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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
(PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934)
October 8, 1997
(Date of Report (Date of Earliest Event Reported))
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
(Exact name of registrant as specified in its charter)
DELAWARE 2741 95-4578632
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Number) Number)
5548 Lindbergh Lane
Bell, California 90201-6410
(213) 980-4300
(Address, including ZIP code, and telephone number, including area code,
of registrant's principal executive offices)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Effective August 1, 1997, the Company entered into an agreement (the
"Forbearance Agreement") with its lender, Foothill Capital Corporation
("Foothill"), whereby Foothill agreed to not enforce certain of its remedies
available as a result of the Company's default under its line of credit until
October 1, 1997. In connection with the Forbearance Agreement, on August 28,
1997, Senoral, Inc., a creditor of the Company ("Senoral"), purchased
Foothill's rights under the line of credit for approximately $342,000.
Effective September 11, 1997, Senoral began advancing funds to the Company
under the line of credit. As of October 7, 1997, the amount outstanding under
the line of credit was approximately $1,728,197.
Senoral is controlled by Alan Saloner who owns 250,000 shares of the
Company's common stock, $.01 par value per share (the "Common Stock") (or
approximatley 1.9% of the outstanding Common Stock).
As a result of the Company's default under the Senoral loan, Senoral
foreclosed against OSP's assets (the "Assets") through a public sale of the
Assets on October 8, 1997. Senoral purchased the Assets in the public sale
for $1,000,000. In connection with the public sale, Global One and OSP waived
their rights to, among other things, certain notices, rights of redemption
and rights to object to the form of the sale.
The book value of the Assets at August 31, 1997 was as follows:
ASSETS AS OF AUGUST 31, 1997 OSP PUBLISHING, INC.
CURRENT ASSETS
Cash $ (608,700)
Accounts Receivable - trade 2,589,856
Inventories 1,027,064
Royalty Advances 477,088
Deferred Income Taxes 1,089,248
Prepaid and Other Current Assets 102,873
------------
Total Current Assets 4,677,428
PROPERTY & EQUIPMENT (net) 885,122
INTERCOMPANY ACCOUNTS (2,097,038)
DEPOSITS 172,197
GOODWILL/OTHER ASSETS (net) 6,505
------------
TOTAL ASSETS $3,644,215
------------
------------
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Management believes that, due to the nature of the Assets, certain of the
Assets did not receive full value and that other Assets were non-transferable
or could not in any event be sold or transferred. A deficiency of
approximately $770,000 is still owed by the Company to Senoral.
Subsequent to the public sale, Senoral transferred the Assets to a third
party. The Company is currently in negotiations with such party for the
repurchase of the Assets. If the Company is unable to repurchase the Assets,
operations of the Company will entirely cease.
Management believes that, once relieved of OSP's indebtedness, it will be
more able to obtain bank financing. It is likely that certain creditors of
OSP may seek relief against Global One for OSP's indebtedness. Management
intends to strongly oppose any such claims.
ITEM 5. OTHER EVENTS
Effective August 1, 1997, the Company entered into a Stock Purchase and Loan
Agreement (the "Agreement") with Joseph C. Angard, the Company's former
Chairman of the Board and Chief Executive Officer and formerly a 35.7%
stockholder ("Angard"), and Miller, Johnson & Kuehn, Incorporated ("Miller
Johnson") which provides for, among other things, (i) Miller Johnson selling
on a "best efforts" basis up to 2,000,000 shares of Common Stock owned by
Angard for $0.50 per share in a private placement (the "Private Placement"),
(ii) Angard's loan of $900,000 to the Company at an interest rate of prime
plus 2% secured by certain of the Company's receivables, (iv) Angard's
surrender of 920,000 shares of Common Stock to the Company and (v) the
Company's 10-year option to purchase up to 970,000 shares of Common Stock
held by Angard at a purchase price of $1.00 per share.
As of September 3, 1997, Angard had sold 1,646,100 shares in the Private
Placement and loaned $720,000 to the Company. Miller Johnson has indicated
that it will not sell any more shares of Angard's Common Stock. Accordingly,
the Company will not receive the remaining loan proceeds ($180,000) from
Angard. The parties are currently negotiating the retirement of Angard's
shares as contemplated by the Agreement.
Global One entered into a Loan and Security Agreement, dated October 7, 1997,
with Safcor, Inc., a company affiliated with Alan Saloner, providing for a
six-month loan of $800,000 to Global One bearing interest at the rate of 3%
over prime and secured by the Company's accounts receivable. The Company
expects that this loan will satisfy the deficiency owed to Senoral.
While the Company has taken the steps described above to obtain financing to
enable it to continue operations, the Company's cash needs remain severe.
The Company has been unable to pay various creditors, and, since August 1,
1997, Global One and/or its subsidiaries have been served with a number of
lawsuits. As of October 14, 1997, the Company had claims aggregating
approximately $920,00 in unpaid invoices in addition to certain other matters
involving
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unspecified amounts and several claims for copyright or trademark
infringement. Management believes that most of the indebtedness belongs to
OSP.
Effective October 1, 1997, the Company terminated its arrangement with
Prodispak, U.S.A. Inc. pursuant to which the Company was outsourcing its
distribution and MIS functions. Prodispak is affiliated with Alan Saloner.
The Company continues to seek alternative sources of financing, including
lines of credit and investment capital. However, there can be no assurances
that the Company will be able to obtain such other financing. In the event
that the Company is unable to obtain financing in the near future, the
Company may be required to seek relief pursuant to a restructuring of the
Company.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
(b) Pro Forma Financial Information.
GLOBAL ONE CONSOLIDATED PRO FORMA BALANCE SHEET AT
JUNE 30, 1997
GLOBAL ONE CONSOLIDATED PRO FORMA INCOME STATEMENT FOR THE SIX
MONTHS ENDED JUNE 30, 1997
GLOBAL ONE CONSOLIDATED PRO FORMA INCOME STATEMENT FOR THE YEAR
ENDED DECEMBER 31, 1996
(c) Exhibits.
EXHIBIT NO. DESCRIPTION PAGE NO.
2.1 Loan and Security Agreement between Global One and
Safcor, Inc. dated October 7, 1997
2.2 Letter from Global One and OSP to Senoral, Inc.
dated October 6, 1997
2.3 Letter from OSP Publishing, Inc. to Senoral, Inc.
dated October 6, 1997
5
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SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, Global One
Distribution & Merchandising Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: October 24, 1997
GLOBAL ONE DISTRIBUTION
& MERCHANDISING INC.
