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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 1997
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Commission File Number 0-28174
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The Lamaur Corporation
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(Exact name of registrant as specified in its charter)
Delaware 68-0301547
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Lovell Avenue, Mill Valley CA 94941
(Address of principal executive offices) (Zip Code)
(415) 380-8200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
At July 31, 1997, there were 5,699,321 shares of the Registrant's $.01 par value
Common Stock outstanding.
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<PAGE>
This quarterly report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in
this Form 10-Q pursuant to the "safe harbor" provision of the Private Securities
Litigation Reform Act of 1995, including statements regarding market strategy
for declining brands, level of future sales for declining brands, continued
sales increases from WILLOW LAKE(TM) and COLOR SOFT(TM), impact of increased
marketing cost on near-term operating results and future revenues and earnings,
future performance of either or both of the WILLOW LAKE(TM) or COLOR SOFT(TM)
lines or the Company's ability to attain any particular level of sales or to be
or remain profitable in the future, launch of WILLOW LAKE(TM) as well as the
introduction of other new products in 1997 continuing to be supported by
significant marketing campaigns, new products will require an increase in
inventory levels and extended credit terms, renewal of the DowBrands contract
and the effect of the loss of the contract on the Company's financial condition
or results of operations in 1997, ability to gain new contract manufacturing
business in 1998 for products that will result in higher margins, adjustment to
manufacturing and reduction of certain other expenses associated with operations
in 1998, ability to meet working capital requirements for the remainder of 1997,
need for additional financing in the foreseeable future, form of future
financing and whether or on what terms it would be available, impact on Company
of being unable to obtain additional financing, restructuring financial
covenants and the Company's ability to be in compliance with its loan agreement
and availability and terms of future financing. They involve known and unknown
risks and uncertainties that may cause the Company's actual results in future
periods to be materially different from any future performance suggested herein.
Further, the Company operates in an industry sector where securities values may
be volatile and may be influenced by economic and other factors beyond the
Company's control. In the context of the forward-looking information provided in
this Form 10-Q and in other reports, please refer to the discussions of risk
factors and investment considerations detailed in, as well as the other
information contained in, the Company's filings with the Securities and Exchange
Commission during the past 12 months.
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<TABLE>
<CAPTION>
THE LAMAUR CORPORATION
Index to Form 10-Q
June 30, 1997
Page No.
<S> <C>
Part I - Financial Information
Item 1. Condensed Financial Statements (Unaudited)
Balance Sheets as of June 30, 1997 and December 31, 1996 4
Statements of Operations for the Three and Six Months Ended June 30, 1997 and 1996 5
Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Part II - Other Information 10
Signature 12
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
<TABLE>
<CAPTION>
THE LAMAUR CORPORATION
CONDENSED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
June 30, December 31,
1997 1996
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,373 $ 12,081
Receivables from DowBrands 1,511 1,450
Accounts receivable, net 18,317 17,214
Inventories 15,042 11,699
Prepaid expenses and other current assets 4,401 523
Total current assets 46,644 42,967
Property, Plant and Equipment, Net 19,167 18,475
Other Assets 163 124
Total Assets $ 65,974 $ 61,566
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities:
Accounts payable $ 11,053 $ 6,724
Accrued expenses 1,925 4,637
Accrued salaries, wages and employee-related expenses 1,823 2,458
Current portion of long-term debt 1,320 1,272
Payables to related parties 750 1,500
Total current liabilities 16,871 16,591
Long-Term Debt 20,685 13,723
Related Party Obligations 750 1,000
Stockholders' Equity
Preferred stock, $.01 par value, 4,000,000 shares authorized:
- - -------------------------------------------------------------------
Series A Preferred stock, $.01 par value, 1,000,000 shares
issued and outstanding at June 30, 1997 and December 31, 8,500 8,500
1996.
($10.0 million liquidation preference)
Series B Preferred stock, $.01 par value, 763,500
shares issued and outstanding at June 30, 1997
and December 31, 1996. ($5.0 million liquidation preference) 5,000 5,000
Common stock, $.01 par value, 12,000,000 shares authorized,
5,699,321 and 5,603,395 shares, issued and outstanding at
June 30, 1997 and December 31, 1996, respectively 57 56
Additional paid-in capital 19,977 19,796
Stock subscriptions receivable (50) (50)
Accumulated deficit (5,816) (3,050)
Total stockholders' equity 27,668 30,252
Total Liabilities and Stockholders' Equity $ 65,974 $ 61,566
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=======================================================================================================
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE LAMAUR CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Net Sales $ 25,401 $ 25,050 $ 51,681 $ 46,666
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Net Sales to DowBrands 5,115 6,632 8,048 13,496
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Total Net Sales 30,516 31,682 59,729 60,162
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Cost of Goods Sold 18,068 19,783 35,384 37,737
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Gross Margin 12,448 11,899 24,345 22,425
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Selling, General and Administrative Expenses 13,431 10,888 26,559 21,731
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Operating Income (Loss) (983) 1,011 (2,214) 694
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Interest Expense (435) (418) (833) (832)
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Other Income 89 64 281 72
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Net Income (Loss) (1,329) 657 (2,766) (66)
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Dividends on Series B Preferred Stock (100) (33) (200) 33
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Net Income (Loss) Available to Common Shareholders $ (1,429) $ 624 $ (2,966) $ (99)
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Net Income (Loss) per Common Share $ (.22) $ .12 $ (.46) $ (.02)
- - ----------------------------------------------------------
Weighted Average Common and Common Equivalent Shares
Outstanding ============== ============== ============== ==============
6,411 5,246 6,450 4,666
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE LAMAUR CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
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1997 1996
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (2,766) $ (66)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash credits for services - 124
Issuance of common stock for services - 100
Utilization of DowBrands credits (750) (750)
Loss on disposal of assets 12 11
Depreciation and amortization 774 685
Effect of changes in:
Receivables (1,164) (5,715)
Inventories (3,343) 2,267
Other assets (3,961) (76)
Payables 4,429 1,274
Accrued expenses (3,347) (258)
Net cash used in operating activities (10,116) (2,404)
Cash Flows From Investing Activities:
Additions to property, plant and equipment (1,450) (749)
Proceeds from sale of assets 16 -
Net cash used in investing activities (1,434) (749)
Cash Flows From Financing Activities:
Revolving credit agreement, net 4,190 (4,581)
Borrowings of long-term debt 3,496
Repayments of long-term debt (676) (825)
Proceeds from sales of common stock, net 132 18,026
Payment of preferred dividends (300) -
Net cash provided by financing activities 6,842 12,620
Net (Decrease) Increase in Cash and Cash Equivalents (4,708) 9,467
Cash and Cash Equivalents at Beginning of Period 12,081 2,338
Cash and Cash Equivalents at End of Period $ 7,373 $ 11,805
==============================================================
See notes to financial statements
</TABLE>
<PAGE>
THE LAMAUR CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed financial statements are unaudited and
include all adjustments, which consist of only normal recurring accruals, that
management considered necessary to fairly present the results for such periods.
These financial statements should be read in conjunction with the financial
statements and notes contained in The Lamaur Corporation's ("Company") Annual
Report on Form 10-K for the year ended December 31, 1996. Results for interim
periods are not necessarily indicative of results for the full year.
Net Loss Per Share was computed by dividing net loss by the weighted
average number of shares of common stock and common stock equivalents, which
consist of Series A preferred stock, warrants and options. In accordance with
the rules of the Securities and Exchange Commission, common stock equivalents
issued within one year of the Company's initial public offering, have been
considered as outstanding since the inception of the Company and have been
included in the calculation of weighted average common and common equivalent
shares outstanding for all periods presented using the treasury stock method,
even though they are antidilutive in loss periods. Fully diluted earnings per
share has not been presented since the computation would not be dilutive.
Reclassification - Certain reclassifications have been made in the
accompanying financial statements in order to conform with the 1997
presentation.
2. ORGANIZATION AND OPERATIONS
Effective March 26, 1997, Electronic Hair Styling, Inc. changed its name
to The Lamaur Corporation. The Company, a Delaware corporation, is the successor
to Electronic Hair Styling, Inc., which was incorporated in the State of
Washington on April 1, 1993 (the "Predecessor"). Effective March 18, 1996,
Predecessor merged with and into its wholly-owned subsidiary, the Company. In
connection with the merger, the Company issued .660 shares of common stock in
exchange for each issued and outstanding share of Predecessor common stock. The
accompanying Company financial statements, which are substantially identical to
Predecessor's financial statements for periods prior to the merger, give
retroactive effect to the merger.
The Company develops, formulates, manufactures and markets personal hair
care products, consisting of shampoos, conditioners, hair sprays, permanent wave
products and other styling aids, for both consumer and professional hair care
markets. The Company is also engaged in the early stages of research and
development with respect to a new hair styling concept which is intended to
combine electronics and chemicals to create new products designed to color,
style and condition hair quickly, without the damaging side effects often
experienced with most chemical-based hair styling products. The Company licensed
the technology from Intertec Ltd., which is the sole limited partner of Intertec
Holdings, L.P., the principal stockholder of the Company. Prior to the
acquisition, the Company was a development stage company.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128). The Company is required to adopt SFAS 128 in the fourth quarter of 1997
and will restate at that time earnings per share (EPS) data for prior periods to
conform with SFAS 128. Earlier application is not permitted.
<PAGE>
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income [available to common shareholders] by the
weighted average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
If SFAS 128 had been in effect during the current and prior year periods,
basic loss per share would have been $.25 and basic income per share would have
been $.15 for the three months ended June 30, 1997 and 1996, respectively. In
addition, basic loss per share would have been $.52 and $.03 for the six months
ended June 30, 1997 and 1996, respectively. Diluted income and loss per share
under SFAS 128 would not have been significantly different than net income and
net loss per share reported for the periods.
In June 1997, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
which requires that an enterprise report, by major components and as a single
total, the change in its net assets during the period from nonowner sources; and
No. 131, "Disclosure about Segments of an Enterprise and Related Information,"
which establishes annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its products, services,
geographic areas, and major customers. Adoption of these statements will not
impact the Company's consolidated financial position, results of operations or
cash flows, and any effect will be limited to the form and content of its
disclosures. Both statements are effective for fiscal years beginning after
December 15, 1997, with earlier application permitted.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Six months and three months ended June 30, 1997 compared to the six months and
three months ended June 30, 1996.
Net sales for the six months ended June 30, 1997 were $59.7 million
compared with $60.2 million for the same period in 1996, a decrease of .8%. Net
sales for the three months ended June 30, 1997 were $30.5 million, compared with
$31.7 million for the same period in 1996, a decrease of 3.8%. The decrease in
net sales for the six months and three months ended June 30, 1997 is
attributable to sales declines in the STYLE(R), PERMA SOFT(R) and SALON STYLE(R)
brands and in contract manufacturing, principally DowBrands.
PERMA SOFT(R), SALON STYLE(R) and to a lesser degree, STYLE(R) brands
have continued to decline in sales since new management began its turn around
efforts in the first quarter of 1996. PERMA SOFT(R) and SALON STYLE(R) had sales
declines of $7.4 million and $4.3 million, respectively, in the last twelve
months compared with the previous twelve months and $2.5 million and $2.4
million, respectively in the last six months compared with the previous six
months.
The Company is continuously reviewing and, where management believes
appropriate, revising its marketing strategy with respect to the brands that
experience sales declines. The PERMA SOFT(R) and SALON STYLE(R) brands have been
under significant scrutiny by management and have been the subject of various
marketing initiatives undertaken by the Company during the last approximately 15
months, but sales of these brands have not responded to those initiatives by
reaching an acceptably favorable sales levels to date and the Company is
continuing to revise its marketing strategies. Sales of these brands could
continue to decline before new strategies are implemented, and there can be no
assurance that the trend in sales can be reversed.
The sales decreases in the six months and three months ended June 30,
1997 were offset in part by the introduction of WILLOW LAKE(TM) and COLOR
SOFT(TM), the Company's new premium-priced retail hair care product lines.
WILLOW LAKE(TM), targeted for the natural's segment and positioned as "Nature's
prescription for beautiful hair(TM)," began shipping in the fourth quarter of
1996. COLOR SOFT(TM), formulated to retain color longer for color treated hair,
began shipping in the first quarter of 1997. Continued sales increases from
WILLOW LAKE(TM) and COLOR SOFT(TM) will be in part dependent upon competition
from other brands, consumer acceptance and marketing support behind these
brands.
Gross margin as a percentage of net sales was 40.8% for the six months
ended June 30, 1997 as compared with 37.3% for the same period in 1996. Gross
margin as a percentage of net sales was 40.8% for the three months ended June
30, 1997 as compared with 37.6% for the same period in 1996. The improvement in
the gross margin as a percentage of net sales for the six months and three
months ended June 30, 1997 is due to a change in product mix and increased sales
of higher margin products driven by the new WILLOW LAKE(TM) and COLOR SOFT(TM)
lines.
Selling general and administrative expenses were $26.6 million, or
44.5% of net sales for the six months ended June 30, 1997 as compared with $21.7
million, or 36.1% of net sales for the same period last year, an increase of
$4.9 million. Selling general and administrative expenses were $13.4 million, or
44.0% of net sales for the three months ended June 30, 1997 as compared with
$10.9 million, or 34.4% of net sales for the same period last year, an increase
of $2.5 million. The increase is principally attributable to increased marketing
expense of $4.6 million and $2.6 million for the six months and three months
ended June 30, 1997, respectively, and brokerage fees supporting the launch of
WILLOW LAKE(TM) and the COLOR SOFT(TM) lines. The increased marketing costs
related to investment spending for WILLOW LAKE(TM) and COLOR SOFT(TM) in 1997
will have an impact on near term operating results but the Company believes it
is essential to building future revenues and earnings. There can be no assurance
concerning the future performance of either or both of the WILLOW LAKE(TM) or
COLOR SOFT(TM) lines or the Company's ability to attain any particular level of
sales or to be or remain profitable in the future.
Interest expense of $.8 million for the six months ended June 30, 1997
and $.4 million for the three months ended June 30, 1997 related to interest on
the Company's revolving line of credit and term loan was relatively unchanged as
compared with the same periods in 1996.
As a result of the foregoing factors, the net loss for the six months
and three months ended June 30, 1997 increased to $2.8 million and $1.3 million,
respectively, as compared with a net loss of $.1 million and net income of $.7
million for the same periods in 1996.
Liquidity and Capital Resources
Inventory levels increased $3.3 million at June 30, 1997 compared with
December 31, 1996 to support the launch of WILLOW LAKE(TM) and COLOR SOFT(TM)
and the phase-in of new product packaging for the STYLE(R) and PERMA SOFT(TM)
brands. Prepaid expenses increased $3.9 million at June 30, 1997 compared with
December 31, 1996 primarily due to the front-end costs associated with the
launch of WILLOW LAKE(TM) and COLOR SOFT(TM) which are being expensed during
1997.
The Company's launch of WILLOW LAKE(TM) as well as the introduction of
other new products in 1997 will continue to be supported by significant
marketing campaigns which include advertising and consumer promotions. In
addition, the new products will require the Company to increase its inventory
level as compared with December 31, 1996 and to give extended credit terms. The
funds required for the marketing campaigns, increased inventory levels and
extended credit terms are expected to come primarily from working capital and
the Company's line of credit facility.
The Company has been operating under a two-year manufacturing contract
with DowBrands that expires by its terms in November 1997. Although discussions
concerning an extension of the contract are ongoing, based on negotiations to
date, the Company believes that DowBrands will not renew the contract and will
transfer the business elsewhere, possibly following a short extension after
November to permit an orderly transition. The Company had revenues from
DowBrands of $22.2 million in 1996 and $8.0 million through June 30, 1997, with
total 1997 revenue under the contract expected to be approximately $18.0
million. In addition to covering the costs associated with the DowBrands
business, the Company's revenues from DowBrands were sufficient to cover certain
other fixed costs. The loss of the contract will not have any material effect on
Lamaur's financial condition or results of operations in 1997.
