U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the quarterly period ended August 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT.
For the transition period from __________ to _________.
Commission File Number: 0-71735
ROYAL PRECISION, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 06-1453896
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
15170 North Hayden Road
Suite 1
Scottsdale, AZ 85260
(Address of Principal Executive Offices) (Zip code)
(602) 627-0200
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Title of each class Outstanding at October 9, 1998
- ---------------------- -------------------------------
Common Stock, par value $.001 5,656,269 Shares
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
<PAGE>
ITEM 1.
ROYAL PRECISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
August 31, May 31,
1998 1998
-------- --------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ -- $ 28
Accounts receivable, net of allowance
for doubtful accounts of $602
at August 31, 1998 and May 31, 1998 2,661 4,042
Inventories 3,900 4,049
Current portion of net investment in capital lease 244 240
Other current assets 43 74
Deferred income taxes 265 265
-------- --------
Total current assets 7,113 8,698
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 123 123
Furniture, fixtures and office equipment 741 544
Buildings and improvements 767 689
Machinery and equipment 3,953 3,894
-------- --------
5,584 5,250
Less - Accumulated depreciation (928) (754)
-------- --------
4,656 4,496
-------- --------
GOODWILL, net 9,898 10,028
-------- --------
NET INVESTMENT IN CAPITAL LEASE, less current portion 2,511 2,593
-------- --------
OTHER ASSETS 51 71
-------- --------
Total assets $ 24,229 $ 25,886
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines-of-credit $ 2,678 $ 3,462
Current portion of long-term debt
and capital lease obligations 1,048 1,047
Accounts payable 1,237 1,769
Accrued salaries and benefits 592 760
Other accrued expenses 1,375 1,259
-------- --------
Total current liabilities 6,930 8,297
-------- --------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
less current portion 2,908 3,171
-------- --------
DEFERRED INCOME TAXES 46 46
-------- --------
OTHER LIABILITIES 2 45
-------- --------
Total liabilities 9,886 11,559
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 5,000,000
shares authorized; no shares issued -- --
Common stock, $.001 par value; 50,000,000
shares authorized; 5,656,269 and 5,601,697
shares issued and outstanding at August 31,
1998 and May 31, 1998, respectively 6 6
Additional paid-in capital 13,834 13,821
Retained earnings 503 500
-------- --------
Total stockholders' equity 14,343 14,327
-------- --------
Total liabilities and stockholders'
equity $ 24,229 $ 25,886
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE>
ROYAL PRECISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars in thousands)
Three Months Ended
--------------------------
August 31, August 30,
1998 1997
----------- -----------
NET SALES:
Golf shafts $ 5,001 $ 4,922
Golf grips 1,037 --
Headwear 794 --
----------- -----------
6,832 4,922
----------- -----------
COST OF SALES:
Golf shafts 3,274 3,727
Golf grips 551 --
Headwear 709 --
----------- -----------
4,534 3,727
----------- -----------
Gross profit 2,298 1,195
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,156 1,025
----------- -----------
Operating income 142 170
INTEREST EXPENSE, net of interest income
of $61 and $0, for 1998 and 1997, respectively 134 123
----------- -----------
Income before provision for income taxes 8 47
PROVISION FOR INCOME TAXES 5 21
----------- -----------
Net income $ 3 $ 26
=========== ===========
BASIC AND DILUTED NET INCOME PER COMMON SHARE $ 0.00 $ 0.01
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING USED IN COMPUTING BASIC NET
INCOME PER COMMON SHARE 5,602,290 4,175,394
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING USED IN COMPUTING DILUTED NET
INCOME PER COMMON SHARE 5,711,547 4,334,055
=========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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<PAGE>
ROYAL PRECISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Three Months Ended
-----------------------
August 31, August 30,
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3 $ 26
Adjustments to reconcile net income
to net cash provided by
operating activities -
Depreciation and amortization 304 95
Changes in operating assets and liabilities,
net of effect of business acquired -
Accounts receivable 1,381 909
Inventories 149 296
Other assets 51 (31)
Accounts payable and accrued
expenses (584) (590)
Other liabilities (43) --
-------- --------
Net cash provided by
operating activities 1,261 705
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired from Royal Grip, Inc. -- 18
Purchases of equipment, net (334) (230)
Payments from net investment in capital lease 78 --
Merger costs -- (386)
-------- --------
Net cash used in investing
activities (256) (598)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock
options 13 --
(Repayments) borrowings under
lines-of-credit, net (784) 125
Repayments of long-term debt and
capital lease obligations (262) (225)
-------- --------
Net cash used in financing
activities (1,033) (100)
-------- --------
(DECREASE) INCREASE IN CASH (28) 7
CASH, beginning of period 28 28
-------- --------
CASH, end of period $ -- $ 35
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for -
Interest $ 205 $ 134
======== ========
Income taxes $ 17 $ 60
======== ========
Non-cash transactions -
Accrued Merger and registration
costs $ -- $ 521
======== ========
Issuance of common stock and options
and warrants to purchase common
stock for acquisition of Royal Grip, Inc. $ -- $ 12,995
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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<PAGE>
ROYAL PRECISION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Operations and Significant Accounting Policies:
Basis of presentation -
The condensed consolidated financial statements of Royal Precision, Inc.