By: /S/ DOUGLASS E. COY
--------------------------
Douglass E. Coy
6
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GLOBAL ONE CONSOLIDATED PRO FORMA
BALANCE SHEET AT JUNE 30, 1997
(UNAUDITED)*
(IN THOUSANDS)
ASSETS
Current Assets HISTORICAL ADJUSTMENT PRO FORMA
---------- ---------- -----------
Cash $ 0 $ 0 $ 0 (1)
Accounts receivables 4,260 3,978 282 (2)
Inventories 1,625 1,555 70 (2)
Prepaid royalties 716 493 223 (2)
Other current assets 1,495 1,379 116 (2)
---------- ---------- -----------
TOTAL CURRENT ASSETS 8,096 7,405 691 (2)
Property & equipment, net 1,150 947 203 (2)
Due from(to) subsidiaries 13 (1,353) 1,366 (2)
Other assets 160 170 (10)(2)
Goodwill 4,296 2 4,294 (2)
---------- ---------- -----------
TOTAL ASSETS $ 13,716 $ 7,171 $ 6,544
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY HISTORICAL ADJUSTMENT PRO FORMA
---------- ---------- -----------
Current Liabilities
Accounts payable $ 4,428 $ 0 $ 4,428 (3)
Accrued expenses 1,255 0 1,255 (4)
Royalties payable 1,792 0 1,792 (4)
Subordinated debt 300 0 300 (4)
Current maturities of long term debt 100 0 100 (4)
Income taxes payable 53 0 53 (4)
Bank line of credit 2,767 0 2,767 (4)
Loan from factor 0 0 0 (4)
---------- ---------- -----------
TOTAL CURRENT LIABILITIES 10,695 0 10,695
---------- ---------- -----------
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Capital leases 52 0 52 (4)
Subordinated long term debt 1,695 0 1,695 (4)
---------- ---------- -----------
TOTAL LIABILITIES $ 12,422 $ 0 $12,442
---------- ---------- -----------
Stockholder's equity
Common stock 10,792 0 10,792 (5)
Accumulated deficit (9,517) 7,171 (16,688)(6)
---------- ---------- -----------
Total stockholder's equity 1,275 7,171 (5,896)
---------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 13,716 $ 7,171 $ 6,544
---------- ---------- -----------
---------- ---------- -----------
__________________________________
* The Company's auditors have neither reviewed nor approved the accuracy
of these pro forma financial statements; accordingly, these pro forma
financial statements are subject to further adjustment.
(1) Consolidated cash accounts held at zero balance. OSP negative cash
balance of $409,000 reflected in accounts payable.
(2) Consolidated balance reflects removal of OSP assets.
(3) Consolidated accounts payable reflects removal of OSP negative cash
balance of $409,000 along with removal of amounts owed to Safcor, Inc.,
Senoral, Inc. and Brilliant Color aggregating $1,275,000.
(4) Consolidated balance includes OSP liability.
(5) Disposition of OSP assets does not affect common stock.
(6) Consolidated accumulated deficit reflects remainder of the disposition of
OSP assets.
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GLOBAL ONE CONSOLIDATED PRO FORMA
INCOME STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)*
(IN THOUSANDS)
HISTORICAL ADJUSTMENT PRO FORMA
---------- ---------- ---------
NET SALES
Cost of goods sold $ 10,604 $ 9,874 $ 730 (1)
License and royalty expense 4,467 4,546 (79)(2)
GROSS PROFIT 1,836 1,634 202 (2)
------ ------ ------
OPERATING EXPENSES 4,301 3,694 607
------ ------ ------
Warehouse 1,046 900 146 (3)
Selling 2,651 2,429 222 (3)
General and Administrative 2,050 1,487 563 (3)
Art 321 282 39 (3)
------ ------ ------
TOTAL OPERATING EXPENSES 6,069 5,098 970
------ ------ ------
INCOME FROM OPERATIONS (1,768) (1,404) (363)
INTEREST EXPENSE 404 396 8 (3)
------ ------ ------
INCOME (LOSS) BEFORE TAXES (2,172) (1,800) (371)
PROVISION (BENEFIT) FOR INCOME TAXES 1 1 0
------ ------ ------
NET INCOME (LOSS) (2,173) (1,801) (372)
------ ------ ------
------ ------ ------
NET INCOME (LOSS) DATA:
Loss before income taxes, as
reported $ (2,172) $ (1,800) $ (371)
Provision (benefit) for income
taxes 1 1 0
NET INCOME (LOSS) (2,173) (1,801) (371)
------ ------ ------
------ ------ ------
NET INCOME (LOSS) PER SHARE: $ (0.17) $ (0.14) $ (0.03)
------ ------ ------
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Weighted average shares
outstanding 13,012 13,012 13,012
------ ------ ------
------ ------ ------
- -------------------------------
* The Company's auditors have neither reviewed nor approved the accuracy
of these pro forma financial statements; accordingly, these pro forma
financial statements are subject to further adjustment.
(1) Balance excludes OSP sales.
(2) Balance excludes OSP costs.
(3) Balance excludes OSP expenses.
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GLOBAL ONE CONSOLIDATED PRO FORMA
INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)*
(IN THOUSANDS)
HISTORICAL ADJUSTMENT PRO FORMA
---------- ---------- ---------
NET SALES $42,370 $23,234 $19,136 (1)
Cost of goods sold 22,638 11,199 11,439 (2)
License and royalty expense 4,746 2,822 1,924 (2)
------- ------- -------
GROSS PROFIT 14,986 9,213 5,773
------- ------- -------
OPERATING EXPENSES
Warehouse 2,689 1,893 796 (3)
Selling 7,349 5,332 2,017 (3)
General and administrative 6,757 2,830 3,927 (3)
Art 923 553 370 (3)
------- ------- -------
TOTAL OPERATING EXPENSE 17,719 10,608 7,110
------- ------- -------
INCOME FROM OPERATIONS (2,733) (1,395) (1,337)
INTEREST FROM OPERATIONS 1,328 1,061 267 (3)
GAIN ON SALE OF SUBSIDIARY 703 1,147 (444)
------- ------- -------
INCOME (LOSS) BEFORE TAXES (3,358) (1,309) (2,048)
PROVISION (LOSS) BEFORE
MINORITY INTEREST (1,053) (641) (412)
------- ------- -------
INCOME (LOSS) BEFORE
MINORITY INTEREST (2,305) (668) (1,636)
MINORITY INTEREST IN (INCOME)
LOSS OF SUBSIDIARIES 94 0 94
------- ------- -------
NET INCOME (LOSS) $(2,211) $ (668) $(1,542)
------- ------- -------
------- ------- -------
NET INCOME (LOSS) DATA:
Loss before income taxes,
as reported $ (3,358) $ (1,309) $ (2,048)
Provision (benefit) for income taxes (1,053) (641) (412)
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Minority interest in (income)
loss of subsidiaries (94) 0 (94)
------- ------- -------
Net income (loss) (2,211) (668) (1,542)
------- ------- -------
------- ------- -------
NET INCOME (LOSS) PER SHARE:
Income (loss) from continuing
operations (0.34) (0.15) (0.19)
Minority interest in (income)
loss of subsidiaries 0.01 0.00 0.01
------- ------- -------
Net income (loss) $ (0.33) $ (0.15) $ (0.18)
Weighted average shares outstanding 13,011 13,011 13,011
------- ------- -------
------- ------- -------
- ----------------------------------
* The Company's auditors have neither reviewed nor approved the accuracy
of these pro forma financial statements; accordingly, these pro forma
financial statements are subject to further adjustment.
(1) Balance excludes OSP sales.
(2) Balance excludes OSP costs.
(3) Balance excludes OSP expenses.
<PAGE>
EXHIBIT 2.1
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT entered into as of September ___, 1997
among SAFCOR INC., a California corporation ("Safcor"), and GLOBAL ONE
DISTRIBUTION & MERCHANDISING INC., a Delaware corporation ("Global").