Based upon the results of operations for the six months ended June 30,
1997 and the uncertain level of its operations during the second half of 1997,
the Company can give no assurance that it will be able to meet its working
capital requirements for the remainder of 1997. Therefore, the Company believes
it could require additional financing in the foreseeable future. The Company
cannot predict whether such financing will be in the form of equity or debt and
cannot assure whether or on what terms any such financing will be available to
the Company. Should the Company be unable to obtain additional funding on terms
reasonably acceptable to it, the Company's operations could be curtailed and its
business could be materially adversely affected.
The amount outstanding on the Company's revolving line of credit with
Norwest Business Credit, a subsidiary of Norwest Bank ("Lender"), increased to
$14.0 million at June 30, 1997, as compared to $9.8 million at December 31,
1996, principally reflecting increased levels of accounts receivable and
inventory. In May 1997, the Company increased its revolving credit line to $20.0
million and its term loan from $6.0 million to $7.0 million, for a total credit
facility of $27.0 million with the Lender. As a result of the Company's losses
in the first half of 1997, it was as of June 30, 1997, out of compliance with
certain financial loan covenants. The Company has received a waiver from Norwest
Business Credit in regards to these covenants. The Company is currently
discussing with Norwest Business Credit a restructuring of its financial loan
covenants, but no assurance can be given that the Company will be successful in
that regard. If the Company is not successful in obtaining the revised terms it
requires, it may seek one or more substitute financing sources, the availability
or terms of which cannot be assured.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 9, 1997, the Company held its Annual Meeting of Stockholders. The
stockholders voted on the following matters:
Election of Directors
Hoff, Don G. .........For 4,227,619 Withhold 17,700
LaRosa, Dominic J. .........For 4,228,119 Withhold 17,200
Copperman, Harold M. .........For 4,228,119 Withhold 17,200
Dean, Paul E. .........For 4,228,119 Withhold 17,200
Eppner, Gerald A. .........For 4,228,119 Withhold 17,200
Hoff, Perry D. .........For 4,218,339 Withhold 26,980
Stiley, Joseph F. .........For 4,228,119 Withhold 17,200
Adoption of the 1997 Stock Plan:
For: 4,642,950
Against 19,550
Abstain 0
Adoption of the 1997 Employee Stock Purchase Plan
For 4,643,800
Against 18,700
Abstain 0
<PAGE>
Ratify appointment of Deloitte & Touche LLP as independent auditors
For 4,661,850
Against 550
Abstain 100
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1..... Amended Credit and Security Agreement with Norwest
Business Credit, Inc.
11.1..... Statement of computation of earnings (loss) per share
27.1..... Financial Data Schedule
(b) Reports on Form 8-K. None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE LAMAUR CORPORATION
(Registrant)
/s/ JOHN D. HELLMANN
-------------------------------
DATE: August 27, 1997 John D. Hellmann
Vice President-Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
Dated as of May 16, 1997
WHEREAS, The Lamaur Corporation, a Delaware corporation formerly known as
Electronic Hair Styling, Inc. (the "Borrower"), and Norwest Business Credit,
Inc., a Minnesota corporation (the "Lender"), previously executed and delivered
that certain Credit and Security Agreement dated as of November 16, 1995, as
amended by First Amendment to Credit Agreement dated as of March 15, 1996, as
amended by Second Amendment to Credit Agreement dated as of August 30, 1996, as
amended by Amendment Agreement dated October 18, 1996, and as amended by Third
Amendment to Credit Agreement dated as of January 30, 1997 (collectively, and as
so amended, the "Original Credit Agreement"), pursuant to which Lender agreed,
among other things, to extend a $14,000,000 working capital line of credit (the
"Original Revolving Credit Facility"), a $2,300,000 term loan (the "Original
Term Loan") and a $3,700,000 real estate loan (the "Original Real Estate Loan")
to the Borrower; and
WHEREAS, in connection with the Original Credit Agreement, the following related
documents and agreements were executed and delivered, each of which is dated
November 16, 1995: (i) that certain Patent Mortgage granted by the Borrower in
favor of the Lender (the "Original Patent Mortgage"); (ii) that certain
Trademark Mortgage granted by the Borrower in favor of the Lender (the "Original
Trademark Mortgage"); (iii) that certain Collateral Account Agreement by and
among Norwest Bank Minnesota, National Association ("Norwest"), the Borrower and
the Lender (the "Original Collateral Account Agreement"); (iv) that certain
Agreement as to Lockbox Service by and among the Borrower, the Lender and
Norwest (the "Original Lockbox Agreement"); (v) that certain Management Support
Agreement by and among the Borrower, the Lender and Don Hoff (the "Hoff Support
Agreement"); and (vi) that certain Management Support Agreement by and among the
Borrower, the Lender and Dominic LaRosa (the "LaRosa Support Agreement") (the
Original Patent Mortgage, the Original Trademark Mortgage, the Original
Collateral Account Agreement, the Original Lockbox Agreement, the Hoff Support
Agreement and the LaRosa Support Agreement are hereinafter referred to
collectively as the "Original Loan Documents"); and
WHEREAS, the Lender and the Borrower desire to amend and restate the Original
Credit Agreement and to amend the Original Loan Documents as hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree to amend and restate the Original Credit Agreement as follows:
<PAGE>
ARTICLE I.
Definitions
Section 1.1 Definitions. For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
"Accounts" means the aggregate unpaid obligations of customers and other account
debtors to the Borrower arising out of the sale or lease of goods or rendition
of services by the Borrower on an open account or deferred payment basis.
"Acquisition Documents" has the meaning specified in Section 5.16 hereof.
"Advance" means an advance to the Borrower by the Lender under the Credit
Facility.
"Affiliate" or "Affiliates" means any Person controlled by, controlling or under
common control with the Borrower, including (without limitation) any Subsidiary
of the Borrower. For purposes of this definition, "control," when used with
respect to any specified Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise. For purposes of this definition,
neither Seller nor any individual director or executive officer of the Borrower
shall be deemed an Affiliate of the Borrower unless they "control" the Borrower
(as defined above) without the need for voting by any other Person and without
being subject to direction by any other Person.
"Agreement" means this Amended and Restated Credit and Security Agreement.
"Availability" means the Borrowing Base minus the outstanding balance under the
Revolving Note, minus the L/C Amount.
"Banking Day" means a day other than a Saturday, a Sunday or any other day on
which banks are generally not open for business in Minneapolis, Minnesota.
"Base Rate" means the rate of interest publicly announced from time to time by
Norwest Bank Minnesota, National Association as its "base rate" or, if such bank
ceases to announce a rate so designated, any similar successor rate designated
by such bank.
"Book Net Worth" means, as of the date of determination, Total Assets minus
Indebtedness, as determined in accordance with generally accepted accounting
principles, consistently applied.
"Borrowing Base" means, at any time and subject to change from time to time
in the Lender's sole discretion, the lesser of
(a) the Commitment, or
(b) the sum of
(i) 80% of Eligible Accounts, plus
(ii) the lesser of (A) the sum of (1) 60% of Eligible Finished
Goods Inventory, plus (2) 50% of Eligible Raw Materials
Inventory, plus (3) the lesser of (I) 35% of Eligible Carton
Inventory or (II) $200,000, or (B) $7,500,000.
"Capital Expenditures" means, for any specified term, the aggregate of all gross
expenditures during such period for the purchase or construction of fixed
assets, or for improvements, replacements, substitutions or additions therefor
or thereto, which are required to be capitalized on the balance sheet, including
the balance sheet amount of any lease obligations incurred during such period.
"Collateral" means all of the Equipment, General Intangibles, Inventory and
Receivables, patents, patent rights, trademarks and copyrights, together with
all substitutions and replacements for and products of any of the foregoing
Collateral and together with proceeds of any and all of the foregoing Collateral
and, in the case of all tangible Collateral, together with all accessions and
together with (i) all accessories, attachments, parts, equipment and repairs now
or hereafter attached or affixed to or used in connection with any such goods,
and (ii) all warehouse receipts, bills of lading and other documents of title
now or hereafter covering such goods.
"Collateral Account" has the meaning specified in Section 6.10(b) hereof.
"Commitment" means $20,000,000.
"Credit Facility" means the credit facility being made available to the Borrower
by the Lender pursuant to Article II hereof.
"Debt Service" means, for any specified period, (i) Total Current Interest, plus
(ii) scheduled principal amortization of all Indebtedness (other than the
amortization of the $3,000,000 made by Seller with the Borrower pursuant to the
Acquisition Documents).
"Debt Service Coverage Ratio" means Funds From Operations divided by Debt
Service.
"Default" means an event that, with giving of notice or passage of time or both,
would constitute an Event of Default.
"Default Rate" means at any time two percent (2.0%) over the Revolving Loan
Floating Rate or the Term Loan Floating Rate, as the case may be, which Default
Rate shall change when and as the Revolving Loan Floating Rate or the Term Loan
Floating Rate, as the case may be, changes.
"Eligible Accounts" means all unpaid Accounts, net of any credits (including
without limitation any reserves for promotional credits and reserves for accrued
credits due to Seller in accordance with the Manufacturing Agreement) except the
following shall not in any event be deemed Eligible Accounts:
(1) That portion of Accounts 30 or more days past the stated due
date, or in any event, 120 or more days past the invoice date;
(2) That portion of Accounts that are disputed or subject to a
claim of offset or a contra account;
(3) That portion of Accounts not yet earned by the final delivery
of goods or rendition of services, as applicable, by the Borrower to
the customer;
(4) Accounts owed by any unit of government, whether foreign or
domestic (provided, however, that there shall be included in Eligible
Accounts that portion of Accounts owed by such units of government
with respect to which the Borrower has provided evidence satisfactory
to the Lender that (A) the Lender has a first priority security
interest and (B) such Account may be enforced by the Lender directly
against such unit of government under all applicable laws);
(5) Accounts owed by an account debtor located outside the United
States which are not backed by a bank letter of credit assigned to the
Lender, in the possession of the Lender and acceptable to the Lender
in all respects, in its sole discretion;
(6) Accounts owed by an account debtor that is the subject of
bankruptcy proceedings or has gone out of business;
(7) Accounts owed by a shareholder, subsidiary, Affiliate,
officer or employee of the Borrower;
(8) Accounts owed by Seller, except that, subject to the Lender's
discretion to declare such Accounts ineligible pursuant to subsection
(13) below, Accounts owed by the Seller shall be deemed Eligible
Accounts if they are not otherwise ineligible under any other
subsection of this definition and if and to the extent the aggregate
amount of the Accounts owed by Seller to the Borrower exceeds the
amount the Borrower owes to the Seller, as evidenced by the most
currently dated No Offset Agreement executed and delivered by Seller
in substantially the form attached hereto as Exhibit G;
(9) Accounts not subject to a duly perfected security interest in
favor of the Lender or which are subject to any lien, security
interest or claim in favor of any Person other than the Lender;
(10) That portion of Accounts that have been restructured,
extended, amended or modified;
(11) That portion of Accounts that constitutes finance charges,
service charges or sales or excise taxes;
(12) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if 10% or more of the total amount due under
Accounts from such debtor is ineligible under clauses or (1), (2) or
(9) above; and
(13) Accounts, or portions thereof, otherwise deemed ineligible
by the Lender in its reasonable discretion.
"Eligible Carton Inventory" means all inventory of the Borrower, at the lower of
costs or market value as determined in accordance with generally accepted
accounting principles, consisting of customary folding and shipping cartons,
excluding Ineligible Inventory.
"Eligible Equipment" means all of the Borrower's unencumbered machinery and
equipment which is contained in the equipment appraisal described in Section
4.1(n) hereof, but specifically excluding the Borrower's furniture, fixtures,
building improvements, computer equipment and software, and such other machinery
and equipment as the Lender may, in its sole discretion, deem ineligible.
"Eligible Finished Goods Inventory" means all finished goods inventory of the
Borrower, at the lower of cost or market value as determined in accordance with
generally accepted accounting principles, excluding Ineligible Inventory.
"Eligible Raw Materials Inventory" means all raw materials inventory of the
Borrower, at the lower of cost or market value as determined in accordance with
generally accepted accounting principles, consisting of chemicals and/or color
materials, excluding Ineligible Inventory.
"Environmental Laws" has the meaning specified in Section 5.12 hereof.
"Equipment" means all of the Borrower's equipment, as such term is defined in
the UCC, whether now owned or hereafter acquired, including but not limited to
all present and future machinery, vehicles, furniture, fixtures, manufacturing
equipment, shop equipment, office and recordkeeping equipment, parts, tools,
supplies, and including specifically (without limitation) the goods described in
any equipment schedule or list herewith or hereafter furnished to the Lender by
the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Event of Default, has the meaning specified in Section 8.1 hereof.
"Funds From Operations" means, for any specified period, (i) Net Income, plus
(ii) depreciation, plus (iii) amortization, plus (iv) Total Current Interest.
"General Intangibles" means all of the Borrower's general intangibles, as such
term is defined in the UCC, whether now owned or hereafter acquired, including
(without limitation) all present and future patents, patent applications,
copyrights, trademarks, trade names, trade secrets, customer or supplier lists
and contracts, manuals, operating instructions, permits, franchises, the right
to use the Borrower's name, and the goodwill of the Borrower's business.
"Indebtedness" means, as of the date of determination, collectively, (i) all
items which, in accordance with generally accepted accounting principles, would
be included on the liabilities side of a balance sheet dated the date as of
which Indebtedness is to be determined, excluding capital stock, surplus capital
and retained earnings, (ii) all indebtedness secured by any mortgage, pledge,
security interest or lien existing on property owned subject to such mortgage,
pledge, security interest or lien whether or not the indebtedness secured
thereby shall have been assumed, (iii) all amounts representing the
capitalization of rentals in accordance with generally accepted accounting
principles, and (iv) all guaranties, endorsements and other contingent
obligations.
"Ineligible Inventory" means any and all of the following:
(1) Inventory that is: in-transit; located at any warehouse
or other premises not approved by the Lender in writing; located
outside of the states, or localities, as applicable, in which the
Lender has filed financing statements to perfect a first priority
security interest in such inventory; covered by any negotiable or
non-negotiable warehouse receipt, bill of lading or other
document of title; on consignment to or from any other person or
subject to any bailment;
(2) Supplies, packaging or parts inventory, including,
without limitation, all inventory consisting of fragrance, cans,
bottles, caps, labels, miscellaneous packaging, valves, pumps and
pads;
(3) Work-in-process inventory;
(4) Inventory that is damaged, obsolete or not currently
saleable in the normal course of the Borrower's operations;
(5) Inventory that the Borrower has returned, has attempted
to return, is in the process of returning or intends to return to
the vendor thereof;
(6) Inventory that is subject to a security interest in
favor of any Person other than the Lender;
(7) Inventory otherwise deemed ineligible by the Lender in
its reasonable discretion; and
(8) Inventory produced or manufactured by the Borrower
pursuant to a contract with any Person, if the Lender (a) has not
received a valid assignment of the Borrower's right to sell such
inventory or (b) is otherwise precluded from selling such
inventory.
"Inventory" means all of the Borrower's inventory, as such term is defined in
the UCC, whether now owned or hereafter acquired, whether consisting of whole
goods, spare parts or components, supplies or materials, whether acquired, held
or furnished for sale, for lease or under service contracts or for manufacture
or processing, and wherever located.
"L/C Amount" means the sum of (i) the face amount of any issued and outstanding
Letters of Credit and (ii) the unpaid amount of the Obligation of Reimbursement.
"L/C Application" means an application and agreement for letters of credit in
Lender's then-current standard form.
"Letter of Credit" has the meaning specified in Section 2.15 hereof.
"Leverage Ratio" means (i) Indebtedness minus Subordinated Indebtedness,
divided by (ii) Book Net Worth plus Subordinated Indebtedness.
"Loan Documents" means this Agreement, the Note and the Security Documents.
"Lockbox" has the meaning specified in the Lockbox Agreement.
"Lockbox Agreement" means the Original Lockbox Agreement, as amended.