and subsidiaries (collectively, RPI or the Company) presented herein have
been prepared pursuant to the rules of the Securities and Exchange
Commission for quarterly reports on Form 10-QSB and do not include all of
the information and note disclosures required by generally accepted
accounting principles. These condensed consolidated financial statements
should be read in conjunction with the Company's consolidated financial
statements and notes thereto for the year ended May 31, 1998 included in
the Company's Form 10-KSB. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements include all
adjustments, consisting of only normal recurring adjustments, necessary
to present fairly the consolidated financial position, results of
operations and cash flows of the Company. Quarterly operating results are
not necessarily indicative of the results that would be expected for the
full year.
Principles of consolidation -
The accompanying consolidated financial statements include Royal
Precision, Inc. (RPI) and its three wholly-owned subsidiaries, FM
Precision Golf Manufacturing Corp. (FMP), FM Precision Golf Sales Corp.
(FM Sales) and Royal Grip, Inc (formerly FMPSUB, Inc.) and its wholly
owned subsidiary, Roxxi, Inc. (collectively RG). On May 14, 1997, RPI
entered into an Agreement and Plan of Merger with RG. Under the terms of
the Merger agreement, effective August 29, 1997, FMPSUB, Inc. (a
wholly-owned subsidiary of RPI created for such purpose) merged with and
into RG (the Merger). RG was the surviving corporation and became a
wholly-owned subsidiary of RPI. Accordingly, the results of operations of
RG are not included in the three months ended August 30, 1997 and are
included in the three months ended August 31, 1998. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Reporting periods -
The Company's first three fiscal quarters in fiscal year May 31, 1998
ended on a Saturday. The Company's first three fiscal quarters in fiscal
year May 31, 1999 end on the last calendar day of the quarter. The
Company's year end is May 31.
2. Net Income Per Share:
In February 1997, the Financial Accounting Standards Board adopted a new
standard (SFAS No. 128) on accounting for earnings per share (EPS). This
new standard replaced the presentation of primary EPS with a presentation
of basic EPS and changed the fully diluted terminology to diluted. It
also requires dual presentation of basic and diluted EPS on the face of
the income statement. In February 1998, the SEC issued Staff Accounting
Bulletin (SAB) No. 98, which, among other things, addresses the impact of
cheap stock in earnings per share computations. All weighted average
share and net income (loss) per share amounts for all periods have been
presented, and where necessary, restated to conform to the SFAS No. 128
and SAB No. 98 requirements.
Basic earnings per common share are based on the average number of common
shares outstanding during the periods presented. Diluted earnings per
common share assumes, in addition to the above, a dilutive effect of
common share equivalents during the periods presented. Common share
equivalents represent dilutive stock options using the treasury stock
method.
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<PAGE>
3. New Accounting Standards:
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income (net income together with other non-owner changes in
equity) and its components in a full set of general purpose financial
statements. RPI's comprehensive income is the same as RPI's net income
for the three month periods ended August 31, 1998 and August 30, 1997.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and other Postretirement Benefits", which revises
employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.
It standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable and requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis. Since SFAS No. 132
affects disclosures only and not measurement, the standard will have no
financial impact upon adoption at the end of fiscal 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. The Company will be required to adopt SFAS No. 133 as of June 1,
2000 and does not anticipate any material impact resulting from the
adoption of this pronouncement.