NOW THEREFORE, in consideration of the mutual conditions and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following definitions:
"Account Debtor" means any person who is or who may become obligated under,
with respect to, or on account of an Account.
"Account" or "Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods or the rendition of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefore.
"Agreement" means this Loan and Security Agreement and any extensions,
riders, supplements, notes, amendments, or modifications to or in connection
with this Loan and Security Agreement.
"Angard" means Joseph and Susan Angard.
"Borrower's Books" means all of Borrower's books and records including:
ledgers; records indicating, summarizing or evidencing Borrower's assets or
liabilities, or the Collateral; all information relating to Borrower's business
operations or financial condition; and all computer programs, disc or tape
files, printouts, runs or other computer prepared information, and the equipment
containing such information.
"Borrower" means Global One Distribution & Merchandising Inc.
"Borrowing Base" has the meaning set forth in Section 2.1.
"Code" means the California Uniform Commercial Code.
"Collateral" means each of the following: the Accounts; Borrower's Books;;
and the proceeds and products, whether tangible or intangible, of any of the
foregoing including proceeds of insurance covering any or all of the Collateral,
and any and all Accounts, equipment, general intangibles, inventory, negotiable
collateral, money, deposit accounts, or other tangible or intangible property
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resulting from the sale, exchange, collection or other disposition of the
Collateral, or any portion thereof or interest therein, and the proceeds
thereof.
"Daily Balance" means the amount of an Obligation owed at the end of a
given day.
"Dilution" means, as of the date of termination, the total of all
chargebacks, returns, advertising claims, discounts, contra accounts, write-offs
in favor of or held by Account Debtors and any other item that could reduce or
otherwise impair the full and timely collection of Accounts, expressed as a
percentage of cash collections PLUS dilutive items, determined on a two (2)
month rolling basis.
"Eligible Accounts" means those Accounts created by Borrower in the
ordinary course of business that arise out of the Borrower's sale of goods or
rendition of services, that strictly comply with all of Borrower's
representations and warranties to Safcor as set forth in herein, as to which
either Angard or Safcor has a first priority perfected security interest under
applicable law, and that are and at all times shall continue to be acceptable to
Safcor in all respects; provided, however, that standards of eligibility may be
fixed and revised from time to time by Safcor in Safcor's commercially
reasonable judgment. Eligible Accounts shall not include the following:
(a) Accounts which the Account Debtor has failed to pay within ninety
(90) days of invoice date;
(b) Accounts with respect to which the Account Debtor is an officer,
employee, Affiliate, or agent of Borrower;
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other
terms by reason of which the payment by the Account Debtor may be
conditional;
(d) Accounts with respect to which the Account Debtor is not a
resident of the United States or Canada, and which are not either (i)
covered by credit insurance in form and amount, and by an insurer
satisfactory to Safcor, or (ii) supported by one or more letters of credit
that are assignable and have been delivered to Safcor in an amount and of a
tenor, and issued by a financial institution, acceptable to Safcor;
(e) Accounts with respect to which the Account Debtor is the United
States or any department, agency, or instrumentality of the United States,
any state of the United States, or any city, town, municipality, or
division thereof;
(f) Accounts with respect to which the Account Debtor is a subsidiary
of, related to, affiliated with or has common shareholders, officers or
directors with Borrower;
(g) Accounts with respect to which Borrower is or may become liable
to the Account Debtor for goods sold or services rendered by the Account
Debtor to Borrower but only to the extent of Borrower's liability to such
Account Debtor;
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(h) Accounts with respect to an Account Debtor whose total
obligations to Borrower exceed ten percent (10%) of all Eligible Accounts
and Safcor agrees to consider increasing the concentration percentages for
Account Debtors up to a maximum of fifteen percent (15%) as requested by
Borrower from time to time subject to Safcor's reasonable review and
approval of the credit quality of the Account Debtor for which an increase
in the concentration percentage is requested; and with the further
exception that the aggregate percentage concentration of Borrower's four
(4) largest Account Debtors, as the same shall change from time to time,
shall not exceed forty-five percent (45%)), to the extent of the obligation
of such Account Debtor in excess of such percentage;
(i) Accounts with respect to which the Account Debtor disputes
liability or makes any claim with respect thereto, or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(j) Accounts the collection of which Safcor reasonably believes to be
doubtful by reason of the Account Debtor's financial condition;
(k) Accounts owed by an Account Debtor which has failed to pay fifty
percent (50%) or more of its account then owed to Borrower within the
applicable time periods set forth in subparagraph (a) above.
"Event of Default" has meaning set forth in Section 8.
"Excess Availability" means the amount, as of the date any determination
thereof is to be made, equal to:
(a) the lesser of the amount of Revolving Advances available to
Borrower as of such time (based on the applicable advance rates set forth
in Sections 2.1(a) and (b) hereof), subject to the sublimits and
availability reserves from time to time established by Safcor hereunder;
PLUS
(b) Unrestricted Cash of Borrower; MINUS
(c) the sum of: (i) the amount of all then outstanding and unpaid
Obligations, (ii) the aggregate amount of all trade payables of Borrower
which are more than sixty (60) days past due as of such time, and (iii) the
aggregate amount of Borrower's book overdrafts.
"Safcor Expenses" means all costs or expenses (including taxes,
photocopying, notarization, telecommunication and insurance premiums) required
to be paid by Borrower under any of the Loan Documents that are paid or advanced
by Safcor.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
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"Indebtedness" shall mean (a) all obligations of Borrower for borrowed
money; (b) all obligations of Borrower evidenced by bonds, debentures, notes or
other similar instruments and all reimbursement or other obligations of Borrower
in respect of letters of credit, letter of credit guaranties, bankers
acceptances, interest rate swaps, controlled disbursement accounts, or other
financial products; (c) all obligations under capitalized leases; (d) all
obligations or liability of others secured by a lien or security interest on any
asset owned by Borrower, irrespective of whether such obligation or liability is
assumed; and (e) any obligations of Borrower guaranteeing or intended to
guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with
recourse to Borrower) any indebtedness, lease, dividend, letter of credit or
other obligation of any other person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"Inventory" means all present and future inventory in which Borrower has
any interest, including goods held for sale or lease or to be furnished under a
contract of service and all of Borrower's present and future raw materials, work
in process, finished goods, and packing and shipping materials, wherever located
and any documents of title representing any of the above.
"Lender" means Safcor Inc., a California corporation.
"Loan Documents" means, collectively, this Agreement and any other
agreement entered into in connection with this Agreement, together with all
alterations, amendments, changes, extensions, modifications, refinancing,
refundings, renewals, replacements, restatements or supplements, of or to any of
the foregoing.
"Maximum Amount" has the meaning set forth in Section 2.1.
"Obligations" means all loans, advances, debts, principal, interest
(including any interest that, but for the provisions of the United States
Bankruptcy Code, would have accrued) contingent reimbursement obligations owing
to Safcor under any outstanding liabilities (including all amounts charged to
Borrower's loan account pursuant to any agreement authorizing Safcor to charge
Borrower's loan account), obligations, fees, covenants, and duties owing by
Borrower to Safcor of any kind and description (whether pursuant to or evidenced
by the Loan Documents, by any note or other instrument, or by any other
agreement between Safcor and Borrower, and whether or not for the payment of
money), whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising and including any debt, liability, or
obligation owing from Borrower to others that Safcor may have obtained by
assignment or otherwise, and further including all interest not paid when due
and all Safcor Expenses that Borrower is required to pay or reimburse by the
Loan Documents, by law, or otherwise.