"Management Support Agreements" shall mean the management support agreements
dated as of November 16, 1995 executed by Dominic LaRosa and Donald Hoff in
favor of the Lender, as amended hereby and as the same may be amended from time
to time hereafter.
"Manufacturing Agreement" means that certain Manufacturing Agreement dated
November 16, 1995 by and between the Seller and the Borrower.
"Mortgage" means the Mortgage, Security Agreement, Assignment of Rents and
Leases and Fixture Financing Statement dated November 16, 1995 executed by the
Borrower in favor of the Lender, as modified and amended by the Mortgage
Modification Agreement and as the same may be modified and amended hereafter,
granting to the Lender a first lien on the Real Estate.
"Mortgage Modification Agreement" means the Mortgage Modification Agreement of
even date herewith by and between the Borrower and the Lender.
"Net Income" means for any specified period, the Borrower's net after-tax income
from operations, excluding extraordinary gains and losses, as determined in
accordance with generally accepted accounting principles, consistently applied.
"Note" means, collectively, the Revolving Note, the Term Note and the Real
Estate Note.
"Obligation of Reimbursement" has the meaning specified in Section 2.16 hereof.
"Obligations" has the meaning specified in Section 3.1 hereof.
"Patent Mortgage" means the Patent Mortgage dated November 16, 1995 executed by
the Borrower in favor of the Lender, as amended hereby and as the same may be
amended from time to time hereafter, granting to the Lender a lien upon all
patents and patent rights of the Borrower.
"Person" means any individual, corporation, bank or other financial institution,
partnership, joint venture, limited liability company, association, joint-stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for employees of
the Borrower and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its business and has
any rights of possession, including (without limitation) the premises legally
described in Exhibit E attached hereto; provided, however, that the Borrower's
sales offices shall be excluded from the definition of "Premises" if the
aggregate book value of the Inventory and Equipment located at such sales
offices is less than $50,000.
"Real Estate" means the real property and appurtenances, located at 5601 East
River Road, Fridley, Minnesota 55440, and legally described on Exhibit A
attached to the Mortgage.
"Real Estate Documents" means (i) the Title Policy; (ii) written evidence of
payment of all real estate taxes relating to the Real Estate presently due and
payable; (iii) an appraisal of the Real Estate acceptable to the Lender
reflecting a fair market value of the Real Estate of at least $7,725,000,
together with such documents as may be necessary to permit the Lender to rely
thereon; (iv) the land survey of the Real Estate, certified to the Lender as of
October 31, 1995, prepared by Raymond A. Prasch, together with an Affidavit by
the Borrower stating that there have been no material changes to the Real Estate
after the date of such survey, in form and substance satisfactory to the Lender
and the issuer of the Title Policy; (v) a flood plain letter issued by an
appropriate governmental office evidencing that the Real Estate is not located
in a flood plain; and (vi) a zoning letter issued by the City of Fridley
evidencing that the Borrower's use of the Real Estate is in compliance with all
applicable zoning ordinances or that any non-compliance constitutes a legal
non-conforming use.
"Real Estate Note" means the Amended and Restated Real Estate Note of the
Borrower payable to the order of the Lender in substantially the form attached
hereto as Exhibit A-3.
"Receivables" means each and every right of the Borrower to the payment of
money, whether such right to payment now exists or hereafter arises, whether
such right to payment arises out of a sale, lease or other disposition of goods
or other property, out of a rendering of services, out of a loan, out of the
overpayment of taxes or other liabilities, or otherwise arises under any
contract or agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently transfers such
person's interest to the Borrower, whether such right to payment is or is not
already earned by performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests (including all liens and
security interests) which the Borrower may at any time have by law or agreement
against any account debtor or other obligor obligated to make any such payment
or against any property of such account debtor or other obligor; all including
but not limited to all present and future accounts, contract rights, loans and
obligations receivable, chattel papers, bonds, notes and other debt instruments,
tax refunds and rights to payment in the nature of general intangibles.
"Reportable Event" shall have the meaning assigned to that term in Title IV of
ERISA.
"Revolving Loan Floating Rate" means an annual rate equal to the sum of the Base
Rate plus one-half of one percent (0.50%), which Revolving Loan Floating Rate
shall change when and as the Base Rate changes.
"Revolving Note" means the Amended and Restated Revolving Note of the Borrower
payable to the order of the Lender in substantially the form attached hereto as
Exhibit A-1.
"Security Documents" means, collectively, the Collateral Account Agreement, the
Lockbox Agreement, the Mortgage, the Patent Mortgage, the Trademark Mortgage,
the Landlord's Disclaimer and Consent, the Subordination Agreement and the
Management Support Agreements, each as defined herein or described in Section
4.1 hereof.
"Security Interest" has the meaning specified in Section 3.1 hereof.
"Seller" means DowBrands Inc., a Delaware corporation.
"Seller's Prepayment" means the prepayment made by Seller to the Borrower in the
amount of $3,000,000 pursuant to Section 4 of the Manufacturing Agreement.
"Special Account" means a specified cash collateral account maintained by
the Lender in connection with Letters of Credit, as contemplated by Sections
2.17 and 3.1a. hereof.
"Subordinated Indebtedness" means all Indebtedness of the Borrower which is now
or may hereafter be subordinated to the Indebtedness of the Borrower to the
Lender.
"Subordination Agreement" means the Subordination Agreement dated November 16,
1995 executed by the Seller and acknowledged by the Borrower in favor of the
Lender.
"Subsidiary" means any corporation of which more than 50% of the outstanding
shares of capital stock having general voting power under ordinary circumstances
to elect a majority of the board of directors of such corporation, irrespective
of whether or not at the time stock of any other class or classes shall have or
might have voting power by reason of the happening of any contingency, is at the
time directly or indirectly owned by the Borrower, by the Borrower and one or
more other Subsidiaries, or by one or more other Subsidiaries.
"Term Loan Floating Rate" means an annual rate equal to the sum of the Base Rate
plus three-quarters of one percent (0.75%) which Term Loan Floating Rate shall
change when and as the Base Rate changes.
"Term Note" means the Amended and Restated Term Note of the Borrower payable to
the order of the Lender in substantially the form attached hereto as Exhibit
A-2.
"Termination Date" means November 15, 2000.
"Title Policy" means a mortgagee's title insurance policy issued by a title
insurance company acceptable to the Lender in an amount equal to $7,000,000
insuring the Mortgage as a first lien on a good and marketable fee simple title
to the Real Estate, subject only to "Permitted Encumbrances" (as that term is
defined in the Mortgage) and without limiting the generality of the foregoing
insuring the Mortgage against claims for mechanics' liens, rights of parties in
possession; including special assessment searches, UCC searches, judgment
searches and all other customary searches; together with a 3.1 zoning
endorsement, a comprehensive endorsement, a variable rate endorsement and all
other endorsements required by the Lender.
"Total Current Interest" means, for any specified period, all interest accrued
within such period on all Indebtedness.
"Trademark Mortgage" means the Trademark Mortgage dated November 16, 1995
executed by the Borrower in favor of the Lender, as amended hereby and as the
same may be amended from time to time hereafter, granting to the Lender a lien
upon all trademarks and trademark rights of the Borrower.
"UCC" means the Uniform Commercial Code as in effect from time to time in the
state designated in Section 9.12 hereof as the state whose laws shall govern
this Agreement, or in any other state whose laws are held to govern this
Agreement or any portion hereof.
<PAGE>
ARTICLE II.
Amount and Terms of the Credit Facility, the Term Loan
and the Real Estate Loan
Section 2.1 Advances. The Lender agrees, on the terms and subject to the
conditions herein set forth, to make Advances to the Borrower from time to time
during the period from the date hereof to and including the Termination Date, or
the earlier date of termination in whole of the Credit Facility pursuant to
Sections 2.6 or 8.2 hereof, in an aggregate amount at any time outstanding not
to exceed the Borrowing Base less the L/C Amount, which advances shall be
secured by the Collateral as provided in Article III hereof. The Credit Facility
should be a revolving facility and it is contemplated that the Borrower will
request advances, make prepayments and request additional Advances. The Borrower
agrees to comply with the following procedures in requesting Advances under this
Section 2.1:
(a) Borrower will not request any Advance under this Section 2.1, if,
after giving effect to such requested Advance, the sum of the
outstanding and unpaid Advances under this Section 2.1 or otherwise
would exceed the Borrowing Base less the L/C Amount
(b) Each request for an Advance under this Section 2.1 shall be made to
the Lender prior to 11:00 a.m. (Minneapolis time) of the day of the
requested Advance by the Borrower. Each request for an Advance may be
made in writing or by telephone, specifying the date of the requested
Advance and the amount thereof, and shall be by (i) any officer of the
Borrower; or (ii) any person designated as the Borrower's agent by any
officer of the Borrower in a writing delivered to the Lender; or (iii)
any person reasonably believed by the Lender to be an officer of the
Borrower or such a designated agent.
(c) Upon fulfillment of the applicable conditions set forth in Article
IV hereof, the Lender shall disburse loan proceeds by crediting the
same to the Borrower's demand deposit account maintained with Norwest
Bank Minnesota, National Association, unless the Lender and the
Borrower shall agree in writing to another manner of disbursement. Upon
request of the Lender, the Borrower shall promptly confirm each
telephonic request for an Advance by executing and delivering an
appropriate confirmation certificate to the Lender. The Borrower shall
be obligated to repay all Advances under this Section 2.1
notwithstanding the failure of the Lender to receive such confirmation
and notwithstanding the fact that the person requesting the same was
not in fact authorized to do so. Any request for an Advance under this
Section 2.1, whether written or telephonic, shall be deemed to be a
representation by the Borrower that (i) the condition set forth in
Section 2.1(a) hereof has been met, and (ii) the conditions set forth
in Section 4.2 hereof have been met as of the time of the request.
Section 2.2 Term Loan. Pursuant to the Original Credit Agreement, the Lender
made the Original Term Loan. As of the date hereof, the outstanding balance of
the Original Term Loan is $1,648,333.39. The Lender hereby agrees to make a term
loan in the original principal amount equal to (I) the lesser of (a) 85% of the
appraised value of its Eligible Equipment, or (b) $2,300,000, minus (II) the
outstanding balance as of the date hereof of the Original Term Loan. The amount
of the term loan described in the immediately preceding sentence, together with
the outstanding balance as of the date hereof of the Original Term Loan is
referred to herein as the "Term Loan". The Term Loan shall be secured by the
Collateral and by the Real Estate as provided in Article III hereof and pursuant
to the Mortgage. Upon fulfillment of the applicable conditions set forth in
Article IV hereof, the Lender shall disburse loan proceeds by crediting the same
to the Borrower's demand deposit account specified in Section 2.1(b) hereof
unless the Lender and the Borrower shall agree in writing to another manner of
disbursement.
Section 2.3 Real Estate Loan. Pursuant to the Original Credit Agreement, the
Lender made the Original Real Estate Loan. As of the date hereof, the
outstanding balance of the Original Real Estate Loan is $2,651,649.61. The
Lender hereby agrees to make a real estate term loan in the original principal
amount equal to $4,700,000 less the outstanding balance as of the date hereof of
the Original Real Estate Loan. The amount of the real estate term loan described
in the immediately preceding sentence, together with the outstanding balance as
of the date hereof of the Original Real Estate Loan is referred to herein as the
"Real Estate Loan". The Real Estate Loan shall be secured by the Collateral and
by the Real Estate, as provided in Article III hereof and pursuant to the
Mortgage. Upon fulfillment of the applicable conditions set forth in Article IV
hereof, the Lender shall disburse loan proceeds by crediting the same to the
Borrower's demand deposit account specified in Section 2.1(b) hereof unless the
Lender and the Borrower shall agree in writing to another manner of
disbursement.
Section 2.4 Notes.
(a) All Advances made by the Lender under Section 2.1 shall be
evidenced by and repayable with interest in accordance with the
Revolving Note. The principal of the Revolving Note shall be payable as
provided herein and on the earlier of the Termination Date or
acceleration by the Lender pursuant to Section 8.2 hereof, and shall
bear interest as provided herein.
(b) The Term Loan shall be evidenced by and repayable with interest in
accordance with the Term Note. The principal of the Term Note shall be
payable in forty-two (42) equal monthly installments of $38,333.33
each, commencing on June 1, 1997 and continuing on the first day of
each calendar month thereafter through and including on November 1,
2000 and in one (1) installment on November 15, 2000 in an amount equal
to the then remaining unpaid principal balance thereof. The principal
of the Term Note shall also be payable earlier upon acceleration by the
Lender pursuant to Section 8.2 hereof. The principal of the Term Note
shall bear interest as provided herein.
(c) The Real Estate Loan shall be evidenced by and repayable with
interest in accordance with the Real Estate Note. The principal of the
Real Estate Note shall be payable in forty-two (42) equal monthly
installments of $78,333.33 each commencing on June 1, 1997 and
continuing on the first day of each calendar month thereafter through
and including on November 1, 2000 and in one (1) installment on
November 15, 2000 in an amount equal to the then remaining unpaid
principal balance thereof. The principal of the Real Estate Note shall
also be payable earlier upon acceleration by the Lender pursuant to
Section 8.2 hereof. The principal of the real Estate Note shall bear
interest as provided herein.
Section 2.5 Interest.
(a) The principal of the Advances outstanding from time to time during
any month shall bear interest (computed on the basis of actual days
elapsed in a 360-day year) at the Revolving Loan Floating Rate;
provided, however, that from the first day of any month during which
any Default or Event of Default occurs or exists at any time, in the
Lender's discretion and without waiving any of its other rights and
remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate; and provided, further, that in
any event no rate change shall be put into effect which would result in
a rate greater than the highest rate permitted by law. Interest
accruing on the principal balance of the Advances outstanding from time
to time shall be payable on the last day of each month and on the
Termination Date or earlier demand therefor pursuant to Section 8.2(b)
hereof or prepayment in full.
(b) The principal of the Term Loan outstanding from time to time during
any month shall bear interest (computed on the basis of actual days
elapsed in a 360-day year) at the Term Loan Floating Rate; provided,
however, that from the first day of any month during which any Default
or Event of Default occurs or exists at any time, in the Lender's
discretion and without waiving any of its other rights and remedies,
the principal of the Term Loan outstanding from time to time shall bear
interest at the Default Rate; and provided, further, that in any event
no rate change shall be put into effect which would result in a rate
greater than the highest rate permitted by law. Interest accruing on
the principal balance of the Term Loan outstanding from time to time
shall be payable on the first day of each month and on the Termination
Date or earlier demand therefor pursuant to Section 8.2(b) hereof or
prepayment in full.
(c) The principal of the Real Estate Loan outstanding from time to time
during any month shall bear interest (computed on the basis of actual
days elapsed in a 360-day year) at the Term Loan Floating Rate;
provided, however, that from the first day of any month during which
any Default or Event of Default occurs or exists at any time, in the
Lender's discretion and without waiving any of its other rights and
remedies, the principal of the Real Estate Loan outstanding from time
to time shall bear interest at the Default Rate; and provided, further,
that in any event no rate change shall be put into effect which would
result in a rate greater than the highest rate permitted by law.
Interest accruing on the principal balance of the Real Estate Loan
outstanding from time to time shall be payable on the first day of each
month and on the Termination Date or earlier demand therefor pursuant
to Section 8.2(b) hereof or prepayment in full.
(d) If any Person shall acquire a participation in Advances under this
Agreement, the Borrower shall be obligated to the Lender to pay the
full amount of all interest calculated under Sections 2.5(a), (b)
and/or (c) hereof, along with all other fees, charges and other amounts
due under this Agreement, regardless if such Person elects to accept
interest with respect to its participation at a lower rate than the
Revolving Loan Floating Rate or the Term Loan Floating Rate, as the
case may be, or otherwise elects to accept less than its pro-rata share
of such fees, charges and other amounts due under this Agreement.