4. Inventories:
Inventories as of August 31, 1998 and May 31, 1998 consisted of the
following (in thousands):
August 31, 1998 May 31, 1998
------ ------
Raw materials $ 742 $1,161
Work-in-process 1,576 1,206
Finished goods 1,582 1,682
------ ------
$3,900 $4,049
====== ======
5. Information on Segments:
The Company has three reportable segments: golf shafts, golf grips and
headwear. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates the performance of these segments based on segment profit or
loss after income taxes. The Company allocates certain administrative
expenses to segments. The amounts in this illustration are the amounts in
reports used by the chief operating decision maker as of August 31, 1998
(in thousands):
Three Months Ended August 31, 1998
------------------------------------
Golf Golf
Shafts Grips Headwear Total
------ ----- -------- ------
Revenues from external customers $5,001 $ 1,037 $ 794 $ 6,832
Intersegment revenues - - 5 5
Segment profit (loss) 43 51 (91) 3
Segment assets 8,284 11,708 1,805 21,797
Total assets for reportable segments $21,797
Elimination of investment in
subsidiaries (7,466)
Goodwill not allocated to segments 9,898
-------
Consolidated total assets $24,229
=======
For the three month period ended August 31, 1997, the Company had only
one segment, golf shafts.
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<PAGE>
6. Subsequent Events
On October 8, 1998, the Company made changes to its existing borrowing
arrangements described in Note 6 to the financial statements contained in
the Company's form 10-KSB and consolidated all of its credit facilities
with one bank.
In connection with a new credit facility for FMP, all loans to FMP were
paid off and a new credit and security agreement was entered into with a
new lender. In connection with the repayment of the old FMP credit
facility, FMP paid a $75,000 prepayment penalty to its bank. The cost of
the prepayment penalty will be reflected as a reduction of the Company's
second quarter income. Terms of FMP's new credit facilities are as
follows. The amount available for borrowings under the FMP term loan is
$4.3 million. Such amount was funded on October 9, 1998. The amount
available for borrowing under the FMP revolver is based upon the levels
of eligible accounts receivable and inventories, as defined, subject to
maximum borrowing of $4.0 million. FMP's term loan is due in monthly
principal installments of $99,000 through and until October 1, 1999 and
$65,000 monthly, thereafter.
The borrowing arrangement with RG was amended and restated. The amendment
resulted in the funding of a new RG term loan of $840,000 in addition to
the existing RG term loan that has $496,000 outstanding at October 9,
1998. The new RG term loan was funded on October 9, 1998. The amount
available for borrowings under the RG revolver is based upon the levels
of eligible accounts receivable and inventories, as defined, subject to
maximum borrowing of $1.5 million. RG's new term loan is due in monthly
principal installments of $40,000 through and until October 1, 1999 and
$22,500 monthly until maturity.
Borrowings under all term loans and both revolvers bear interest at a
rate per annum equal to the prime rate (8.25% at October 9, 1998) plus
0.75% and 0.25%, respectively, and are secured by substantially all of
the Company's assets. The maturity date for all term loans and both
revolvers is September 30, 2001. On October 9, 1998, the Company had $1.4
million available for additional borrowings. However, when the UCC
filings in Connecticut related to the loan have been perfected, a
$500,000 reserve will be removed and the Company will have $1.9 million
available for additional borrowings.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements -
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Form 10-QSB, any other Form
10-QSB, Form 10-KSB, or Form 8-K, or any other written or oral statements
made by or on behalf of RPI may include forward looking statements which
reflect RPI's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain
uncertainties and other factors that could cause actual results to differ
materially from such statements. These uncertainties and other factors
include, but are not limited to, uncertainties relating to economic
conditions, customer plans and commitments, RPI's cost of raw materials,
the competitive environment in which RPI operates, and changes in the
financial markets relating to RPI's capital structure and cost of
capital. Statements in this Form 10-QSB, including the Notes to the
Condensed Consolidated Financial Statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations", describe
factors among others, that could contribute to or cause such differences.
Additional factors that could cause actual results to differ materially
from those expressed in such forward looking statements are detailed in
RPI's Form 10-KSB. Please refer to "Risk Factors" therein. The words
"believe," "expect," "anticipate," "project," and similar expressions
identify forward looking statements, which speak only as of the date the
statement was made. RPI undertakes no obligation to publicly update or
revise any forward looking statements, whether as a result of new
information, future events, or otherwise.
Overview -
Royal Precision, Inc. (RPI or the Company) has three wholly-owned
subsidiaries which are FM Precision Golf Manufacturing Corp. (FMP), FM
Precision Golf Sales Corp., Royal Grip, Inc. (formerly known as FMPSUB,
Inc.) and its wholly owned subsidiary, Roxxi, Inc. (collectively RG). RPI
acquired RG on August 29, 1997 by means of a merger whereby FMPSUB, Inc.
merged with and into RG with RG being the surviving corporation.