"Reference Rate" means the variable rate of interest, per annum, most
recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "prime rate" or "reference rate", as the case may be,
whether or not such announced rate is the best rate available from such
financial institution.
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"Revolving Advances" has the meaning set forth in Section 2.1.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. when used herein, the term
"Financial Statements" shall include the notes and schedules thereto.
1.3 SCHEDULES AND EXHIBITS. All of the Schedules and Exhibits attached to
this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT
2.1 REVOLVING ADVANCES. Subject to the terms and conditions of this
Agreement, and so long as no Event of Default has occurred and is continuing,
Safcor agrees to make revolving advances to Borrower in an amount not to exceed
the Borrowing Base. For purposes of this Agreement, "Borrowing Base" shall
mean:
(a) an amount equal to eighty percent (80%) of the amount of Eligible
Accounts; PROVIDED, HOWEVER, that the foregoing initial advance rate of
eighty percent (80%) shall be subsequently reduced by one percentage point
for each percentage point of Dilution in excess of eight percent (8%).
(b) Notwithstanding anything to the contrary in subparagraphs (a) and
(b) above, Safcor may reduce its advance rates based upon Eligible Accounts
or establish availability reserves without declaring an Event of Default if
it determines, in its reasonable discretion, that there is a material
impairment of the prospect of repayment of all or any portion of the
Obligations or a material impairment of the value or priority of Safcor's
security interests in the Collateral. Safcor shall endeavor to provide
Borrower with prompt notice of any action taken pursuant to this
subparagraph (b), but Safcor shall not be liable to Borrower or any third
party for Safcor's failure to provide such notice.
(c) Safcor shall have no obligation to make Revolving Advances
hereunder to the extent such Revolving Advances would cause all outstanding
Obligations hereunder including, without limitation, Borrower's Obligations
under Sections 2.2, 2.3 and 2.4 hereof, and Borrower's Obligations to
Senoral Inc. and Prodispak U.S.A., Inc., to exceed Eight Hundred Thousand
Dollars ($800,000) ("Maximum Amount").
2.2 INTEREST: RATES, PAYMENTS AND CALCULATIONS.
(a) INTEREST RATE. All Obligations shall bear interest, on the
average Daily Balance, at a per annum rate of three percent (3%) over the
Reference Rate.
(b) DEFAULT RATE. (i) All obligations shall bear interest from and
after the occurrence and during the continuance of an Event of Default, at
a rate of five percent (5%) over the Reference Rate.
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(c) PAYMENTS. Interest hereunder shall be due and payable in
arrears, on the first Business Day of each calendar month during the term
hereof. Borrower hereby authorizes Safcor, at its option, without prior
notice to Borrower, to charge such interest, all Safcor Expenses (as and
when incurred), and all installments due under any note or other Loan
Document to Borrower's loan account, which amounts shall thereafter accrue
interest at the rate then applicable hereunder. Any interest not paid when
due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the rate then applicable
hereunder.
(d) COMPUTATIONS. The Reference Rate as of this date is eight point
eleven percent (8.11%) per annum. In the event the Reference Rate is
changed from time to time hereafter, the applicable rate of interest
hereunder automatically and immediately shall be increased or decreased by
an amount equal to the Reference Rate change.
2.3 CREDITING PAYMENTS. The receipt of any wire transfer of funds, check,
or other item of payment by Safcor shall be immediately applied to conditionally
reduce the Obligations, but shall not be considered a payment on account unless
such wire transfer is of immediately available federal funds and is made to the
appropriate deposit account of Safcor or unless and until such check or other
item of payment is honored when presented for payment.
2.4 STATEMENT OF OBLIGATIONS. Safcor shall render statements to
Borrower of the Obligations, including principal, interest, fees and Safcor
Expenses owing, and such statements shall be conclusively presumed to be correct
and accurate and constitute any account stated between Borrower and Safcor
unless, within forty-five (45) days after receipt thereof by Borrower, Borrower
shall deliver to Safcor by registered or certified mail at its address specified
in Section, written objection thereto describing the error or errors contained
in any such statements.
3. CONDITIONS TO EFFECTIVENESS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of Safcor to
continue to make advances is subject to the fulfillment, to the satisfaction of
Safcor and its counsel, of each of the following conditions on or before the
date hereof.
(a) Safcor shall have received a certificate of corporate status with
respect to Borrower, dated within ten (10) days of the date hereof, by the
Secretary of State of the state of incorporation of Borrower, which
certificate shall indicate that Borrower is in good standing in such state;
(b) Safcor shall have received a certificate from the Secretary of
Borrower attesting to the resolutions of Borrower's Board of Directors
authorizing its execution and delivery of this Agreement and the other Loan
Documents to which Borrower is a party and authorizing specific officers of
Borrower to execute same;
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(c) Safcor shall have received satisfactory evidence reflecting (i)
the filing of its Financing Statement regarding the Borrower; and (ii)
showing that Safcor has a first-priority perfected security interest in
Borrower's collateral; and
(d) Safcor shall have received a duly executed intercreditor
agreement, in form reasonably satisfactory to Safcor's counsel, from
Angard.
3.2 TERM. This Agreement shall become effective upon the execution and
delivery hereof by Borrower and Safcor and shall continue in full force and
effect for a term ending March 31, 1998. Either party may terminate this
Agreement by giving the other party at least sixty (60) days prior written
notice by registered or certified mail, return receipt requested. The foregoing
notwithstanding, Safcor shall have the right to terminate its obligations under
this Agreement immediately and without notice upon the occurrence of an Event of
Default.
3.3 EFFECT OF TERMINATION. On the date of termination, all Obligations
shall become immediately due and payable without notice or demand. No
termination of this Agreement, however, shall relieve or discharge Borrower of
Borrower's duties, Obligations, or covenants hereunder, and Safcor's continuing
security interest in the Collateral shall remain in effect until all Obligations
have been fully discharged and Safcor's obligation to provide advances hereunder
is terminated. If Borrower has sent a notice of termination pursuant to the
provisions of Section 3.2, but fails to pay all Obligations as of the date set
forth in said notice, then Safcor may, but shall not be required to, renew this
Agreement for an additional term of two (2) years.
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to Safcor a
continuing security interest in all currently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Safcor's security interest in
the Collateral shall attach to all Collateral without further action in the part
of Safcor or Borrower. Anything contained in this Agreement or any other Loan
Document to the contrary notwithstanding, except for the sale of Inventory or
the sale of obsolete Equipment to buyers in the ordinary course of business,
Borrower has no authority, express or implied, to dispose of any item or portion
of the Collateral.
