equal to the sum of
One Million and 00/100 ($1,000,000.00) Dollars. The Borrower is hereby
making on this date and the Bank hereby acknowledges receipt of payment of
principal in the amount of Five Hundred Thousand ($500,000.00) Dollars
thereby reducing the outstanding principal balance due by the Borrower
under the Note to Five Hundred Thousand ($500,000.00) Dollars. From and
after the date hereof in no event shall the outstanding principal balance
due under the Note exceed the present balance of Five Hundred Thousand
($500,000.00) Dollars. Borrower hereby represents, warrants and confirms
that there are no set-offs, rights, claims or causes of action of any
nature whatsoever which the Borrower has or may assert against the Bank
with respect to the Note, the Security Agreement or the other Loan
Documents.
2. REQUEST FOR MODIFICATION.
The Borrower has requested and the Bank has agreed to a decrease in
the principal loan amount which may be outstanding under the Note and the
Security Agreement and the other Loan Documents to Five Hundred Thousand
($500,000.00) Dollars. This Agreement provides for that decrease in the
principal loan amount.
3. MODIFICATION OF NOTE AND SECURITY AGREEMENT.
The Note and Security Agreement are hereby modified as follows:
(a) Interest Rate.
-------------
Interest shall be charged on the outstanding principal balance of the
Loan from June 27, 1997, until the full amount of principal due hereunder
has been paid at a rate equal at all times to the Prime Rate plus three
quarters percent ( 3/4 %) per annum. Interest shall be calculated daily on
the basis of the actual number of days elapsed over a 360 day year. "Prime
Rate" means the rate of interest published by the Wall Street Journal. The
rate of interest shall change automatically and immediately as of the date
of any change in the Prime Rate, without notice to Borrower or any
endorser, surety or guarantor. Any such change shall not affect or alter
any of the other terms and conditions of the Note.
(b) Repayment.
---------
(1) Borrower shall pay Bank the total amount of all unpaid
principal balance, interest accrued to the date such payment is received by
Bank, and other costs, expenses and charges of any nature whatsoever due or
assessable hereunder, on or before April 30, 1998, (the "Maturity Date"),
unless earlier accelerated pursuant to the terms of the Loan Agreement.
(2) Interest on the unpaid principal balance shall be due and
payable on the first business day of each month, commencing on the first
(1st) day of March, 1997, and on the first (1st) day of each month
thereafter.
(3) Upon the occurrence of Borrower's failure to make any
payments required hereunder within ten (10) days of the date when due,
Borrower shall pay a late payment charge on all amounts overdue equal to
six (6%) percent of the overdue amount for each thirty (30) day period, or
part thereof, that such amount is overdue, computed from the date when such
amount should have been paid.
(4) Borrower shall have the right and option of prepaying all
or part of the principal or interest due on the Note at any time before
maturity and without penalty, in accordance with the terms of the Loan
Agreement.
(c) Change of Interest Rate After Maturity or Acceleration.
------------------------------------------------------
From and after the Maturity Date or from and after the
occurrence of an Event of Default, irrespective of any declaration of
maturity, all amounts remaining unpaid or thereafter accruing under the
Note or the Security Agreement shall, at Bank's option, bear interest at a
default rate of one half of one percent (.5 %) per annum above the interest
rate then in effect under the Note, for the first thirty (30) days of said
default, and an additional increase of one half of one percent (.5%) during
each thirty (30) day period thereafter during which the default continues.
Upon curing the default, the interest rate shall revert to the initially
agreed upon interest rate effective on the date on which the default is
cured.
(d) Security for the Note.
---------------------
The Security Agreement shall continue to be a first lien on the
Collateral and shall secure the Note as extended hereby.
(e) Right of Setoff by the Bank.
---------------------------
Upon the occurrence of an Event of Default, to the extent
permitted by and in addition to any other remedy provided by law, and
regardless of the adequacy of any collateral or other means of obtaining
repayment of the obligations evidenced hereby, Bank shall have the right
immediately and without notice or other acts, and is specifically
authorized hereby, to setoff against any of the Borrower' obligations under
the Note or the Security Agreement any sum owed by the Bank or any of
Bank's affiliates in any capacity to the Borrower whether due or not, or
any property of the Borrower in the possession of the Bank or any of Bank's
affiliates, even if effecting such setoff results in a loss or reduction of
interest to Borrower or the imposition of a penalty applicable to the early
withdrawal of time deposits. Bank shall be deemed to have exercised such
right of setoff and to have made a charge against any such sum or property
immediately upon the occurrence of the Event of Default, even though the
actual book entries may be made at some time subsequent.