(e) Notwithstanding the interest payable pursuant to Sections 2.5(a),
(b) and (c) hereof, the Borrower shall be liable to the Lender for
interest hereunder of not less than $900,000 for each full calendar
year, and a pro-rated portion of such amount for any partial calendar
year, during the term of this Agreement (such amount, the "Minimum
Interest Charge"), and the Borrower shall pay any deficiency between
the Minimum Interest Charge and the amount of interest otherwise
calculated under Sections 2.5(a), (b), and (c) hereof for each such
calendar year on the day immediately succeeding the last day of each
such calendar year.
Section 2.6 Voluntary Prepayment; Termination of Agreement by Borrower;
Permanent Reduction of Commitment.
(a) The Borrower may terminate this Agreement at any time and, subject
to payment and performance of all the Borrower's obligations to the
Lender, may obtain any release or termination of the Security Interest
and/or the Mortgage to which the Borrower is otherwise entitled by law
by (i) giving at least 30 days' prior written notice to the Lender of
the Borrower's intention to terminate this Agreement; and (ii) paying
the Lender a prepayment fee under Sections 2.6(d) or (e) below, if
applicable.
(b) The Borrower may, in its discretion, prepay the Revolving Note, the
Term Loan or the Real Estate Loan in whole at any time or from time to
time in part, upon payment of the prepayment premium, if applicable,
provided for in subsection (d) or (e) below and otherwise without
premium or penalty.
(c) If the Revolving Note, the Term Loan or the Real Estate Loan are
prepaid in whole or in part, from the proceeds of a refinancing with
another party (other than the Lender or an affiliate of the Lender) or
from any source other than (i) cash flow of the Borrower or (ii) an
offering of the Borrower's common stock or (iii) insurance proceeds or
(iv) any payment received from Seller pursuant to any claim made by
Borrower against Seller pursuant to the Acquisition Documents, then the
Revolving Note, the Term Note and the Real Estate Note shall, at the
option of the Lender, be subject to mandatory prepayment in full.
(d) If the Revolving Note is prepaid in whole or in part from the
proceeds of a refinancing with another party (other than the Lender or
an affiliate of the Lender) or from any source other than (i) the cash
flow of the Borrower, or (ii) insurance proceeds, or (iii) any payment
made by Seller pursuant to a claim made by Borrower against Seller
pursuant to the Acquisition Documents, then the Borrower shall pay to
the Lender a prepayment premium equal to one percent (1.0%) of the
Commitment, if the Credit Facility is terminated in conjunction
therewith by either the Borrower or the Lender.
(e) If the Term Note or the Real Estate Note or both is or are prepaid
in whole or in part from the proceeds of a refinancing with another
party (other than the Lender or an affiliate of the Lender) or from any
source other than (i) cash flow of the Borrower, or (ii) insurance
proceeds, or (iii) any payment made by Seller pursuant to a claim made
by Borrower against Seller pursuant to the Acquisition Documents, then
the Borrower shall pay a prepayment premium to the Lender equal to one
percent (1.0%) of the amount prepaid.
(f) Without limiting the foregoing, if (i) the Revolving Note is
prepaid in full (other than from the proceeds of a refinancing with the
Lender or an affiliate of the Lender) and the Credit Facility is
terminated before November 15, 1998, or (ii) the Revolving Note is
prepaid in full before November 15, 1998 from the proceeds of a
refinancing with the Lender or an affiliate of the Lender and the
loan(s) relating to such refinancing is/are prepaid in whole before
November 15, 1998, the Borrower shall pay to the Lender, in addition to
any prepayment fee otherwise payable under this Section 2.6, a
prepayment fee in the amount of $80,000, payable at the time of the
applicable prepayment.
Section 2.7 Mandatory Prepayment. Without notice or demand, if the sum of the
outstanding principal balance of the Advances shall at any time exceed the
Borrowing Base, the Borrower shall immediately prepay the Advances to the extent
necessary to reduce the sum of the outstanding principal balance of the Advances
to the Borrowing Base. Any payment received by the Lender under this Section 2.7
or under Section 2.6, which is not designated as a partial prepayment of the
Term Loan or the Real Estate Loan, may be applied to the Advances, including
interest thereon and any fees, commissions, costs and expenses hereunder and
under the Security Documents, in such order and in such amounts as the Lender,
in its discretion, may from time to time determine.
Section 2.8 Payment. All payments of principal and interest on the Advances, the
Term Loan, the Real Estate Loan, the Obligation of Reimbursement, the
commissions and fees hereunder and amounts required to be paid to the Lender for
deposit in the Special Account shall be made to the Lender in immediately
available funds. The Borrower hereby authorizes the Lender to charge against the
Borrower's account with the Lender an amount equal to the Obligation of
Reimbursement, principal, accrued interest, commissions and fees from time to
time due and payable to the Lender hereunder and amounts required to be paid to
the Lender for deposit in the Special Account and further authorizes the Lender,
in its discretion, and without request by Borrower to make an Advance under the
Credit Facility to the extent necessary to pay any such amounts and any fees,
costs or expenses hereunder or under the Loan Documents.
Section 2.9 Payment on Non-Banking Days. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Banking Day, such
payment may be made on the next succeeding Banking Day, and such extension of
time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.10 Use of Proceeds. The proceeds of Advances, the Term Loan and the
Real Estate Loan shall be used by the Borrower for ordinary working capital
purposes.
Section 2.11 Liability Records. Lender may maintain from time to time, at its
discretion, liability records as to any and all Advances, the Term Loan, the
Real Estate Loan and the Obligation of Reimbursement made or repaid in interest
accrued or paid under this Agreement. All entries made on any such record shall
be presumed correct until the Borrower establishes the contrary. On demand by
the Lender, the Borrower will admit and certify in writing the exact principal
balance that the Borrower then asserts to be outstanding to the Lender for
Advances, the Term Loan, the Real Estate Loan, and all Obligations of
Reimbursement under this Agreement. Any billing statement or accounting rendered
by the Lender shall be conclusive and fully binding on the Borrower unless
specific written notice of exception is given to the Lender by the Borrower
within thirty days after its receipt by the Borrower.
Section 2.12 Setoff. The Borrower agrees that the Lender may at any time or from
time to time, at its sole discretion and without demand and without notice to
anyone, setoff any liability owed to Borrower by the Lender, whether or not due,
against any indebtedness owed to the Lender by the Borrower (for Advances, the
Term Loan, the Real Estate Loan, any Obligations of Reimbursement or for any
other transaction or event), whether or not due. In addition, each other Person
holding a participating interest in any Advances, the Term Loan, the Real Estate
Loan and/or any Letters of Credit made to or issued for the benefit of the
Borrower by the Lender shall have the right to appropriate or setoff a deposit
or other liability then owed by such Person to the Borrower, whether or not due,
and apply the same to the payment of said participating interest, as fully as if
such Person had lent directly to the Borrower the amount of such participating
interest.
Section 2.13 Fees.
(a) The Borrower hereby agrees to pay the Lender, on demand, audit fees
at the Lender's then-current rate, for services rendered in connection
with (i) up to three (3) annual audits or inspections by the Lender of
any collateral or the operations or business of the Borrower, if no
Default or Event of Default has occurred, or (ii) any and all such
audits or inspections if a Default or Event of Default has occurred
together, in all cases, with all actual out-of-pocket costs and
expenses incurred in conducting any such audit or inspection.
(b) The Borrower hereby agrees to pay the Lender a commission with
respect to each Letter of Credit, if any, accruing on a daily basis and
computed at the annual rate of one and one-half percent (1.5%) of the
available amount of such Letter of Credit (as it may be changed from
time to time) from and including the date of issuance of such Letter of
Credit until such date as such Letter of Credit shall terminate by its
terms, payable monthly in arrears, and prorated for any part of a full
calendar month in which such Letter of Credit remains outstanding. The
Borrower further agrees to pay the Lender, on written demand, the
administrative fees charged by the Lender in the ordinary course of
business in connection with the honoring of drafts under any Letter of
Credit, amendments thereto, transfers thereof and all other activity
with respect to the Letters of Credit at the then-current rates
published by the Lender for services rendered on behalf of customers of
the Lender generally.
Section 2.14 Capital Adequacy. If the Lender shall determine that the adoption
after the date hereof of any applicable law, rule or regulation regarding
capital adequacy, or any change therein after the date hereof, any change after
the date hereof in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Lender or its
parent corporation with any guideline or request issued after the date hereof
regarding capital adequacy (whether nor not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on the Lender's or the Lender's parent corporation's
capital as a consequence of the Lender's obligations hereunder to a level below
that which the Lender or its parent corporation could have achieved but for such
adoption, change or compliance (taking into consideration the Lender's policies
with respect to capital adequacy and those of the Lender's parent corporation)
by an amount deemed to the Lender or its parent corporation to be material, then
from time to time on demand by the Lender, the Borrower shall pay to the Lender
such additional amount or amounts as will compensate the Lender or its parent
corporation for such reduction. Certificates of the Lender sent to the Borrower
from time to time claiming compensation under this Section, stating the reason
therefor and setting forth in reasonable detail the calculation of the
additional amount or amounts to be paid to the Lender hereunder shall be
conclusive absent manifest error. In determining such amounts, the Lender or its
parent corporation may use any reasonable averaging and attribution methods.
Section 2.15. Issuance of Letters of Credit.
(a) The Lender may, in its sole discretion, issue one or more
letters of credit for the account of the Borrower (each a
"Letter of Credit") from time to time during the period from
the date hereof until the Termination Date or until the Credit
Facility is terminated pursuant to Section 8.2(a), whichever
first occurs, in an aggregate amount at any time outstanding
not to exceed the Borrowing Base less the sum of (i) all
outstanding and unpaid Advances hereunder and (ii) the unpaid
amount of the Obligation of Reimbursement. Each Letter of
Credit, if any, shall be issued pursuant to a separate L/C
Application entered into between the Borrower and the Lender,
completed in a manner satisfactory to the Lender. The terms
and conditions set forth in each such L/C Application shall
supplement the terms and conditions hereof, but in the event
of inconsistency between the terms of any such L/C Application
and the terms hereof, the terms hereof shall control.
(b) The Borrower will not request the issuance of any Letter
of Credit under this Section 2.15 if, after the issuance of
such requested Letter of Credit, the sum of the face amounts
of all issued and outstanding Letters of Credit would exceed
the Borrowing Base less the sum of (i) all outstanding and
unpaid Advances hereunder and (ii) the unpaid amount of the
Obligation of Reimbursement.
(c) No Letter of Credit shall be issued with an expiry date
later than the Termination Date in effect as of the date of
issuance.
(d) Any request for the issuance of a Letter of Credit under
this Section 2.15 shall be deemed to be a representation by
the Borrower that (i) the condition set forth in Section
2.15(b), hereof has been met, and (ii) the statements set
forth in Article V hereof are correct as of the time of the
request.
Section 2.16. Payment of Amounts Drawn Under Letters of Credit. Draws under any
Letter of Credit shall be reimbursed to the Lender in accordance with the
applicable L/C Application and as follows:
(a) The Borrower hereby agrees to pay the Lender on the day a
draft is honored under any Letter of Credit a sum equal to all
amounts drawn under such Letter of Credit plus any and all
reasonable charges and expenses that the Lender may pay or
incur relative to such draw, plus interest on all such
amounts, accruing from the date such draft is honored through
and including the date of payment by the Borrower at the
interest rate then applicable to Advances hereunder, charges
and expenses as set forth below (all such amounts are
hereinafter referred to, collectively, as the "Obligation of
Reimbursement").
(b) The Borrower hereby agrees to pay the Lender on demand
interest on all amounts, charges and expenses payable by the
Borrower to the Lender under this Section 2.16, accrued from
the date any such draft, charge or expense is paid by the
Lender until payment in full by the Borrower at the Default
Rate.
If the Borrower fails to pay to the Lender promptly the amount
of its Obligation of Reimbursement in accordance with the
terms hereof and the L/C Application pursuant to which such
Letter of Credit was issued, the Lender is hereby irrevocably
authorized and directed, in its sole discretion, to make an
Advance in an amount sufficient to discharge the Obligation of
Reimbursement, including all interest accrued thereon but
unpaid at the time of such Advance, and such Advance shall be
evidenced by the Revolving Note and shall bear interest as
provided therein.
Section 2.17 Special Account. If the Credit Facility is terminated pursuant to
Section 8.2(a), or the Credit Facility is otherwise terminated for any reason
whatsoever, while any Letter of Credit is outstanding, the Borrower shall
thereupon pay the Lender in immediately available funds for deposit in the
Special Account an amount equal to the maximum aggregate amount available to be
drawn under all Letters of Credit then outstanding, assuming compliance with all
conditions for drawing thereunder. Amounts in the Special Account may be
invested as Lender shall determine, including in certificates of deposit issued
by Lender. Any interest and earnings on such amounts shall be credited to the
Special Account. The Borrower shall not be responsible for any losses from the
investment or use of funds in the Special Account. Amounts on deposit in the
Special Account may be applied by the Lender at any time or from time to time to
the Borrower's Obligation of Reimbursement, and shall not be subject to
withdrawal by the Borrower so long as the Lender maintains a security interest
therein; provided, however, that, upon the occurrence of any Event of Default,
the Lender may apply such amounts to any of the Obligations in its sole
discretion. The Lender agrees to transfer any balance in the Special Account to
the Borrower at such time as the Lender is required to release its security
interest in the Special Account under applicable law.
Section 2.18 Obligations Absolute. The obligations of the Borrower arising under
this Agreement shall be absolute, unconditional and irrevocable, and shall be
paid strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of
Credit or any other agreement or instrument relating to any
Letter of Credit (collectively the "Related Documents");
(b) any amendment or waiver of or any consent to departure
from all or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other
right which the Borrower may have at any time, against any
beneficiary or any transferee of any Letter of Credit (or any
persons or entities for whom any such beneficiary or any such
transferee may be acting), or other person or entity, whether in
connection with this Agreement, the transactions contemplated
herein or in the Related Documents or any unrelated transactions;
(d) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue
or inaccurate in any respect whatsoever;
(e) payment by or on behalf of the Lender under any Letter
of Credit against presentation of a draft or certificate which
does not strictly comply with the terms of such Letter of Credit;
or
(f) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing.
ARTICLE III.
Security Interest
Section 3.1 Grant of Security Interest. The Borrower hereby assigns and grants
to the Lender a security interest (collectively referred to as the "Security
Interests") in the Collateral, as security for the payment and performance of
each and every debt, liability and obligation of every type and description
which the Borrower may now or at any time hereafter owe to the Lender (whether
such debt, liability or obligation now exists or is hereafter created or
incurred, whether it arises in a transaction involving the Lender alone or in a
transaction involving other creditors of the Borrower, and whether it is direct
or indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, or sole, joint, several or joint and several, and
including specifically, but not limited to, the Obligation of Reimbursement and
all indebtedness of the Borrower arising under this Agreement, any L/C
Application completed by the Borrower or any other loan or credit agreement or
guaranty between Borrower and Lender, whether now in effect or hereafter entered
into; all such debts, liabilities and obligations are herein collectively
referred to as the "Obligations").
Section 3.1a Security Interest in Special Account. The Borrower hereby pledges
and grants to the Lender a security interest in all funds held in the Special
Account from time to time and all proceeds thereof, as security for the payment
of all present and future Obligations of Reimbursement and all other amounts due
hereunder or under the Loan Documents.
Section 3.2 Notification of Account Debtors and Other Obligors. In addition to
the rights of the Lender under Section 6.10 hereof, with respect to any and all
rights to payment constituting Collateral the Lender may at any time (but only
after the occurrence of an Event of Default) notify any account debtor or other
person obligated to pay the amount due that such right to payment has been
assigned or transferred to the Lender for security and shall be paid directly to
the Lender. The Borrower will join in giving such notice if the Lender so
requests. At any time after a Default or an Event of Default and after the
Borrower or the Lender gives such notice to an account debtor or other obligor,
the Lender may, but need not, in the Lender's name or in the Borrower's name,
(a) demand, sue for, collect or receive any money or property at any time
payable or receivable on account of, or securing, any such right to payment, or
grant any extension to, make any compromise or settlement with or otherwise
agree to waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as agent and
attorney in fact of the Borrower, notify the United States Postal Service to
change the address for delivery of the Borrower's mail to any address designated
by the Lender, otherwise intercept the Borrower's mail, and receive, open and
dispose of the Borrower's mail, applying all Collateral as permitted under this
Agreement and holding all other mail for the Borrower's account or forwarding
such mail to the Borrower's last known address.