4.2 COLLECTION OF ACCOUNTS. On or before the date hereof, Safcor,
Borrower, and a bank that is acceptable to Safcor shall enter into a lockbox
agreement, in form and substance satisfactory to Safcor in its sole discretion
pursuant to which all of Borrower's cash receipts, checks, and other items of
payment will be forwarded to Safcor on a daily basis. At any time, Safcor or
Safcor's designee may: (a) notify customers or Account Debtors of Borrower that
the Accounts have been assigned to Safcor or that Safcor has a security interest
therein; (b) collect the Accounts, directly and charge the collection costs and
expenses to Borrower's loan account. Borrower agrees that it will hold in trust
for Safcor, as Safcor's trustee, any cash receipts, checks, and other items of
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payment that it receives on account of the Accounts and immediately will deliver
said cash receipts, checks, and other items of payment to Safcor in their
original form as received by Borrower.
4.3 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall execute
and deliver to Safcor, prior to or concurrently with Borrower's execution and
delivery of this Agreement and at any time thereafter at the request of Safcor,
all financing statements, continuation financing statements, fixture filings,
security agreements, chattel mortgages, pledges, assignments, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that Safcor
may reasonably request, in form satisfactory to Safcor, to perfect and continue
perfected Safcor's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.4 POWER OF ATTORNEY. Borrower hereby irrevocably makes, constitutes,
and appoints Safcor (and any of Safcor's officers, employees, or agents
designated by Safcor) as Borrower's true and lawful attorney, with power to: (a)
sign the name of Borrower on any of the documents described in Section 4.3 or on
any other similar documents to be executed, recorded, or filed in order to
perfect or continue perfected Safcor's security interest in the Collateral; (b)
sign Borrower's name on any invoice or bill of lading relating to any Accounts,
drafts against Account Debtors, schedules and assignments of Accounts,
verifications of Accounts, and notices to Account Debtors; (c) send requests for
verification of Accounts; (d) endorse Borrower's name on any checks, notices,
acceptances, money orders, drafts, or other item of payment or security that may
come into Safcor's possession; (e) at any time that an Event of Default has
occurred or Safcor reasonably deems itself insecure, notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by Safcor, to receive and open all mail addressed to Borrower, and to
retain all mail relating to the Collateral and forward all other mail to
Borrower; (f) at any time that an Event of Default has occurred or Safcor
reasonably deems itself insecure, make, settle, and adjust all claims under
Borrower's policies of insurance and make all determinations and decisions with
respect to such policies of insurance; and (g) at any time that an Event of
Default has occurred or Safcor reasonably deems itself insecure, settle and
adjust disputes and claims respecting the Accounts directly with Account
Debtors, for amounts and upon terms which Safcor determines to be reasonable,
and Safcor may cause to be executed and delivered any documents and releases
which Safcor determines to be necessary. The appointment of Safcor as
Borrower's attorney, and each and every one of Safcor's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Safcor's obligation to provide advances hereunder
is terminated.
4.5 RIGHT TO INSPECT. Safcor (through any of its officers, employees, or
agents) shall have the right, from time to time hereafter during Borrower's
usual business hours, or during the usual business hours of any third party
having control over the records of Borrower to inspect Borrower's Books and to
check, test, and appraise the Collateral in order to verify Borrower's financial
condition or the amount, quality, value, condition of, or any other matter
relating to, the Collateral.
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5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1. NO PRIOR ENCUMBRANCES. Except for matters of public record, Borrower
has good and indefeasible title to the Collateral, free and clear of liens,
claims, security interests, or encumbrances except for Permitted Liens listed on
the attached Schedule.
5.2. ELIGIBLE ACCOUNTS. The Eligible Accounts are, and at all times,
hereafter shall be, bona fide existing obligations created by the sale and
delivery of inventory or the rendition of services to Account Debtors in the
ordinary course of Borrower's business, unconditionally owed to Borrower
without defenses, disputes, offsets, counterclaims, or rights of return or
cancellation. The property giving rise to such Eligible Accounts has been
delivered to the Account Debtor, or to the Account Debtor's agent for
immediate shipment to and unconditional acceptance by the Account Debtor.
5.3. DUE AUTHORIZATION; NO CONFLICT. The execution, delivery and
performance of the Loan Documents are within Borrower's corporate powers, have
been duly authorized, and are not in conflict with nor constitute a breach of
any provision contained in Borrower's Certificate of Incorporation, or By-Laws,
nor will they constitute an event of default under any material agreement to
which Borrower is a party.
5.4. MATERIAL AGREEMENT. Each agreement that is material to the Borrower,
taken as a whole, is in full force and effect and no default or event that, with
the giving of notice or the passage of time, would constitute a default, has
occurred and is continuing under any such agreement.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until payment in full of the Obligations, and unless Safcor
shall otherwise consent in writing, Borrower shall do all of the following:
6.1 ACCOUNTING SYSTEM. Borrower at all times hereafter shall maintain a
standard and modern system of accounting in accordance with GAAP with ledger and
account cards or computer tapes, discs, printouts, and records pertaining to the
Collateral which contain information as from time to time may be requested by
Safcor. Borrower shall also keep proper books of account showing all sales,
claims and allowances on its Inventory.
6.2 COLLATERAL REPORTS. Borrower shall deliver to Safcor, no later than
the fifteenth (15th) day of each month during the term of this Agreement, a
detailed aging, by total, of the Accounts, a reconciliation statement, and a
summary aging, by vendor, of all accounts payable and any overdraft. Original
sales invoices evidencing daily sales shall be mailed by Borrower to each
Account Debtor with a copy to Safcor, and, at Safcor's direction, the invoices
shall indicate on
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their face that the Account has been assigned to Safcor and
that all payments are to be made directly to Safcor. Borrower shall deliver to
Safcor, as Safcor may from time to time require, collection reports, sales
journals, invoices, original delivery receipts, customer's purchase orders,
shipping instructions, bills of lading, and other documentation respecting
shipment arrangements. Absent such a request by Safcor, copies of all such
documentation shall be held by Borrower as custodian for Safcor.
6.3 SCHEDULES OF ACCOUNTS. With such regularity as Safcor shall
reasonably require, Borrower shall provide Safcor with schedules describing all
Accounts. Safcor's failure to request such schedules or Borrower's failure to
execute and deliver such schedules shall not affect or limit Safcor's security
interest or other rights in and to the Accounts.
6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower agrees to
deliver to Safcor: (a) as soon as available, but in any event within forty-five
(45) days after the end of each month during each of Borrower's fiscal years, a
company prepared balance sheet, income statement, and cash flow statement
covering Borrower's operations during such period; and (b) as soon as available,
but in any event within one hundred twenty (120) days after the end of each of
Borrower's fiscal years, financial statements of Borrower for each such fiscal
year, audited by independent certified public accountants acceptable to Safcor
and certified, without any qualifications, by such accounts to have been
prepared in accordance with GAAP.
Borrower hereby irrevocably authorizes and directs all auditors,
accountants, or other third parties to deliver to Safcor, at Borrower's expense,
copies of Borrower's financial statements, papers related thereto, and other
accounting records of any nature in their possession, and to disclose to Safcor
any information they may have regarding Borrower's business affairs and
financial conditions.
6.5 TAX RETURNS. Borrower agrees to deliver to Safcor copies of each of
Borrower's future federal income tax returns, and any amendments thereto, within
thirty (30) days of the filing thereof with the Internal Revenue Service.