The effective date of the merger was August 29, 1997. Accordingly, RG's
results of operations are included in the three months ended August 31,
1998, but are not included in the three months ended August 30, 1997.
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<PAGE>
FMP is a manufacturer and distributor of golf shafts that are sold to
original equipment manufacturers (OEMs) and to distributors and retailers
for use in the replacement market. The majority of FMP's sales are to
OEM's. FMP also sells golf shafts in foreign markets including Japan,
Canada, Australia and the United Kingdom.
RG designs and distributes golf club grips and manufactures and
distributes athletic headwear. RG's products are sold primarily
throughout the United States, Japan and the United Kingdom. The majority
of RG's grip sales are to its Japanese distributor. In December 1996, RG
outsourced the manufacturing of its non-cord grips to Acushnet Rubber
Company.
Three Months Ended August 31, 1998 Compared to the Three Months Ended
August 30, 1997 -
Net Sales. Net sales for the three months ended August 31, 1998 were $6.8
million, an increase of 38.8% over net sales of $4.9 million for the
corresponding period in 1997. The increase in net sales of $1.9 million
is primarily attributable to the inclusion of $1.8 million of net sales
of golf club grips and headwear by RG. Net golf shaft sales for the three
months ended August 31, 1998 increased by $0.1 million or 1.6%. Sales of
the higher priced Rifle shafts increased by $1.1 million or 45.9% as
compared to the same period last year. The increase in Rifle shaft sales
was offset by a reduction in lower priced commercial grade shaft sales of
$0.8 million or 40.8%
Cost of Goods Sold. Cost of goods sold for the three months ended August
31, 1998 was $4.5 million, an increase of 21.7% over cost of goods sold
of $3.7 million for the same period in 1997. The increase in cost of
goods sold of $0.8 million is primarily attributable to the inclusion of
$1.3 million of cost of goods sold for RG golf club grips and headwear
offset by a decrease of $0.5 million in golf shaft cost of sales. The
decrease in cost of goods sold for the golf shaft business is primarily
the result of a planned reduction in the total unit volume of shaft sales
offset by a change in mix to higher cost Rifle shafts from lower cost
commercial grade shafts.
Gross Profit. Gross profit for the three months ended August 31, 1998 was
$2.3 million, an increase of 92.3% over gross profit of $1.2 million for
the corresponding period in 1997. The increase in gross profit of $1.1
million is primarily attributable to the inclusion of $0.6 million of
gross profit on sales of golf club grips and headwear by RG. Gross profit
on sales of golf shafts for the three months ended August 31, 1998
increased by $0.5 million or 44.5% as compared to the same period last
year. As a percentage of sales, the gross profit on shaft sales increased
from 24.3% to 34.5% for the three months ended August 31, 1998, as
compared to gross profit during the same period in 1997 due to a greater
percentage of shaft sales being attributed to sales of higher margin
Rifle shafts.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended August 31, 1998 were
$2.2 million, an increase of 110.3% over selling, general and
administrative expenses of $1.0 million for the same period in 1997. The
increase in selling, general and administrative expenses of $1.2 million
is primarily attributable to the inclusion of $0.5 million of selling,
general and administrative expenses from RG for the period reported. In
addition, the Company amortized $130,000 of goodwill during the three
months ended August 31, 1998 as a result of the Merger. In addition,
advertising expenses for FMP increased $140,000 for the three months
ended August 31, 1998 as compared to the same period last year.
Interest Expense, net. Net interest expense for the three months ended
August 31, 1998 was $134,000 compared to $123,000 for the same period
last year. The increase in net interest expense is primarily attributable
to the inclusion of RG interest expense totaling $42,000 for the three
month period ended August 31, 1998 and higher average outstanding
balances on the FMP lines-of-credit during the three month period ended
August 31, 1998 compared to the same period last year. Interest income
for the three months ended August 31, 1998 was $61,000, compared to $0
for the same period last year. This increase is due to the inclusion of
interest income from RG's capital lease receivable in the 1998 period.
Income Taxes. Income tax expense for the three months ended August 31,
1998 and 1997 was $5,000 and $21,000, respectively. Taxes are provided
based on the estimated effective tax rate for the year which considers
the effect of nondeductible goodwill amortization.