Section 3.3 Assignment of Insurance. As additional security for the payment and
performance of the Obligations, the Borrower hereby assigns to the Lender any
and all monies (including, without limitation, proceeds of insurance and refunds
of unearned premiums) due or to become due under, and all other rights of the
Borrower with respect to, any and all policies of insurance now or at any time
hereafter covering the Collateral or any evidence thereof or any business
records or valuable papers pertaining thereto, and the Borrower hereby directs
the issuer of any such policy to pay all such monies directly to the Lender. At
any time (a) after the first 45 days following the accrual of a claim under any
such policy, or (b) or after the occurrence of any Event of Default, the Lender
may (but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim (as appropriate), receive all such monies, endorse checks
and other instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy; if no
Event of Default has occurred, then the Borrower and the Lender shall jointly
take such actions, during the first 45 days following the accrual of a claim
under any such policy.
Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the right to
take possession of the Premises at any time after the occurrence and
during the continuance of an Event of Default.
(b) The Lender may use the Premises only to hold, process, manufacture,
sell, use, store, liquidate, realize upon or otherwise dispose of goods
that are Collateral and for other purposes that the Lender may in good
faith deem to be related or incidental purposes.
(c) The right of the Lender to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations, and (ii) final sale or disposition of all goods
constituting Collateral and delivery of all such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for any rent or
other compensation for the possession, occupancy or use of any of the
Premises; provided, however, in the event that the Lender does pay or
account for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrower shall reimburse
the Lender promptly for the full amount thereof. In addition, the
Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Agreement or
the provisions of this Section 3.4.
Section 3.5 License. The Borrower hereby grants to the Lender a nonexclusive,
worldwide and royalty-free license to use or otherwise exploit all trademarks,
franchises, trade names, copyrights and patents of the Borrower for the purpose
of selling, leasing or otherwise disposing of any or all Collateral following an
Event of Default.
ARTICLE IV.
Conditions of Lending
Section 4.1 Conditions Precedent to the Initial Advance, the Term Loan and the
Real Estate Loan. The obligation of the Lender to make the initial Advance under
the Credit Facility, the Term Loan and/or the Real Estate Loan shall be subject
to the condition precedent that the Lender shall have received all of the
following, each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed on behalf of the
Borrower.
(b) The Revolving Note, properly executed on behalf of the
Borrower.
(c) The Term Note, properly executed on behalf of the
Borrower.
(d) The Real Estate Note, properly executed on behalf of the
Borrower.
(e) The Mortgage Modification Agreement, properly executed
on behalf of the Borrower.
(f) The Real Estate Documents, all of which shall be in form
and substance acceptable to the Lender.
(g) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain
in effect against the Borrower, (ii) no financing statements have
been filed and remain in effect against the Borrower, except
those financing statements relating to liens permitted pursuant
to Section 7.1 hereof and those financing statements filed by the
Lender, and (iii) the Lender has duly filed all financing
statements necessary to perfect the Security Interests granted
hereunder, to the extent the Security Interests are capable of
being perfected by filing.
(h) A certificate of the Secretary or an Assistant Secretary
of the Borrower, certifying as to (i) the resolutions of the
directors and, if required, the shareholders of the Borrower,
authorizing the execution, delivery and performance of this
Agreement and the Security Documents, (ii) the articles of
incorporation and bylaws of the Borrower, and (iii) the
signatures of the officers or agents of the Borrower authorized
to execute and deliver this Agreement, the Security Documents and
other instruments, agreements and certificates, including Advance
requests, on behalf of the Borrower.
(i) A current certificate issued by the Secretary of State
of the state of the Borrower's incorporation, certifying that the
Borrower is in compliance with all corporate organizational
requirements of such state.
(j) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of
the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary
unless failure to become duly licensed or qualified would not
have a material adverse effect on the business of the Borrower.
(k) A certificate of an officer of the Borrower confirming,
in his personal capacity and to his actual knowledge, the
representations and warranties set forth in Article V hereof.
(l) An opinion or opinions of counsel to the Borrower,
addressed to the Lender.
(m) Certificates of the insurance required hereunder, with
all hazard insurance containing a lender's loss payable
endorsement in favor of the Lender and with all liability
insurance naming the Lender as an additional insured.
(n) An appraisal of the Eligible Equipment of the Borrower
prepared by an appraiser acceptable to the Lender reflecting a
forced liquidation value of such Eligible Equipment of not less
than $2,706,000 together with such documentation as may be
necessary to permit the Lender to rely thereon.
(o) Payment of the fees due through the date of this
Agreement under Section 2.13 hereof and pursuant to that certain
letter agreement of even date herewith by and between the
Borrower and the Lender, and expenses incurred by the Lender
through such date and required to be paid by the Borrower under
Section 9.7 hereof.
(p) Such other documents as the Lender in its sole
discretion may require.
(q) True and correct copies of any security agreements
related to indebtedness listed on Exhibit C hereto.
Section 4.2 Conditions Precedent to All Advances, the Term Loan and the Real
Estate Loan. The obligation of the Lender to make each Advance and to make the
Term Loan and the Real Estate Loan shall be subject to the further conditions
precedent that on such date:
(a) the representations and warranties contained in Article V hereof
are correct on and as of the date of such Advance, the Term Loan and/or
the Real Estate Loan as though made on and as of such date, except to
the extent that such representations and warranties relate solely to an
earlier date; and
(b) no event has occurred and is continuing, or would result from such
Advance, the Term Loan and/or the Real Estate Loan which constitutes a
Default or an Event of Default.
ARTICLE V.
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations. The Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and is duly licensed or qualified to transact business in all
jurisdictions where the character of the property owned or leased or the nature
of the business transacted by it makes such licensing or qualification
necessary, unless failure to become duly licensed or qualified would not have a
material adverse effect on the business of the Borrower. The Borrower has all
requisite power and authority, corporate or otherwise, to conduct its business,
to own its properties and to execute and deliver, and to perform all of its
obligations under, the Loan Documents. During its corporate existence, the
Borrower has done business solely under the names set forth in Exhibit B hereto.
The chief executive office and principal place of business of the Borrower is
located at the address set forth in Exhibit B hereto, and all of the Borrower's
records relating to its business or the Collateral are kept at one of the
Premises. All Inventory and Equipment is located at that location or at one of
the other locations set forth in Exhibit B hereto, other than Inventory and
Equipment which is located at one of the sales offices of the Borrower which is
not part of any of the Premises.
Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements. The
execution, delivery and performance by the Borrower of the Loan Documents and
the borrowings from time to time hereunder have been duly authorized by all
necessary corporate action and do not and will not (a) require any consent or
approval of the stockholders of the Borrower, (b) require any authorization,
consent or approval by, or registration, declaration or filing with, or notice
to, any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof, (c) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Articles of Incorporation or Bylaws of the Borrower, (d)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected, or (e) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interests) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes and, upon due execution
by the Borrower, the other Loan Documents will constitute the legal, valid and
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms.
Section 5.4 Subsidiaries and Affiliates. Except as set forth in Exhibit B
attached hereto, the Borrower has no Subsidiaries or Affiliates.
Section 5.5 Financial Condition; No Adverse Change. The Borrower has heretofore
furnished to the Lender audited financial statements of the Borrower for its
fiscal year ended December 31, 1996, unaudited financial statements of the
Borrower for the three-month period ended March 31, 1997, and certain financial
projections, and such statements fairly present the financial condition of the
Borrower on the dates thereof and the results of its operations and cash flows
for the periods then ended and were prepared in accordance with generally
accepted accounting principles and such projections present a good faith opinion
of the matters set forth therein. Since the date of the most recent financial
statements, there has been no material adverse change in the business,
properties or condition (financial or otherwise) of the Borrower.
Section 5.6 Litigation. There are no actions, suits or proceedings pending or,
to the knowledge of the Borrower, threatened against or affecting the Borrower
or, to its knowledge, any of its Affiliates or the properties of the Borrower
or, to its knowledge, any of its Affiliates before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which, if determined adversely to the Borrower or any of its
Affiliates, would have a material adverse effect on the financial condition,
properties or operations of the Borrower or any of its Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
Section 5.8 Taxes. The Borrower and, to its knowledge, its Affiliates have paid
or caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them. The Borrower and, to its
knowledge, its Affiliates (except as provided in any of the Management Support
Agreements) have filed all federal, state and local tax returns which to the
knowledge of the officers of the Borrower or any Affiliate, as the case may be,
are required to be filed, and the Borrower and, to its knowledge, its Affiliates
have paid or caused to be paid to the respective taxing authorities all taxes as
shown on said returns or on any assessment received by any of them to the extent
such taxes have become due.
Section 5.9 Titles and Liens. The Borrower has good and marketable title to all
Collateral described in the collateral reports provided to the Lender and all
other Collateral, properties and assets reflected in the latest balance sheet
referred to in Section 5.5 hereof and all proceeds thereof, free and clear of
all mortgages, security interests, liens and encumbrances, except for (i)
mortgages, security interests and liens permitted by Section 7.1 hereof, and
(ii) in the case of any such property which is not Collateral or other
collateral described in the Security Documents, covenants, restrictions, rights,
easements and minor irregularities in title which do not materially interfere
with the business or operations of the Borrower as presently conducted. No
financing statement naming the Borrower as debtor is on file in any office
except to perfect only security interests permitted by Section 7.1 hereof.
Section 5.10 Plans. Except as disclosed to the Lender in writing prior to the
date hereof, neither the Borrower nor any of its Affiliates maintains or has
maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances
which could result in any liability to the Pension Benefit
Guaranty Corporation, the Internal Revenue Service, the
Department of Labor or any participant in connection with any
Plan (other than accrued benefits which or which may become
payable to participants or beneficiaries of any such Plan).
Section 5.11 Default. The Borrower is in compliance with all provisions of all
agreements, instruments, decrees and orders to which it is a party or by which
it or its property is bound or affected, the breach or default of which could
have a material adverse effect on the financial condition, properties or
operations of the Borrower.
Section 5.12 Environmental Protection. The Borrower has obtained all permits,
licenses and other authorizations which are required under federal, state and
local laws and regulations relating to emissions, discharges, releases of
pollutants, contaminants, hazardous or toxic materials, or wastes into ambient
air, surface water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes ("Environmental Laws") at the Borrower's facilities or in
connection with the operation of its facilities. Except as previously disclosed
to the Lender in writing, the Borrower and all activities of the Borrower at its
facilities comply in all material respects with all Environmental Laws and with
all terms and conditions of any required permits, licenses and authorizations
applicable to the Borrower with respect thereto. Except as previously disclosed
to the Lender in writing, the Borrower is also in compliance in all material
respects with all limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
Environmental Laws or contained in any plan, order, decree, judgment or notice
of which the Borrower is aware. Except as previously disclosed to the Lender in
writing, the Borrower is not aware of, nor has the Borrower received notice of,
any events, conditions, circumstances, activities, practices, incidents, actions
or plans which may interfere with or prevent continued compliance with, or which
may give rise to any liability under, any Environmental Laws.
Section 5.13 Submissions to Lender. All financial and other information provided
to the Lender by or on behalf of the Borrower in connection with the Borrower's
request for the credit facilities contemplated hereby is true and correct in all
material respects and, as to projections, valuations or proforma financial
statements, present a good faith opinion as to such projections, valuations and
proforma condition and results.
Section 5.14 Financing Statements. The Borrower has provided to the Lender
signed financing statements sufficient when filed to perfect the Security
Interests and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15 Rights to Payment. Except as set forth in any notice delivered
under Section 6.1(j), each right to payment and each instrument, document,
chattel paper and other agreement constituting or evidencing Collateral or other
collateral covered by the Security Documents is (or, in the case of all future
Collateral or such other collateral, will be when arising or issued) the valid,
genuine and legally enforceable obligation, subject to no defense, setoff or
counterclaim, of the account debtor or other obligor named therein or in the
Borrower's records pertaining thereto as being obligated to pay such obligation.
Section 5.16 Acquisition Documents. The Asset Purchase Agreement by and among
the Borrower and the Seller dated as of November 15, 1995 and all exhibits and
schedules thereto (collectively, the "Acquisition Documents") copies of which
have been delivered to the Lender, are true and correct and together comprise
full and complete copies of all agreements among the parties thereto with
respect to the transactions contemplated by such Acquisition Documents, and
there are no oral agreements or understandings not contained therein relating to
or modifying the substance thereof. The Acquisition Documents are in full force
and effect and have not been further amended, terminated, rescinded or
withdrawn, and no material provision has been waived by any party thereto.
Section 5.17 Solvency.
(a) Immediately following the closing of the transactions contemplated
hereby and by the Acquisition Documents, the fair saleable value of the
Borrower as a going concern will exceed the amount that will be
required to be paid in respect to the existing debts and other
liabilities (including all contingent liabilities) of the Borrower as
they mature.
(b) The Borrower does not and will not have, immediately following the
closing of the transactions contemplated hereunder, unreasonably small
capital to carry out its business as conducted or as proposed to be
conducted.
(c) The Borrower does not intend to and does not believe that it will
incur debts beyond its ability to pay such debts as they mature.
Section 5.18 Trademarks and Patents. Except as set forth on Exhibit F attached
hereto, the Borrower does not own any interest in any copyrights, patents or
trademarks that are registered under either Federal or State law.
ARTICLE VI.