6.6 TAXES. Except for 1996 taxes and the related returns, all assessments
and taxes, whether real, personal or otherwise, due or payable by, or imposed,
levied, or assessed against Borrower or any of its property have been paid, and
shall hereafter be paid in full, before delinquency or before the expiration of
any extension period; PROVIDED, HOWEVER, that Borrower shall not be required to
pay or discharge such tax, levy, assessment, governmental charge or claim which
is the subject of a Permitted Protest.
6.7 SAFCOR EXPENSES. Borrower shall immediately and without demand
reimburse Safcor for all sums expended by Safcor which constitute Safcor
Expenses and Borrower hereby authorizes and approves all advances and payments
by Safcor for items constituting Safcor Expenses.
6.8 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and under the
other Loan Documents made by or on behalf of Borrower shall be made without
setoff or
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counterclaim and free and clear of, and without deduction or
withholding for or on account of any federal, State or local taxes.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until payment in full of the Obligations, Borrower will not do
any of the following without Safcor's prior written consent:
7.1 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any lien on or with respect to the Collateral.
7.2 CHANGE NAME. Change Borrower's name, business structure, or identity,
or add any new fictitious name without providing Safcor with sixty (60) days
prior written notice of Borrower's intent to take any such action.
7.3 SUSPENSION. Suspend or go out of a substantial portion of its
business.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared due and
payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the United States
Bankruptcy Code, would have accrued on such amounts), fees and charges due
Safcor, taxes, reimbursement of Safcor Expenses, or otherwise);
8.2 If Borrower fails or neglects to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in this Agreement, in any
of the Loan Documents, or in any other present or future agreement between
Borrower and Safcor (other than those referred to in Sections 6.2, 6.3, 6.4,
6.5, 6.6, and 6.7); or Borrower fails or neglects to perform, keep or observe
any term, provision, condition, covenant, or agreement contained in Sections
6.2, 6.3, 6.4, 6.5, 6.6, and 6.7 hereof and such failure or neglect shall
continue for a period of five (5) Business Days;
8.3 If there is material impairment of the prospect of repayment of any
portion of the Obligations owing to Safcor or a material impairment of the value
or priority of Safcor's security interests in the Collateral;
8.4 If any material portion of Borrower's assets is attached, seized,
subjected to a writ or distress warrant, or is levied upon, or comes into the
possession of any Judicial Officer or Assignee;
8.5 If an Insolvency Proceeding is commenced by Borrower;
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8.6 If an Insolvency Proceeding is commenced against Borrower, and is not
dismissed or withdrawn within sixty (60) days from the date of its commencement;
PROVIDED, HOWEVER, Safcor shall have no obligation to make Revolving Advances
pursuant to Section 2 hereof during the pendency of such proceedings;
8.7 If Borrower is enjoined, restrained, or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs and such court order is not dismissed within five (5) Business Days from
the date it is entered by a court;
8.8 If a notice of lien, levy or assessment is filed of record with
respect to any of Borrower's assets by the United States Government, or any
department, agency or instrumentality thereof, or by any state, county,
municipal, or governmental agency;
8.9 If a judgment or other claim becomes a lien or encumbrance;
8.10 If there is a default in any material agreement to which Borrower is a
party with third parties resulting in a right by such third parties, whether or
not exercised, to accelerate the maturity of Borrower's Indebtedness thereunder;
8.11 If any misstatement or misrepresentation exists now or hereafter in
any warranty, representation, statement or report made to Safcor by Borrower, or
any officer, employee, agent or director of Borrower, or if any such warranty or
representation is withdrawn by any officer or director;
8.12 If any writing, document, aging, certificate or other evidence of the
Accounts shall be materially incomplete, incorrect, or misleading at the time
the same is furnished to Safcor.
9. SAFCOR'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event of Default
Safcor may, at its election, without notice of its election and without demand,
do any one or more of the following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit
of Borrower under this Agreement, under any of the Loan Documents, or under
any other agreement between Borrower and Safcor;
(c) Terminate this Agreement and any of the other Loan Documents as
to any future liability or obligation of Safcor, but without affecting
Safcor's rights and security interest in the Collateral and without
affecting the Obligations;
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(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Safcor considers advisable, and in
such cases, Safcor will credit Borrower's loan account with only the net
amounts received by Safcor in payment of such disputed Accounts after
deducting all Safcor Expenses incurred or expended in connection therewith;
(e) Without notice to or demand upon Borrower or any guarantor, make
such payments and do such acts as Safcor considers necessary or reasonable
to protect its security interest in the collateral. Borrower agrees to
assemble the Collateral if Safcor so requires, and to make the Collateral
available to Safcor as Safcor may designate. Borrower authorizes Safcor to
enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase,
contest or compromise any encumbrance, charge or lien that, in Safcor's
determination, appears to be prior or superior to its security interest and
to pay all expenses incurred in connection therewith. With respect to any
of Borrower's owned premises, Borrower hereby grants Safcor a license to
enter into possession of such premises and to occupy the same, without
charge, for up to one hundred twenty (120) days in order to exercise any of
Safcor's rights or remedies provided herein, at law, in equity, or
otherwise;
(f) Without notice to Borrower (such notice being expressly waived)
set off and apply to the Obligations any and all (i) balances and deposits
of Borrower held by Safcor, or (ii) indebtedness at any time owing to or
for the credit or the account of Borrower held by Safcor;
(g) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Safcor
determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
(h) Safcor shall give notice of the disposition of the Collateral as
follows:
(1) Safcor shall give Borrower and each holder of a security
interest in the Collateral who has filed with Safcor a written request
for notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other than
a public sale is to be made of the Collateral, then the time on or
after which the private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower at least five (5) calendar days before the date
fixed for the sale, or at least five (5) calendar days before the date
on or after which the private sale or other disposition is to be made,
unless the Collateral is perishable or threatens to decline speedily
in value. Notice to persons other than Borrower claiming an interest
in the Collateral shall be sent to such addresses as they have
furnished to Safcor;
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(3) If the sale is to be a public sale, Safcor also shall give
notice of the time and place by publishing a notice one time at least
five (5) calendar days before the date of the sale in a newspaper of
general circulation in the county in which the sale is to be held;
(i) Safcor may credit bid and purchase at any public sale; and
(j) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third parties, by
Safcor to Borrower.
10. WAIVERS AND INDEMNIFICATION
10.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Safcor on which Borrower may in any way be
liable.
10.2 SAFCOR'S LIABILITY. Upon the occurrence and during the continuance of
any Event of Default, Lender may enforce this Agreement independently of any
other remedy or security Lender at any time may have or hold in connection with
the Obligations, and it shall not be necessary for Lender to marshal assets in
favor of any Debtor or any other Person or to proceed upon or against or exhaust
any security or remedy before proceeding to enforce this Agreement. Borrower
expressly waives any right to require Lender to marshal assets in favor of any
debtor or any other Person or to proceed against any other Debtor or any
collateral provided by any Person, and agrees that Lender may proceed against
Borrower or any collateral in such order as it shall determine in its sole and
absolute discretion.
Lender may file a separate action or actions against Borrower, whether
action is brought or prosecuted with respect to any security or against any
other Person, or whether any other Person is joined in any such action or
actions.