(f) Waiver of Jury Trial.
--------------------
BORROWER AND BANK AGREE THAT ANY SUIT, ACTION OR PROCEEDING,
WHETHER CLAIM OR COUNTERCLAIM, BROUGHT BY BANK OR BORROWER ON OR WITH
RESPECT TO THE NOTE, THE SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT OR
THE DEALINGS OF THE PARTIES WITH RESPECT HERETO OR THERETO, SHALL BE TRIED
ONLY BY A COURT AND NOT BY A JURY. BANK AND BORROWER EACH HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY
IN ANY SUCH SUIT, ACTION OR PROCEEDING. FURTHER, BORROWER WAIVES ANY RIGHT
IT MAY HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUIT, ACTION OR PROCEEDING,
ANY SPECIAL, EXEMPLARY, PUNITIVE, CONSEQUENTIAL OR OTHER DAMAGES OTHER
THAN, OR IN ADDITION TO, ACTUAL DAMAGES. BORROWER ACKNOWLEDGES AND AGREES
THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS MORTGAGE AND
THAT BANK WOULD NOT EXTEND CREDIT TO BORROWER IF THE WAIVERS SET FORTH IN
THIS SECTION WERE NOT A PART HEREOF.
4. CONTINUED VALIDITY OF ORIGINAL LOAN DOCUMENTATION.
Except as otherwise provided herein, the Note, the Security Agreement,
and the other Loan Documents shall continue in full force and effect, in
accordance with their respective terms, and the parties hereto hereby
expressly ratify, confirm and reaffirm all of their respective liabilities,
obligations, duties and responsibilities under and pursuant to the Loan
Documents, as modified by this Agreement, and Borrower agrees that the same
shall constitute valid and binding agreements of Borrower, enforceable in
accordance with their respective terms.
5. MODIFICATION AGREEMENT CONTROLS.
In the event of a conflict between the terms and conditions of this
Agreement and the terms and conditions of the Note, or Security Agreement
or the Extension Agreement, the terms and conditions of this Agreement
shall control.
6. NO NOVATION.
This Agreement does not represent in any way new indebtedness
evidenced by the Note. It is the intention of the parties hereto that this
Agreement shall not constitute a novation and shall in no way adversely
affect or impair the lien priority of the Security Agreement, or any other
instrument securing the Loan.
IN WITNESS WHEREOF, the parties have executed this Note and Loan and
Security Agreement Modification Agreement as of the date first above
written.
ATTEST: Borrower:
Blue Fish Clothing, Inc.
a Pennsylvania corporation
___________________________________ By: _____________________________
Jennifer Barclay
ATTEST: CARNEGIE BANK, N.A.
___________________________________ By: _____________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS DATED JUNE 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,798,711
<SECURITIES> 0
<RECEIVABLES> 1,074,946
<ALLOWANCES> 39,139
<INVENTORY> 3,071,202
<CURRENT-ASSETS> 6,316,047
<PP&E> 2,330,198
<DEPRECIATION> 613,417
<TOTAL-ASSETS> 8,133,797
<CURRENT-LIABILITIES> 3,066,717
<BONDS> 1,196,144
0
0
<COMMON> 4,599
<OTHER-SE> 3,820,482
<TOTAL-LIABILITY-AND-EQUITY> 8,133,797
<SALES> 3,900,007
<TOTAL-REVENUES> 3,900,007
<CGS> 1,815,114
<TOTAL-COSTS> 3,728,882
<OTHER-EXPENSES> 1,913,668
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,774
<INCOME-PRETAX> 121,451
<INCOME-TAX> 56,597
<INCOME-CONTINUING> 64,854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,854
<EPS-PRIMARY> .01
<EPS-DILUTED> .00
</TABLE>