Affirmative Covenants of the Borrower
So long as the Note shall remain unpaid or the Credit Facility shall be
outstanding, the Borrower will comply with the following requirements, unless
the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or cause to be
delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days after the end
of each fiscal year of the Borrower, audited financial statements of
the Borrower with the unqualified opinion of independent certified
public accountants selected by the Borrower and acceptable to the
Lender, which annual financial statements shall include the balance
sheet of the Borrower as at the end of such fiscal year and the related
statements of income, retained earnings and cash flows of the Borrower
for the fiscal year then ended, prepared, if the Lender so reasonably
requests, on a consolidating and consolidated basis to include any
Affiliates, all in reasonable detail and prepared in accordance with
generally accepted accounting principles consistently applied, and
shall contain footnote(s) stating that no Default or Event of Default
existed as of the date of such financial statements and the Borrower is
in compliance with the requirements set forth in Sections 6.12 through
6.15 and Section 7.10 hereof, together with a certificate of the chief
financial officer of the Borrower substantially in the form of Exhibit
D hereto stating (i) that such financial statements have been prepared
in accordance with generally accepted accounting principles
consistently applied and (ii) whether or not such officer has knowledge
of the occurrence of any Default or Event of Default hereunder and, if
so, stating in reasonable detail the facts with respect thereto;
(b) as soon as available and in any event within 20 days after the end
of each month, an unaudited/internal balance sheet and statements of
income and retained earnings of the Borrower as at the end of and for
such month and for the year to date period then ended, prepared, if the
Lender so reasonably requests, on a consolidating and consolidated
basis to include any Affiliates, in reasonable detail and stating in
comparative form the figures for the corresponding date and periods in
the previous year, all prepared in accordance with generally accepted
accounting principles consistently applied, subject to year-end audit
adjustments; and accompanied by a certificate of the chief financial
officer of the Borrower, substantially in the form of Exhibit D hereto
stating (i) that such financial statements have been prepared in
accordance with generally accepted accounting principles consistently
applied, subject to year-end audit adjustments, (ii) whether or not
such officer has knowledge of the occurrence of any Default or Event of
Default hereunder not theretofore reported and remedied and, if so,
stating in reasonable detail the facts with respect thereto, and (iii)
all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with
the requirements set forth in Sections 6.12 through 6.15 and Section
7.10 hereof;
(c) within 15 days after the end of each month, agings of the
Borrower's accounts receivable and its accounts payable and an
inventory certification report as at the end of such month;
(d) within 15 days of the end of each month, a schedule of assigned
receivables, a collection report and such other documents regarding the
Borrower's accounts receivable and collections as the Lender may
request, on forms provided by the Lender; provided, however, that if
the Borrower's Availability becomes less than $5,000,000, such reports
and schedules shall be provided to the Lender on a weekly basis;
provided, further, that if the Borrower's Availability becomes less
than $5,000,000 during any weekly reporting period, such reports and
schedules shall thereafter be provided to the Lender on a daily basis;
(e) at least 30 days before the beginning of each fiscal year of the
Borrower, the projected balance sheets and income statements for each
month of such year, each in reasonable detail, representing the good
faith projections of the Borrower and certified by the Borrower's chief
financial officer as representing in the good faith judgment of the
Borrower the most reasonable projections available and identical to the
projections used by the Borrower for internal planning purposes,
together with such supporting schedules and information as the Lender
may in its discretion require;
(f) immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or
regulatory agency affecting the Borrower of the type described in
Section 5.6 hereof or which seek a monetary recovery against the
Borrower in excess of $50,000;
(g) as promptly as practicable (but in any event not later than five
business days) after an officer of the Borrower obtains knowledge of
the occurrence of any breach, default or event of default under any
Security Document or any event which constitutes a Default or Event of
Default hereunder, notice of such occurrence, together with a detailed
statement by a responsible officer of the Borrower of the steps being
taken by the Borrower to cure the effect of such breach, default or
event;
(h) as soon as possible and in any event within 30 days after the
Borrower knows or has reason to know that any Reportable Event with
respect to any Plan has occurred, the statement of the chief financial
officer of the Borrower setting forth details as to such Reportable
Event and the action which the Borrower proposes to take with respect
thereto, together with a copy of the notice of such Reportable Event to
the Pension Benefit Guaranty Corporation;
(i) as soon as possible, and in any event within 10 days after the
Borrower fails to make any quarterly contribution required with respect
to any Plan under Section 412(m) of the Internal Revenue Code of 1986,
as amended, the statement of the chief financial officer of the
Borrower setting forth details as to such failure and the action which
the Borrower proposes to take with respect thereto, together with a
copy of any notice of such failure required to be provided to the
Pension Benefit Guaranty Corporation;
(j) promptly upon obtaining knowledge thereof, notice of (i) any
disputes or claims by customers of the Borrower which seek a monetary
recovery against the Borrower in excess of $50,000; (ii) any goods
returned to or recovered by the Borrower with an aggregate invoice
price in excess of $50,000; and (iii) any change in the persons
constituting the officers and directors of the Borrower;
(k) promptly upon obtaining knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any
Collateral or such other collateral or the prospect of payment thereof;
(l) promptly upon their distribution, copies of all financial statements,
reports and proxy statements which the Borrower shall have sent to its
stockholders;
(m) promptly after the sending or filing thereof, copies of all regular
and periodic financial reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(n) promptly upon knowledge thereof, notice of the violation by the
Borrower of any law, rule or regulation, the non-compliance with which
could materially and adversely affect its business or its financial
condition; and
(o) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may request.
Section 6.2 Books and Records; Inspection and Examination. The Borrower will
keep accurate books of record and account for itself pertaining to the
Collateral and the Real Estate and pertaining to the Borrower's business and
financial condition and such other matters as the Lender may from time to time
request in which true and complete entries will be made in accordance with
generally accepted accounting principles consistently applied and, upon request
of the Lender, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
affairs of the Borrower with any of its directors, officers, employees or
agents. The Borrower will permit the Lender, or its employees, accountants,
attorneys or agents, to examine and inspect any Collateral, the Real Estate,
other collateral covered by the Security Documents or any other property of the
Borrower at any time during ordinary business hours.
Section 6.3 Account Verification. The Borrower will at any time and from time to
time upon request of the Lender, and the Lender may, at any time in its sole
discretion, send or make written or verbal requests for verification of accounts
or notices of assignment to account debtors and other obligors.
Section 6.4 Compliance with Laws; Environmental Indemnity; Environmental
Reports. The Borrower will (a) comply in all material respects with the
requirements of applicable laws and regulations, the non-compliance with which
would materially and adversely affect its business or its financial condition,
(b) comply in all material respects with all applicable Environmental Laws and
obtain any permits, licenses or similar approvals required by any such
Environmental Laws, and (c) use and keep the Collateral, and will require that
others use and keep the Collateral, only for lawful purposes, without violation
of any federal, state or local law, statute or ordinance. The Borrower will
indemnify, defend and hold the Lender harmless from and against any claims, loss
or damage to which the Lender may be subjected as a result of any past, present
or future existence, use, handling, storage, transportation or disposal of any
hazardous waste or substance or toxic substance by the Borrower or on property
owned, leased or controlled by the Borrower. This indemnification agreement
shall survive the termination of this Agreement and payment of the indebtedness
hereunder.
Section 6.5 Payment of Taxes and Other Claims. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Collateral) or upon or against the
creation, perfection or continuance of the Security Interests, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien or charge upon any
properties of the Borrower; provided, that the Borrower shall not be required to
pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings.
Section 6.6 Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the Real
Estate, the other collateral covered by the Security Documents and all
of its other properties necessary or useful in its business in good
condition, repair and working order (normal wear and tear excepted) and
will from time to time replace or repair any worn, defective or broken
parts; provided, however, that nothing in this Section 6.6 shall
prevent the Borrower from discontinuing the operation and maintenance
of any of its properties if such discontinuance is, in the judgment of
the Lender, desirable in the conduct of the Borrower's business and not
disadvantageous in any material respect to the Lender.
(b) The Borrower will defend the Collateral and the Real Estate against
all claims or demands of all persons (other than the Lender) claiming
the Collateral or the Real Estate or any interest therein.
(c) The Borrower will keep all Collateral, the Real Estate and other
collateral covered by the Security Documents free and clear of all
security interests, liens and encumbrances except the Security
Interests and other security interests permitted by Section 7.1 hereof.
Section 6.7 Insurance. The Borrower will obtain and at all times maintain
insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
keep all tangible Collateral and the Real Estate insured against risks of fire
(including so-called extended coverage), theft, collision (for Collateral
consisting of motor vehicles) and such other risks and in such amounts as the
Lender may reasonably request, with any loss payable to the Lender to the extent
of its interest, and all policies of such insurance shall contain a lender's
loss payable endorsement for the benefit of the Lender. All policies of
liability insurance required hereunder shall name the Lender as an additional
insured.
Section 6.8 Preservation of Corporate Existence. The Borrower will preserve and
maintain its corporate existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
Section 6.9 Delivery of Instruments, etc. Upon request by the Lender, the
Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
Section 6.10 Lockbox; Collateral Account.
(a) The Borrower will irrevocably direct all present and future Account
debtors and other Persons obligated to make payments constituting
Collateral to make such payments directly to the Lockbox. All of the
Borrower's invoices, account statements and other written or oral
communications directing, instructing, demanding or requesting payment
of any Account or any other amount constituting Collateral shall
conspicuously direct that all payments be made to the Lockbox and shall
include the Lockbox address. All payments received in the Lockbox shall
be processed to the Collateral Account.
(b) The Borrower agrees to deposit in the Collateral Account or, at the
Lender's option, to deliver to the Lender collections on Accounts,
contract rights, chattel paper and other rights to payment constituting
Collateral, and all other cash proceeds of Collateral, which the
Borrower may receive directly notwithstanding its direction to Account
debtors and other obligors to make payments to the Lockbox, immediately
upon receipt thereof, in the form received, except for the Borrower's
endorsement when deemed necessary. Until delivered to the Lender or
deposited in the Collateral Account, all proceeds or collections of
Collateral shall be held in trust by the Borrower for and as the
property of the Lender and shall not be commingled with any funds or
property of the Borrower. Amounts deposited in the Collateral Account
shall not bear interest and shall not be subject to withdrawal by the
Borrower, except after full payment and discharge of all Obligations.
All such collections shall constitute proceeds of Collateral and shall
not constitute payment of any Obligation. Collected funds from the
Collateral Account shall be transferred to the Lender's general
account, and the Lender may deposit in its general account or in the
Collateral Account any and all collections received by it directly from
the Borrower. The Lender may commingle such funds with other property
of the Lender or any other person. The Lender shall, after allowing 1
Banking Day, apply such funds to the payment of any and all Obligations
(i) if no Default or Event of Default has occurred, first to the
Revolving Credit Facility and second to the Term Loan and the Real
Estate Loan in the order such payments are due, and (ii) if a Default
or Event of Default has occurred, then in any order or manner of
application satisfactory to the Lender. All items delivered to the
Lender or deposited in the Collateral Account shall be subject to final
payment. If any such item is returned uncollected, the Borrower will
immediately pay the Lender, or, for items deposited in the Collateral
Account, Norwest, the amount of that item, or Norwest at its discretion
may charge any uncollected item to the Borrower's commercial account or
other account. The Borrower shall be liable as an endorser on all items
deposited in the Collateral Account, whether or not in fact endorsed by
the Borrower.
Section 6.11 Performance by the Lender. If the Borrower at any time fails to
perform or observe any of the foregoing covenants contained in this Article VI
or elsewhere herein, and if such failure shall continue for a period of ten
calendar days after the Lender gives the Borrower written notice thereof (or in
the case of the agreements contained in Sections 6.5, 6.7 and 6.10 hereof,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens or encumbrances, the performance of obligations owed
to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the performance or observance by the Lender of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the delegate of the Lender, acting alone, as the attorney in fact of the
Borrower (which appointment is coupled with an interest) with the right (but not
the duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by the Borrower under this Section
6.11.
Section 6.12 Debt Service Coverage Ratio. The Borrower shall maintain (exclusive
of any Subsidiaries or Affiliates unless the Lender specifically consents in
writing to their inclusion in such calculation) a Debt Service Coverage Ratio of
at least 1.1 to 1.0 for the twelve-month period ending December 31, 1997.
Section 6.13 Book Net Worth Plus Subordinated Indebtedness. The Borrower shall
at all times maintain (exclusive of any Subsidiaries or Affiliates unless the
Lender specifically consents in writing to their inclusion in such calculation)
Book Net Worth plus Subordinated Indebtedness of at least the following,
calculated monthly as of the following dates:
Book Net Worth
For the Month Ending Plus Subordinated Indebtedness
April 30, 1997 $27,920,000
May 31, 1997 $27,890,000
June 30, 1997 $28,350,000
July 31, 1997 $28,120,000
August 31, 1997 $28,490,000
September 30, 1997 $29,050,000
October 31, 1997 $29,020,000
November 30, 1997 $29,590,000
December 31, 1997 $30,050,000
January 31, 1998 $28,520,000
February 28, 1998 $28,090,000
March 31, 1998 $28,250,000
April 30, 1998 $27,720,000
Section 6.14 Leverage Ratio. The Borrower shall at all times maintain (exclusive
of any Subsidiaries or Affiliates unless the Lender specifically consents in
writing to their inclusion in such calculation) a Leverage Ratio of not greater
than the following, calculated monthly as of the following dates:
For the Month Ending Leverage Ratio
April 30, 1997 1.20 to 1.0
May 31, 1997 1.30 to 1.0
June 30, 1997 1.30 to 1.0
July 31, 1997 1.30 to 1.0
August 31, 1997 1.30 to 1.0
September 30, 1997 1.30 to 1.0
October 31, 1997 1.30 to 1.0
November 30, 1997 1.20 to 1.0
December 31, 1997 1.20 to 1.0
January 31, 1998 1.20 to 1.0
February 28, 1998 1.20 to 1.0
March 31, 1998 1.20 to 1.0
April 30, 1998 1.20 to 1.0
Section 6.15 Net Income. The Borrower will at all times maintain (exclusive of
any Subsidiaries or Affiliates unless the Lender specifically consents in
writing to their inclusion in such calculation) Net Income calculated monthly on
a fiscal year-to-date basis of at least the following amounts for the following
dates:
For the Month Ending Net Income
April 30, 1997 ($2,200,000)
May 31, 1997 ($2,200,000)
June 30, 1997 ($1,700,000)
July 31, 1997 ($1,900,000)
August 31, 1997 ($1,500,000)
September 30, 1997 ($900,000)
October 31, 1997 ($900,000)
November 30, 1997 ($300,000)
December 31, 1997 $200,000
January 31, 1998 ($1,500,000)
February 28, 1998 ($1,900,000)
March 31, 1998 ($1,700,000)
April 30, 1998 ($2,200,000)
Section 6.16 Covenants for Subsequent Periods. Debt Service Coverage Ratios,
Book Net Worth, Leverage Ratios and Net Income covenants, and any other
covenants which the Lender may deem appropriate in the future based upon the
financial condition or performance by the Borrower for the period commencing May
1, 1998 and thereafter shall be established by the Lender in its discretion, but
in any event such covenants shall not be any less stringent than the covenants
then in effect for April 30, 1998 pursuant to Sections 6.12, 6.13, 6.14 and 6.15
above.
ARTICLE VII.
Negative Covenants
So long as the Note shall remain unpaid or the Credit Facility shall be
outstanding, the Borrower agrees that, without the prior written consent of the
Lender:
Section 7.1 Liens. The Borrower will not create, incur or suffer to exist any
mortgage, deed of trust, pledge, lien, security interest, assignment or transfer
upon or of any of its assets, now owned or hereafter acquired, to secure any
indebtedness; excluding, however, from the operation of the foregoing:
(a) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in Exhibit C
hereto, securing indebtedness for borrowed money permitted under
Section 7.2 hereof;
(b) the Security Interests; and
(c) purchase money security interests relating to the acquisition of
machinery and equipment of the Borrower so long as the Borrower is in,
and maintains, compliance with every other provision of this Agreement.
Section 7.2 Indebtedness. The Borrower will not incur, create, assume or permit
to exist any indebtedness or liability on account of deposits or advances or any
indebtedness for borrowed money, or any other indebtedness or liability
evidenced by notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Exhibit C hereto; and
(c) indebtedness relating to liens permitted in accordance
with Section 7.1(c) hereof.
Section 7.3 Guaranties. The Borrower will not assume, guarantee, endorse or
otherwise become directly or contingently liable in connection with any
obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the
Borrower for deposit or collection or similar transactions in the
ordinary course of business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons
in existence on the date hereof and listed in Exhibit C hereto.
Section 7.4 Investments and Subsidiaries.
(a) The Borrower will not purchase or hold beneficially any stock or
other securities or evidence of indebtedness of, make or permit to
exist any loans or advances to, or make any investment or acquire any
interest whatsoever in, any other Person, including specifically but
without limitation any partnership or joint venture, except:
(1) investments in direct obligations of the United States of America or any
agency or instrumentality thereof whose obligations constitute full faith
and credit obligations of the United States of America having a maturity of
one year or less, commercial paper issued by U.S. corporations rated "A-l"
or "A-2" by Standard & Poor's Corporation or "P-1" or "P-2" by Moody's
Investors Service or certificates of deposit or bankers' acceptances having
a maturity of one year or less issued by members of the Federal Reserve
System having deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the Federal Deposit
Insurance Corporation);
(2) travel advances or loans to officers and employees of the Borrower not
exceeding at any one time an aggregate of $50,000;
(3) advances in the form of progress payments, prepaid rent or security
deposits;
(4) an operating account(s) provided the amount on deposit therein does not
exceed $100,000 in the aggregate at any time; and
(5) stock acquired in various companies pursuant to the Acquisition Documents.
(b) The Borrower will not create or permit to exist any Subsidiary,
other than any Subsidiary in existence on the date hereof and listed in
Exhibit B hereto.
Section 7.5 Dividends. The Borrower will not declare or pay any dividends (other
than dividends payable solely in stock of the Borrower and dividends in the
amounts and under the terms as permitted under the Subordination Agreement) on
any class of its stock or make any payment on account of the purchase,
redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly.
Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations. The
Borrower will not sell, lease, assign, transfer or otherwise dispose of (i) the
stock of any Subsidiary, (ii) all or a substantial part of its assets, or (iii)
any Collateral or any interest therein (whether in one transaction or in a
series of transactions) to any other Person other than the sale of Inventory in
the ordinary course of business and will not liquidate, dissolve or suspend
business operations. The Borrower will not in any manner transfer any property
without prior or present receipt of full and adequate consideration.
Section 7.7 Consolidation and Merger; Asset Acquisitions. The Borrower will not
consolidate with or merge into any Person, or permit any other Person to merge
into it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all the assets of any other
Person.
Section 7.8 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 Restrictions on Nature of Business. The Borrower will not engage in
any line of business materially different from that presently engaged in by the
Borrower and will not purchase, lease or otherwise acquire assets not related to
its business.
Section 7.10 Capital Expenditures. The Borrower will not expend or contract to
expend Capital Expenditures more than $3,300,000 in the aggregate during its
fiscal year ending December 31, 1997; provided, however, that no more than
$1,400,000 of such Capital Expenditures may be financed by Advances.
Section 7.11 Accounting. The Borrower will not adopt any material change in
accounting principles other than as required by generally accepted accounting
principles. The Borrower will not adopt, permit or consent to any change in its
fiscal year.
Section 7.12 Discounts, etc. The Borrower will not, after notice from the
Lender, grant any discount, credit or allowance to any customer of the Borrower
or accept any return of goods sold, or modify, amend, subordinate, cancel or
terminate the obligation of any account debtor or other obligor of the Borrower.
Section 7.13 Defined Benefit Pension Plans. The Borrower will not adopt, create,
assume or become a party to any defined benefit pension plan, unless disclosed
to the Lender pursuant to Section 5.10 hereof.
Section 7.14 Other Defaults. The Borrower will not permit any breach, default or
event of default to occur under any note, loan agreement, indenture, lease,
mortgage, contract for deed, security agreement or other contractual obligation
binding upon the Borrower.
Section 7.15 Place of Business; Name. The Borrower will not transfer its chief
executive office or principal place of business, or move, relocate, close or
sell any business location. The Borrower will not permit any tangible Collateral
or any records pertaining to the Collateral to be located in any state or area
in which, in the event of such location, a financing statement covering such
Collateral would be required to be, but has not in fact been, filed in order to
perfect the Security Interests. The Borrower will not change its name.
Section 7.16 Organizational Documents; S Corporation Status. The Borrower will
not amend its certificate of incorporation, articles of incorporation or bylaws.
The Borrower will not become an S Corporation within the meaning of the Internal
Revenue Code of 1986, as amended, or, if the Borrower already is such an S
Corporation, it shall not change or rescind its status as an S Corporation.
Section 7.17 Salaries. The Borrower will not pay excessive or unreasonable
salaries, bonuses, commissions, consultant fees or other compensation.
ARTICLE VIII.
Events of Default, Rights and Remedies
Section 8.1 Events of Default. "Event of Default," wherever used herein,
means any one of the following events:
(a) Default in the payment of any interest on or principal
of the Note when it becomes due and payable or failure to pay any
amount specified in Section 2.16 hereof relating to Borrower's
Obligation of Reimbursement or shall fail to pay any amounts
required to be paid for deposit in the Special Account under
Section 2.17 hereof, in each case when the same becomes due and
payable hereunder; or
(b) Default in the payment of any fees, commissions, costs
or expenses required to be paid by the Borrower under this
Agreement; or
(c) Default in the performance, or breach, of any
covenant or agreement of the Borrower contained in this
Agreement; provided, however, that if and as long as the
Borrower maintains Availability in excess of $4,000,000, the
Borrower's non-compliance with the covenants set forth in
Sections 6.12, 6.13, 6.14, 6.15 and/or 7.10 of this
Agreement shall constitute a Default or an Event of Default
only if such non-compliance continues for in excess of 31
consecutive days; or
(d) The Borrower shall be or become insolvent, or admit
in writing its inability to pay its debts as they mature, or
make an assignment for the benefit of creditors; or the
Borrower shall apply for or consent to the appointment of
any receiver, trustee, or similar officer for it or him or
for all or any substantial part of its or his property; or
such receiver, trustee or similar officer shall be appointed
without the application or consent of the Borrower; or the
Borrower shall institute (by petition, application, answer,
consent or otherwise) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to
it or him under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or
otherwise) against the Borrower; or any judgment, writ,
warrant of attachment, garnishment or execution or similar
process shall be issued or levied against a substantial part
of the property of the Borrower; or
(e) A petition shall be filed by or against the
Borrower under the United States Bankruptcy Code naming the
Borrower as debtor and, if filed against the Borrower, is
not dismissed within 30 days; or
(f) Any representation or warranty made by the Borrower
in this Agreement or by the Borrower (or any of its
officers) in any agreement, certificate, instrument or
financial statement or other statement contemplated by or
made or delivered pursuant to or in connection with this
Agreement shall prove to have been incorrect in any material
respect when deemed to be effective; or
(g) The rendering against the Borrower of a final
judgment, decree or order for the payment of money in excess
of $50,000 and the continuance of such judgment, decree or
order unsatisfied and in effect for any period of 30
consecutive days without a stay of execution; or
(h) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person
other than the Lender, or under any indenture or other
instrument under which any such evidence of indebtedness has
been issued or by which it is governed, or under any lease
of any of the Premises, and the expiration of the applicable
period of grace, if any, specified in such evidence of
indebtedness, indenture, other instrument or lease; or
(i) Any Reportable Event, which the Lender determines
in good faith might constitute grounds for the termination
of any Plan or for the appointment by the appropriate United
States District Court of a trustee to administer any Plan,
shall have occurred and be continuing 30 days after written
notice to such effect shall have been given to the Borrower
by the Lender; or a trustee shall have been appointed by an
appropriate United States District Court to administer any
Plan; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Plan or to appoint a
trustee to administer any Plan; or the Borrower shall have
filed for a distress termination of any Plan under Title IV
of ERISA; or the Borrower shall have failed to make any
quarterly contribution required with respect to any Plan
under Section 412(m) of the Internal Revenue Code of 1986,
as amended, which the Lender determines in good faith may by
itself, or in combination with any such failures that the
Lender may determine are likely to occur in the future,
result in the imposition of a lien on the assets of the
Borrower in favor of the Plan; or
(j) An event of default shall occur under any Security
Document or under any other security agreement, mortgage,
deed of trust, assignment or other instrument or agreement
securing any obligations of the Borrower hereunder or under
any Note; or
(k) The Borrower shall liquidate, dissolve, terminate
or suspend its business operations or otherwise fail to
operate its business in the ordinary course, or sell all or
substantially all of its assets, without the prior written
consent of the Lender; or
(l) The Borrower shall fail to pay, withhold, collect
or remit any tax or tax deficiency when assessed or due
(other than any tax deficiency which is being contested in
good faith and by proper proceedings and for which it shall
have set aside on its books adequate reserves therefor) or
notice of any state or federal tax liens shall be filed or
issued; or
(m) Default in the payment of any amount owed by the
Borrower to the Lender other than any indebtedness arising
hereunder; or
(n) Any breach, default or event of default by or
attributable to any Affiliate under any agreement between
such Affiliate and the Lender; or
(o) Don Hoff shall no longer be the chief executive
officer of the Borrower with all customary authority and
responsibility for such position; or
(p) Dominic LaRosa shall no longer be the president of
the Lamaur division of the Borrower with all customary
authority and responsibility for such position; or
(q) The Hoff family (which shall include Don Hoff,
Perry Hoff and members of their immediate family) shall fail
to have the power to vote, either directly or as a general
partner or in a fiduciary or other capacity, at least 24% of
the voting stock of the Borrower.
Section 8.2 Rights and Remedies. Upon the occurrence and continuance of an Event
of Default, the Lender may exercise any or all of the following rights and
remedies:
(a) The Lender may, by notice to the Borrower, declare the Credit
Facility to be terminated, whereupon the same shall forthwith terminate
and/or may refuse to issue or cause to be issued any Letter of Credit;
(b) The Lender may, by notice to the Borrower, declare to be forthwith
due and payable the entire unpaid principal amount of the Note then
outstanding, all interest accrued and unpaid thereon, all amounts
payable under this Agreement and any other Obligations, whereupon the
Note, all such accrued interest and all such amounts and Obligations
shall become and he forthwith due and payable, without presentment,
notice of dishonor, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower;
(c) The Lender may, without notice to the Borrower and without further
action, apply any and all money owing by the Lender to the Borrower to
the payment of the Advances, the Term Loan and/or the Real Estate Loan
including interest accrued thereon, and of all other sums then owing by
the Borrower hereunder;
(d) The Lender may, exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of
Collateral, or any evidence thereat, proceeding without judicial
process or by judicial process (without a prior hearing or notice
thereof, which the Borrower hereby expressly waives) and the right to
sell, lease or otherwise dispose of any or all of the Collateral, and,
in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be
designated by the Lender which is reasonably convenient to both
parties;
(e) the Lender may exercise and enforce its rights and
remedies under the Loan Documents;
(f) the Lender may exercise any other rights and
remedies available to it by law or agreement; and
(g) the Lender may make demand upon the Borrower and, forthwith upon
such demand, the Borrower will pay to the Lender in immediately
available funds for deposit in the Special Account pursuant to Section
2.17 hereof an amount equal to the maximum aggregate amount available
to be drawn under Letters of Credit then outstanding assuming
compliance with all conditions for drawing thereunder.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 8.1(e) hereof, the entire unpaid principal amount of the
Note (whether contingent or funded), all interest accrued and unpaid thereon,
all other amounts payable under this Agreement and any other Obligations shall
be immediately due and payable automatically without presentment, demand,
protest or notice of any kind.
Section 8.3 Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten calendar days prior
to the date of intended disposition or other action.
ARTICLE IX.
Miscellaneous
Section 9.1 No Waiver; Cumulative Remedies. No failure or delay on the part of
the Lender in exercising any right, power or remedy under the Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy under the Loan Documents.
The remedies provided in the Loan Documents are cumulative and not exclusive of
any remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification, termination or waiver
of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as otherwise expressly provided
herein, all notices, requests, demands and other communications provided for
under the Loan Documents shall be in writing and shall be (a) personally
delivered, (b) sent by first class United States mail, (c) sent by overnight
courier of national reputation, or (d) transmitted by telecopy, in each case
addressed to the party to whom notice is being given at its address as set forth
below and, if telecopied, transmitted to that party at its telecopier number set
forth below:
If to the Borrower:
The Lamaur Corporation
One Lovell Avenue
Mill Valley, CA 94941
Telecopier: (415) 380-8170
Attention: Mr. John Hellmann
If to the Lender:
Norwest Business Credit, Inc.
Roanoke Building, Fourth Floor
109 South Seventh Street
Minneapolis, Minnesota 55402
Telecopier: (612) 673-8589
Attention: Ms. Vipa Chiraprut
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II hereof shall not
be effective until received by the Lender.
Section 9.4 Financing Statement. A carbon, photographic or other reproduction of
this Agreement or of any financing statements signed by the Borrower is
sufficient as a financing statement and may be filed as a financing statement in
any state to perfect the security interests granted hereby. For this purpose,
the following information is set forth:
Name and address of Debtor:
The Lamaur Corporation
One Lovell Avenue
Mill Valley, CA 94941
Federal Tax Identification No. 68-0301547
Name and address of Secured Party:
Norwest Business Credit, Inc.
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-2058
Section 9.5 Further Documents. The Borrower will from time to time execute and
deliver or endorse any and all instruments, documents, conveyances, assignments,
security agreements, financing statements and other agreements and writings that
the Lender may reasonably request in order to secure, protect, perfect or
enforce the Security Interests or the rights of the Lender under this Agreement
(but any failure to request or assure that the Borrower executes, delivers or
endorses any such item shall not affect or impair the validity, sufficiency or
enforceability of this Agreement and the Security Interests, regardless of
whether any such item was or was not executed, delivered or endorsed in a
similar context or on a prior occasion).
Section 9.6 Collateral. This Agreement does not contemplate a sale of accounts,
contract rights or chattel paper, and, as provided by law, the Borrower is
entitled to any surplus and shall remain liable for any deficiency. The Lender's
duty of care with respect to Collateral in its possession (as imposed by law)
shall be deemed fulfilled if it exercises reasonable care in physically keeping
such Collateral, or in the case of Collateral in the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of the
bailee or other third person, and the Lender need not otherwise preserve,
protect, insure or care for any Collateral. The Lender shall not be obligated to
preserve any rights the Borrower may have against prior parties, to realize on
the Collateral at all or in any particular manner or order or to apply any cash
proceeds of the Collateral in any particular order of application.
Section 9.7 Costs and Expenses. The Borrower agrees to pay on demand all costs
and expenses, including (without limitation) reasonable attorneys' fees,
incurred by the Lender in connection with the Obligations, this Agreement, the
Loan Documents and any other document or agreement related hereto or thereto,
and the transactions contemplated hereby, including without limitation all such
costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interests; provided, that the reasonableness limitation set forth
herein shall not apply to any collection or enforcement of the Obligations or to
any protection, enforcement or foreclosure of the Security Interests. Without
limiting the foregoing in any way, the Borrower agrees to pay on demand all
costs and expenses, including without limitation reasonable attorneys' fees,
incurred by the Lender in connection with the Obligations, this Agreement, the
Loan Documents, any Letter of Credit and any other document or Agreement related
hereto or thereto, and the transactions contemplated hereby.
Section 9.8 Indemnity. In addition to the payment of expenses pursuant to
Section 9.7 hereof and the environmental indemnity pursuant to Section 6.4
hereof, the Borrower agrees to indemnify, defend and hold harmless the Lender,
and any of its participants, parent corporations, subsidiary corporations,
affiliated corporations, successor corporations, and all present and future
officers, directors, employees and agents of the foregoing (the "Indemnitees"),
from and against (i) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the execution and
delivery of this Agreement and the other Loan Documents or the making of the
Advances, the Term Loan or the Real Estate Loan, and (ii) any and all
liabilities, losses, damages, penalties, judgments, suits, claims, costs and
expenses of any kind or nature whatsoever (including, without limitation, the
reasonable fees and disbursements of counsel) in connection with any
investigative, administrative or judicial proceedings, whether or not such
Indemnitee shall be designated a party thereto, which may be imposed on,
incurred by or asserted against such Indemnitee, in any manner relating to or
arising out of or in connection with the making of the Advances, the Term Loan
or the Real Estate Loan, this Agreement and all other Loan Documents or the use
or intended use of the proceeds of the Advances, the Term Loan or the Real
Estate Loan (the "Indemnified Liabilities"). If any investigative, judicial or
administrative proceeding arising from any of the foregoing is brought against
any Indemnitee, upon request of such Indemnitee, the Borrower, or counsel
designated by the Borrower and satisfactory to the Indemnitee, will resist and
defend such action, suit or proceeding to the extent and in the manner directed
by the Indemnitee, at the Borrower's sole cost and expense. Each Indemnitee will
use its best efforts to cooperate in the defense of any such action, suit or
proceeding. If the foregoing undertaking to indemnify, defend and hold harmless
may be held to be unenforceable because it violates any law or public policy,
the Borrower shall nevertheless make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. The obligation of the Borrower under this Section 9.8 shall
survive the termination of this Agreement and the discharge of the Borrower's
other Obligations.
Section 9.9 Participants. The Borrower acknowledges that the Lender may seek to
syndicate or participate all or a portion of the credit facilities extended
hereunder. The Borrower hereby agrees that it shall cooperate fully with the
Lender with respect to any syndication or participation efforts by providing
sufficient information, including financial projections, for the preparation of
materials describing the facility. Such cooperation includes, but is not limited
to, representatives of the Borrower's management attending bankers' meetings and
making themselves available to answer questions during the syndication or
participation process. The Lender and its participants, if any, are not partners
or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the participants, successors or assigns of the Lender.