Lender's rights hereunder shall be reinstated and revived, and the
enforceability of this Agreement shall continue, with respect to any amount at
any time paid on account of the Obligations which thereafter shall be requested
to be restored or returned by Lender, all as though such amount had not been
paid. The rights of Lender created or granted herein and the enforceability of
this Agreement at all times shall remain effective to cover the full amount of
all the Obligations even though the Obligations, including any part thereof or
any other security or guaranty therefor, may be or hereafter may become invalid
or otherwise unenforceable as against Borrower and whether or not any other
debtor shall have any personal liability with respect thereto.
To the maximum extent permitted by applicable law, Borrower expressly
waives any and all defenses now or hereafter arising or asserted by reason of:
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(a) any disability or other defense of any other debtor with respect
to the Obligations,
(b) the unenforceability or invalidity of any security or guaranty
for the Obligations or the lack of perfection or continuing perfection or
failure of priority of any security for the Obligations,
(c) the cessation for any cause whatsoever of the liability of any
other debtor (other than by reason of the full payment and performance of
all Obligations),
(d) any failure of Safcor to marshal assets in favor of Borrower or
any other person,
(e) any failure of Safcor to give notice of sale or other disposition
of Collateral to Borrower or any other Person or any defect in any notice
that may be given in connection with any sale or disposition of Collateral,
(f) any failure of Lender to comply with applicable law in connection
with the sale or other disposition of any collateral or other security for
any Obligation, including any failure of Lender to conduct a commercially
reasonable sale or other disposition of any Collateral or other security
for any Obligation,
(g) any act or omission of Lender or others that directly or
indirectly results in or aids the discharge or release of Borrower or the
Obligations or any security or guaranty therefor by operation of law or
otherwise,
(h) any law which provides that the obligation of a surety or
guarantor must neither be larger in amount nor in other respects more
burdensome than that of the principal or which reduces a surety's or
guarantor's obligation in proportion to the principal obligation,
(i) any failure of Lender to file or enforce a claim in any
bankruptcy or other proceeding with respect to any Person,
(j) the election by Lender of the application or non-application of
Section 1111(b)(2) of the United States Bankruptcy Code,
(k) any extension of credit or the grant of any lien under Section
364 of the United States Bankruptcy Code,
(l) any use of cash collateral under Section 363 of the United States
Bankruptcy Code,
(m) any agreement or stipulation with respect to the provision of
adequate protection in any bankruptcy proceeding of any Person,
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(n) the avoidance of any lien in favor of Lender for any reason, or
(o) any action taken by Lender that is authorized by this Section or
any other provision of any Loan Document.
Until such time as all of the Obligations have been fully, finally and
indefeasibly paid in full in cash: (i)Borrower hereby waives and postpones any
right of subrogation it has or may have as against any other Debtor with respect
to the Obligations, and (ii) in addition, Borrower also hereby waives and
postpones any right to proceed or to seek recourse against or with respect to
any property or asset of any other debtor. Borrower expressly waives all setoffs
and counterclaims and all presentments, demands for payment or performance,
notices of nonpayment or nonperformance, protests, notices of protest, notices
of dishonor and all other notices or demands of any kind or nature whatsoever
with respect to the Obligations, and all notices of acceptance of this Agreement
or of the existence, creation or incurring of new additional Obligations.
In the event that all or any part of the obligations at any time are
secured by any one or more deeds of trust or mortgages or other instruments
creating or granting liens on any interests in real property, Borrower
authorizes Lender on Lender's behalf, upon the occurrence of and during the
continuance of any Event of Default, at its sole option, without notice or
demand and without affecting the obligations of any debtor, the enforceability
of this Agreement, or the validity or enforceability of any liens of, or for the
benefit of, Lender on any Collateral, to foreclose any or all of such deeds of
trust or mortgages or other instruments by judicial or nonjudicial sale.
To the fullest extent permitted by applicable law, Borrower expressly
waives any defenses to the enforcement of this Agreement or any rights of Lender
created or granted hereby or to the recovery by Lender against any debtor or any
other Person liable therefor of any deficiency after a judicial or nonjudicial
foreclosure or sale, even though such a foreclosure or sale may impair the
subrogation rights of Borrower and may preclude Borrower from obtaining
reimbursement or contribution from other debtors. Borrower expressly waives (i)
any suretyship defenses or benefits that it otherwise might or would have under
applicable law, and (ii) the right, if any, to require Lender to disclose to
Borrower any information it may now have or hereafter acquire concerning any
other debtor's character, credit, Collateral, financial condition or other
matters. Borrower expressly waives any right to receive notice of any judicial
or nonjudicial foreclosure or sale of any real property or interest therein of
another debtor that is subject to any such deeds of trust or mortgages or other
instruments and any debtor's failure to receive any such notice shall not impair
or affect such debtor's obligations or the enforceability of this Agreement or
any rights of Lender created or granted hereby. WITHOUT LIMITING THE GENERALITY
OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS SECTION, BORROWER
WAIVES ALL RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY LENDER,
EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH
RESPECT TO SECURITY FOR THE OBLIGATIONS, HAS DESTROYED BORROWER'S RIGHTS OF
SUBROGATION AND REIMBURSEMENT AGAINST BORROWER BY THE OPERATION OF LAW OR
OTHERWISE.
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Lender need not inquire into the powers of any of Borrower or the authority
of any of their respective officers, directors, partners or agents acting or
purporting to act in their behalf, and any obligations created in reliance upon
the purported exercise of such power or authority is hereby guaranteed. All
obligations of Borrower to Lender heretofore, now or hereafter created shall be
deemed to have been granted at Borrower's special insistence and request and in
consideration of and in reliance upon this Agreement.
Borrower warrants and agrees that each of the waivers and consents set
forth herein are made after consultation with legal counsel and with full
knowledge of their significance and consequences, with the understanding that
events giving rise to any defense or right waived may diminish, destroy or
otherwise adversely affect rights which Borrower otherwise may have against
Lender or others, or against Collateral. If any of the waivers or consents
herein are determined to be contrary to any applicable law or public policy,
such waivers and consents shall be effective to the maximum extent permitted by
law.
11. NOTICES
All notices provided for herein shall be validly given if in writing and
delivered personally, or if mailed by registered or certified mail to the person
entitled to receive the same at the following addresses:
IF TO BORROWER: IF TO SAFCOR:
Global One Distribution & Safcor Inc.
Merchandising Inc. c/o Maurice Wainer, Esq.
5548 Lindbergh Lane Snipper, Wainer & Markoff
Bell, CA 90201 2029 Century Park East, Suite 1690
Attention: President Los Angeles, CA 90067
with a copy to: with a copy to:
Jeffrey P. Grogin, Esq. Maurice Wainer, Esq.
Samaha Grogin, LLP Snipper, Wainer & Markoff
911 East Colorado Boulevard, 2029 Century Park East, Suite 1690
Third Floor Los Angeles, CA 90067
Pasadena, CA 91106
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 11, other
than notices by Safcor in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or three
(3) calendar days after the deposit thereof in the mail. Borrower acknowledges
and agrees that notices sent by Safcor in connection with Sections 9504 or 9505
of the Code shall be deemed sent when deposited in the mail or transmitted by
telefacsimile or other similar method set forth above.
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12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
The validity of this Agreement, its construction, interpretation, and
enforcement, and the rights of the parties hereto shall be determined under,
governed by, and construed in accordance with the internal laws of the State of
California, without regard to principles of conflicts of law. The parties agree
that all actions or proceedings arising in connection with this Agreement shall
be tried and litigated only in the state and federal courts located in the
County of Los Angeles, State of California or, in the event Borrower has moved a
material portion of its assets out of the Southern California area, at the sole
option of Safcor, in any other court in which Safcor shall initiate legal or
equitable proceedings and which has subject matter jurisdiction over the matter
in controversy. Borrower and Safcor waives, to the extent permitted under
applicable law, any right each may have to assert the doctrine of FORUM NON
CONVENIENS or to object to venue to the extent any proceeding is brought in
accordance with this Section 12. Borrower and Safcor hereby waive their respect
rights to a jury trial of any claim or cause of action based upon or arising out
of any of the loan documents or any of the transactions contemplated therein,
including contract claims, tort claims, breach of duty claims, and all other
common law or statutory claims. Borrower and Safcor represent that each has
reviewed this waiver and each knowingly and voluntarily waives its jury trial
rights following consultation with legal counsel. In the event of litigation, a
copy of this Agreement may be filed as a written consent to a trial by the
court.
13. DESTRUCTION OF BORROWER'S DOCUMENTS
All documents, schedules, invoices, agings, or other papers delivered to
Safcor may be destroyed or otherwise disposed of by Safcor four (4) months after
they are delivered to or received by Safcor, unless Borrower requests, in
writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrower's expense, for their return.
14. GENERAL PROVISIONS
14.1 EFFECTIVENESS. This Agreement shall be binding and deemed effective
when executed by Borrower and Safcor.
14.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
duties hereunder without Safcor's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Safcor
shall release Borrower from its Obligations. Safcor may assign this Agreement
and its rights and duties hereunder. Safcor reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in Safcor's rights and benefits hereunder. In connection therewith,
Safcor may disclose all documents and information which Safcor now or hereafter
may have relating to Borrower or Borrower's business. To the extent that Safcor
assigns its rights and obligations hereunder to a third party, Safcor shall
thereafter be released from such
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assigned obligations to Borrower and such assignment shall effect a novation
between Borrower and such third party.
14.3 SECTION HEADINGS. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each paragraph applies equally to this entire Agreement.
14.4 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Safcor or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
14.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
14.6 AMENDMENTS IN WRITING. This Agreement cannot be changed or terminated
orally. All prior agreements, understandings, representations, warranties and
negotiations, if any, are merged into this Agreement.
14.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
Delivery of an executed counterpart of this Agreement by telefacsimile shall be
equally as effective as delivery of a manually executed counterpart of this
Agreement. Any party delivering an executed counterpart of this Agreement by
telefacsimile also shall deliver a manually executed counterpart of this
Agreement but the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability and binding effect of this Agreement.
14.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence of
payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to Safcor of any property of
either or both of such parties should for any reason subsequently be declared to
be improper under any state or federal law relating to creditors' rights,
including, without limitation, provisions of the United States Bankruptcy Code
relating to fraudulent conveyances, preferences, and other voidable or
recoverable payments of money or transfers of property (collectively, a
"Voidable Transfer"), and if Safcor is required to repay or restore, in whole or
in part, any such Voidable Transfer, or elects to do so upon the reasonable
advice of its counsel, then, as to any such Voidable Transfer, or the amount
thereof that Safcor is required to repay or restore, and as to all reasonable
costs, expenses and attorneys' fees of Safcor related thereto, the liability of
Borrower or such guarantor shall automatically be revived, reinstated and
restored and shall exist as though such Voidable Transfer had never been made.
14.9 INTEGRATION. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall
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not be contradicted, modified or qualified by any other agreement, oral or
written, whether before or after the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed at Los Angeles, California.
SAFCOR INC., A CALIFORNIA CORPORATION
/s/ ALAN SALONER
----------------
Signature
ALAN SALONER, PRESIDENT
-----------------------
Print Name and Title
GLOBAL ONE DISTRIBUTION &
MERCHANDISING INC., A DELAWARE
CORPORATION
/s/ DOUGLASS E. COY
-------------------
Signature
DOUGLASS E. COY, CHIEF EXECUTIVE OFFICER
----------------------------------------
Print Name and Title
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OSP PUBLISHING, INC.
5548 LINDBERGH LANE
BELL, CA 90201
PHONE (213) 980-4300
FAX (213) 263-9419
October 6, 1997
Alan Saloner
Senoral, Inc.
8474 Commerce Avenue
Suite B
San Diego, CA 92121
Dear Mr. Saloner:
In connection with the notice of default of the obligations of OSP Publishing,
Inc. to Golden State Graphics, Inc., Foothill Capital or Senoral, Inc. and in
furtherance of the proposed disposition of all collateral security held by the
lenders at public sale the undersigned waives all rights under Sections 9504 and
9506 of the Uniform Commercial Code relating to notice regarding the intended
disposition of the collateral, any right of redemption that the undersigned may
hold in connection therewith, and any claim arising in favor of the undersigned
relating to such disposition and all rights to restrain or enjoin such
disposition as may be made under Section 9507(1).
Sincerely,
OSP Publishing, Inc.
By: /S/ KEVIN CVENGROS
-----------------------
Its: Controller
----------------------
Global One Distribution and
Merchandising Inc., codebtor
By: /S/ DOUGLASS E. COY
-----------------------
Its: Chief Executive Officer
------------------------
<PAGE>
OSP PUBLISHING, INC.
5548 LINDBERGH LANE
BELL, CA 90201
PHONE (213) 980-4300
FAX (213) 263-9419
October 6, 1997
Alan Saloner
Senoral, Inc.
8474 Commerce Avenue
Suite B
San Diego, CA 92121
Dear Mr. Saloner:
This letter is to acknowledge defaults previously referred to in notice of a
default received by the undersigned obligor of certain obligations formerly
owed to Foothill Capital now purchased by Senoral as well as certain
obligations owed by OSP Publishing to Senoral and certain obligations owed to
Golden State Graphics, Inc. by OSP Publishing which are subject to certain
security agreements.
Effective immediately, OSP Publishing delivers to Senoral Corporation, Inc.,
possession of all inventory, accounts and equipment as well as any raw
materials, work in progress, supplies and materials and all proceeds of
products, together with all files, records, and property whether tangible or
intangible owned by OSP Publishing, Inc. as well as all other collateral
subject to security interest in favor of Senoral, Golden State and/or
Foothill Capital.
We agree that the reasonable expenses incurred in re-taking the collateral
and holding the collateral and preparing it for sale as well as indebtedness
secured by your security interest includes any sum you may pay or obligations
you may undertake in connection with payroll or payroll taxes, sales taxes,
rentals of the premises delivered to you or utilities thereon or fees of
counsel.
We acknowledge that by taking possession of the collateral subject to your
security interest we do not intend to create any third party beneficiary
rights to any third party and do not undertake or assume any obligations of
your company to any such third party.
Sincerely,
/S/ KEVIN CVENGROS
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