Section 9.10 Execution in Counterparts. This Agreement and other Loan Documents
may be executed in any number of counterparts, each of which when so executed
and delivered shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same instrument.
Section 9.11 Amendment of Original Loan Documents. The Original Loan
Documents are hereby amended as follows:
(a) the Original Patent Mortgage is amended by (i) changing the name
of the "Mortgagor" therein to "The Lamaur Corporation, a Delaware
corporation", and (ii) changing the definition of "Credit
Agreement" therein to "an Amended and Restated Credit and Security
Agreement by and between the Mortgagor and the Mortgagee, dated
May 16, 1997, as amended";
(b) the Original Trademark Mortgage is amended by (i) changing the
name of the "Mortgagor" therein to "The Lamaur Corporation, a
Delaware corporation", and (ii) changing the definition of "Credit
Agreement" therein to "an Amended and Restated Credit and Security
Agreement by and between the Mortgagor and the Mortgagee, dated
May 16, 1997, as amended";
(c) the Original Collateral Account Agreement is amended by (i)
changing the name of the "Client therein to "The Lamaur
Corporation, a Delaware corporation", and (ii) changing the number
"2" in section 4 thereof to the number "1";
(d) the Original Lockbox Agreement is amended by (i) changing the name
of the "Customer" therein to "The Lamaur Corporation, a Delaware
corporation", and (ii) changing the address of the Lockbox to the
following:
"The Lamaur Corporation
NW-1414
P.O. Box 1450
Minneapolis, Minnesota 55485-1414";
(e) the Hoff Support Agreement is amended by (i) changing the name of
the Borrower therein to "The Lamaur Corporation, a Delaware
corporation", and (ii) changing the definition of "Credit
Agreement" therein to "that certain Amended and Restated Credit
and Security Agreement dated May 16, 1997, as amended".
(f) the LaRosa Support Agreement is amended by (i) changing the name
of the Borrower therein to "The Lamaur Corporation, a Delaware
corporation" and (ii) changing the definition of "Credit
Agreement" therein to "that certain Amended and Restated Credit
and Security Agreement dated May 16, 1997, as amended."
Except as expressly amended hereby, each of the Original Loan Documents shall
remain in full force and effect, in accordance with its terms.
Section 9.12 Binding Effect; Assignment; Complete Agreement. The Loan Documents
shall be binding upon and inure to the benefit of the Borrower and the Lender
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights thereunder or any interest therein without
the prior written consent of the Lender. This Agreement, together with the Loan
Documents, comprises the complete and integrated agreement of the parties on the
subject matter hereof and supersedes all prior agreements, written or oral, on
the subject matter hereof.
Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. The Loan
Documents shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Minnesota. Each party consents
to the personal jurisdiction of the state and federal courts located in the
State of Minnesota in connection with any controversy related to this Agreement,
waives any argument that venue in any such forum is not convenient and agrees
that any litigation initiated by any of them in connection with this Agreement
shall be venued in either the District Court of Hennepin County, Minnesota, or
the United States District Court, District of Minnesota, Fourth Division. The
parties waive any right to trial by jury in any action or proceeding based on or
pertaining to this Agreement.
Section 9.14 Severability of Provisions. Any provision of this Agreement which
is prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
Section 9.15 Headings. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
above written.
THE LAMAUR CORPORATION
By: ___________________________________
Its: _________________________________
NORWEST BUSINESS CREDIT, INC.
By: ___________________________________
Its: _________________________________
The undersigned each hereby acknowledges and agrees to the provisions of the
foregoing Agreement, to the extent such provisions purport to amend one or more
of the Original Loan Documents to which the undersigned is a party, agrees that
each of the Original Loan Documents to which the undersigned is a party remains
in full force and effect in accordance with its terms, as amended hereby and
reaffirms its obligations under each of such Original Loan Documents.
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION
By: ___________________________________
Its: _________________________________
Don G. Hoff
Dominic LaRosa
MPL1: 202771-6
<PAGE>
A-3
Exhibit A-1 to Amended and Restated
Credit and Security Agreement
AMENDED AND RESTATED REVOLVING NOTE
$20,000,000 Minneapolis, Minnesota
May 16, 1997
For value received, the undersigned, The Lamaur Corporation, a Delaware
corporation (the "Borrower"), hereby promises to pay on November 15, 2000 to the
order of Norwest Business Credit, Inc., a Minnesota corporation (the "Lender"),
at its main office in Minneapolis, Minnesota, or at any other place designated
at any time by the holder hereof, in lawful money of the United States of
America and in immediately available funds, the principal sum of Twenty Million
Dollars ($20,000,000) or, if less, the aggregate unpaid principal amount of all
advances made by the Lender to the Borrower hereunder, together with interest on
the principal amount hereunder remaining unpaid from time to time, computed on
the basis of the actual number of days elapsed and a 360-day year, from the date
hereof until this Note is fully paid at the rate from time to time in effect
under the Amended and Restated Credit and Security Agreement of even date
herewith (the "Credit Agreement") by and between the Lender and the Borrower.
The principal hereof and interest accruing thereon shall be due and payable as
provided in the Credit Agreement. This Note may be prepaid only in accordance
with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement, which
provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured, among
other things, pursuant to the Credit Agreement and the Security Documents (other
than the Mortgage) as therein defined, and may now or hereafter be secured by
one or more other security agreements, mortgages, deeds of trust, assignments or
other instruments or agreements.
This Note is executed, delivered and accepted, not in payment or satisfaction
of, but as an amendment and restatement of that certain Revolving Note dated
November 16, 1995 executed by Electronic Hair Styling, Inc., a Washington
corporation and payable to the order of the lender in the original principal
amount of $14,000,000.
The Borrower hereby agrees to pay all costs of collection, including attorneys'
fees and legal expenses in the event this Note is not paid when due, whether or
not legal proceedings are commenced. Presentment or other demand for payment,
notice of dishonor and protest are expressly waived.
THE LAMAUR CORPORATION
By:
Its:
<PAGE>
Exhibit A-2 to Amended and Restated
Credit and Security Agreement
AMENDED AND RESTATED TERM NOTE
300,000 Minneapolis, Minnesota
May 16, 1997
For value received, the undersigned, The Lamaur Corporation, a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of Norwest
Business Credit, Inc., a Minnesota corporation (the "Lender"), at its main
office in Minneapolis, Minnesota, or at any other place designated at any time
by the holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of Two Million Three Hundred
Thousand Dollars ($2,300,000), together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the
Amended and Restated Credit and Security Agreement of even date herewith (the
"Credit Agreement") by and between the Lender and the Borrower. The principal
hereof and interest accruing thereon shall be due and payable as provided in the
Credit Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement, which
provides, among other things, for acceleration hereof. This Note is the Term
Note referred to in the Credit Agreement. This Note is secured, among other
things, pursuant to the Credit Agreement and the Security Documents as therein
defined, and may now or hereafter be secured by one or more other security
agreements, mortgages, deeds of trust, assignments or other instruments or
agreements.
This Note is executed, delivered and accepted, not in payment or satisfaction
of, but as an amendment and restatement of that certain Term Note dated November
16, 1995 executed by Electronic Hair Styling, Inc., a Washington corporation and
payable to the order of the lender in the original principal amount of
$2,300,000.
The Borrower hereby agrees to pay all costs of collection, including attorneys'
fees and legal expenses in the event this Note is not paid when due, whether or
not legal proceedings are commenced. Presentment or other demand for payment,
notice of dishonor and protest are expressly waived.
THE LAMAUR CORPORATION
By:
Its:
<PAGE>
Exhibit A-3 to Amended and Restated
Credit and Security Agreement
AMENDED AND RESTATED REAL ESTATE NOTE
$4,700,000 Minneapolis, Minnesota
May 16, 1997
For value received, the undersigned, The Lamaur Corporation, a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of Norwest
Business Credit, Inc., a Minnesota corporation (the "Lender"), at its main
office in Minneapolis, Minnesota, or at any other place designated at any time
by the holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of Four Million Seven Hundred
Thousand Dollars ($4,700,000), together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the
Amended and Restated Credit and Security Agreement of even date herewith (the
"Credit Agreement") by and between the Lender and the Borrower. The principal
hereof and interest accruing thereon shall be due and payable as provided in the
Credit Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement, which
provides, among other things, for acceleration hereof. This Note is the Real
Estate Note referred to in the Credit Agreement. This Note is secured, among
other things, pursuant to the Credit Agreement and the Security Documents as
therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.
This Note is executed, delivered and accepted, not in payment or satisfaction
of, but as an amendment and restatement of that certain Real Estate Note dated
November 16, 1995 executed by Electronic Hair Styling, Inc., a Washington
corporation and payable to the order of the lender in the original principal
amount of $3,700,000.
The Borrower hereby agrees to pay all costs of collection, including attorneys'
fees and legal expenses in the event this Note is not paid when due, whether or
not legal proceedings are commenced. Presentment or other demand for payment,
notice of dishonor and protest are expressly waived.
THE LAMAUR CORPORATION
By:
Its:
<PAGE>
B-1
Exhibit B to Amended and Restated
Credit and Security Agreement
Names
Electronic Hair Styling, Inc.
The Lamaur Corporation
Chief Executive Office/Principal Place of Business
One Lovell Avenue
Mill Valley, CA 94141
Other Inventory and Equipment Locations
5601 E. River Road
Fridley, MN 55432
Subsidiaries
None
<PAGE>
C-2
Exhibit C to Amended and Restated
Credit and Security Agreement
Permitted Liens, Indebtedness and Guaranties
Liens
See Schedule C-1 attached hereto.
Indebtedness
See Schedule C-2 attached hereto.
Guaranties
None
<PAGE>
Exhibit C to Amended and Restated
Credit and Security Agreement
Schedule C-2
$1,000,000 promissory note payable by the Borrower to the order of Intertec.
<PAGE>
D-1
Exhibit D to Amended and Restated
Credit and Security Agreement
Compliance Certificate
In accordance with our Amended and Restated Credit and Security Agreement dated
as of May 16, 1997 (the "Credit Agreement"), attached are the financial
statements of The Lamaur Corporation, a Delaware corporation (the "Borrower") as
of and for the month and year-to-date period ended _______________ ____, 199__
(the "Current Financials").
I certify that the Current Financials have been prepared in accordance with
generally accepted accounting principles applied on a basis consistent with the
accounting practices reflected in the financial statements referred to in
Section 5.5 of the Credit Agreement, subject to year-end audit adjustments.
Defaults and Events of Default (check one)
[ ] I have no knowledge of the occurrence of any Default or Event
of Default under the Credit Agreement which has not previously
been reported to you and remedied.
[ ] Attached is a detailed description of all Defaults and Events
of Default of which I have knowledge and which have not
previously been reported to you and remedied.
For the date and periods covered by the Current Financials, the Borrower is
in compliance with the covenants set forth in Sections 6.12 through 6.15 and
7.10 of the Credit Agreement, except as indicated below. The calculations made
to determine compliance are as follows:
<PAGE>
Covenant Actual Requirement
D-2
Covenant Actual Requirement
6.12) Debt Service Coverage Ratio Minimum ___ to 1.0
6.13) Book Net Worth Minimum $________
6.14) Leverage Ratio Maximum ___ to 1.0
6.15) Net Income Minimum $________
<PAGE>
7.10) Capital Expenditures
Aggregate fiscal
year-to-date
expenditures $_______________ Maximum $_______
Any individual
expenditures in
excess of maximum
permitted? ____ Yes ____ No Maximum $_______
<PAGE>
E-1
Exhibit E to Amended and Restated
Credit and Security Agreement
Premises
The Premises referred to in the Credit and Security Agreement are legally
described as follows:
1. 5601 E. River Road, Fridley, MN 55432
2. One Lovell Avenue, Mill Valley, CA 94941
<PAGE>
F-1
Exhibit F to Amended and Restated
Credit and Security Agreement
Patents and Trademarks
See attached.
<PAGE>
G-1
Exhibit G to Amended and Restated
Credit and Security Agreement
Form of No Offset Agreement
To: Norwest Business Credit, Inc.
Roanoke Building, Fourth Floor
109 South Seventh Street
Minneapolis, MN 55402
Re: Electronic Hair Styling, Inc.
DowBrands Inc. ("Dow") hereby acknowledges to and agrees with Norwest
Business Credit, Inc. ("NBCI") as follows:
1. The aggregate amount owed by The Lamaur Corporation ("Lamaur") to Dow on
the date hereof is $----------------;
2. Dow shall unconditionally pay any and all "Accounts" (as hereinafter
defined) in excess of $___________________ without exercising any right of
set-off or deduction whatsoever;
3. NBCI has a security interest in and a collateral assignment of all
Accounts to secure any and all indebtedness of Lamaur to NBCI;
4. For purposes of this Agreement, the term "Accounts" shall mean the
obligation(s) of Dow to Lamaur arising out of the sale or lease of goods or
rendition of services by Lamaur to or for Dow on an open account or deferred
payment basis; and
5. The dollar amount set forth in Sections 1 and 2 above shall not increase
for any reason without the prior written consent of NBCI.
This Agreement is absolute and unconditional and may not be revoked or rescinded
by Dow.
Dated: _______________ ___, 199__.
DOWBRANDS INC.
By:_______________________________________
Its:______________________________________
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
THE LAMAUR CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS (LOSS) PER SHARE
UNAUDITED
THREE MONTHS SIX MONTHS
---------------------------- ------------------------------------------
ENDED JUNE 30, ENDED JUNE 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET INCOME ( LOSS) ($1,329) $657 ($2,766) ($66)
DIVIDENDS ON SERIES B PREFERRED STOCK (100) (33) (200) (33)
------------------------- -------------------------
NET INCOME ( LOSS) AVAILABLE TO
COMMON SHAREHOLDERS (1,429) 624 (2,966) (99)
========================= =========================
WEIGHTED AVERAGE SHARES OUTSTANDING 5675 4077 5661 3519
INCREMENTAL SHARES FROM THE EXERCISE
OF WARRANTS AND OPTIONS (1) 76 509 129 487
SHARES ISSUED UPON THE CONVERSION OF
SERIES A PREFERRED STOCK 660 660 660 660
------------------------- -------------------------
TOTAL WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 6411 5246 6450 4666
========================= =========================
NET INCOME (LOSS) PER SHARE ($0.22) $0.12 ($0.46) ($0.02)
(1) IN ACCORDANCE WITH THE RULES OF THE SECURITIES AND EXCHANGE COMMISSION
COMMON STOCK AND COMMON STOCK EQUIVALENTS ISSUED WITHIN ONE YEAR OF AN INITIAL
PUBLIC OFFERING ARE TO BE INCLUDED IN THE CALCULATION OF WEIGHTED AVERAGE COMMON
AND COMMON STOCK EQUIVALENT SHARES OUTSTANDING FOR ALL PERIODS PRESENTED USING
THE TREASURY STOCK METHOD, EVEN THOUGH THEY ARE ANTIDILUTIVE IN LOSS PERIODS
2) FULLY DILUTED EARNINGS PER SHARE IS NOT PRESENTED SINCE IT IS ANTIDILUTIVE
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements of The Lamaur Corporation for the six months
ended June 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0001011154
<NAME> The Lamaur Corporation
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7373
<SECURITIES> 0
<RECEIVABLES> 20,716
<ALLOWANCES> 861
<INVENTORY> 15,042
<CURRENT-ASSETS> 46,644
<PP&E> 21,332
<DEPRECIATION> 2,165
<TOTAL-ASSETS> 65,974
<CURRENT-LIABILITIES> 16,871
<BONDS> 21,435
0
13,500
<COMMON> 57
<OTHER-SE> 14,111
<TOTAL-LIABILITY-AND-EQUITY> 65,974
<SALES> 59,729
<TOTAL-REVENUES> 59,729
<CGS> 35,384
<TOTAL-COSTS> 35,384
<OTHER-EXPENSES> 26,559
<LOSS-PROVISION> 18
<INTEREST-EXPENSE> 833
<INCOME-PRETAX> (2,766)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,766)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,766)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