-8-
<PAGE>
Liquidity and Capital Resources. At August 31, 1998, RPI had working
capital of $183,000 and a current ratio of 1.0 to 1 as compared to
working capital of $401,000 and a current ratio of 1.0 to 1 at May 31,
1998.
FMP and RG were in compliance with all debt covenants at August 31, 1998.
Based on eligible receivables and inventory as of August 31, 1998, FMP
and RG had $0.3 million and $0.2 million available for additional
borrowings under revolving lines of credit, respectively.
On October 8, 1998, the Company made changes to its existing borrowing
arrangements described in Note 6 to the financial statements contained in
the Company's form 10-KSB and consolidated all of its credit facilities
with one bank.
In connection with a new credit facility for FMP, all loans to FMP were
paid off and a new credit and security agreement was entered into with a
new lender. In connection with the repayment of the old FMP credit
facility, FMP paid a $75,000 prepayment penalty to its bank. The cost of
the prepayment penalty will be reflected as a reduction of the Company's
second quarter income. Terms of FMP's new credit facilities are as
follows. The amount available for borrowings under the FPM term loan is
$4.3 million. Such amount was funded on October 9, 1998. The amount
available for borrowing under the FMP revolver is based upon the levels
of eligible accounts receivable and inventories, as defined, subject to
maximum borrowing of $4.0 million. FMP's term loan is due in monthly
principal installments of $99,000 through and until October 1, 1999 and
$65,000 monthly, thereafter.
The borrowing arrangement with RG was amended and restated. The amendment
resulted in the funding of a new term loan of $840,000 in addition to the
existing term loan that has $496,000 outstanding at October 9, 1998. The
new RG term loan was funded on October 9, 1998. The amount available for
borrowings under the RG revolver is based upon the levels of eligible
accounts receivable and inventories, as defined, subject to maximum
borrowing of $1.5 million. RG's new term loan is due in monthly principal
installments of $40,000 through and until October 1, 1999 and $22,500
monthly until maturity.
Borrowings under all term loans and both revolvers bear interest at a
rate per annum equal to the prime rate (8.25% at October 9, 1998) plus
0.75% and 0.25%, respectively, and are secured by substantially all of
the Company's assets. The maturity date for all term loans and both
revolvers is September 30, 2001. On October 9, 1998, the Company had $1.4
million available for additional borrowings. However, when the UCC
filings in Connecticut related to the loan have been perfected, a
$500,000 reserve will be removed and the Company will have $1.9 million
available for additional borrowings.
The Company believes that its existing capital resources and credit lines
available are sufficient to fund its operations and capital requirements
as presently planned over the next twelve months.
During the three months ended August 31, 1998, net cash provided by
operating activities was $1.3 million which primarily resulted from an
aggregate decrease in accounts receivable and inventory of $1.5 million
and $0.3 million of depreciation and amortization partially offset by a
decrease in accounts payable and accrued expenses of $0.6 million. RPI
used $0.3 million in investing activities during the three months ended
August 31, 1998, primarily due to the purchase of additional property
plant and equipment. RPI estimates that capital expenditures for the year
ended May 31, 1999 will be approximately $1.7 million.
Net cash used in financing activities for the three months ended August
31, 1998, was $1.0 million primarily due to the repayment of $0.8 million
and $0.3 million on the Company's lines of credit and term loans,
respectively.
Year 2000 Assessment. The Company has assessed all internal year 2000
issues including but not limited to computer hardware and software, alarm
systems, manufacturing equipment and software, and all other mechanical
equipment. Based on this assessment, a plan was developed and implemented
to resolve all of the internal year 2000 issues. The Company completed
the last phase of the year 2000 internal compliance plan on June 1, 1998
by converting to a client server based accounting system which is year
2000 compliant.
The Company is currently assessing external year 2000 exposure and risks.
A plan will be developed and implemented to contact external suppliers,
assess risk factors and find alternative suppliers, and develop
contingency plans, as necessary.
-9-
<PAGE>
There can be no assurance that the Company's efforts to achieve year 2000
compliance will be successful or that third parties with whom the Company
has material relationships will be year 2000 compliant by January 1,
2000. Year 2000 noncompliance by either the Company or any of these
material third parties could have a material adverse effect on the
Company's business, results of operations, or financial condition.
Business Environment and Future Results.
Reliance on Third Party Suppliers. RG currently purchases, and for an
indefinite period of time intends to purchase, 100% of its supply of
non-cord grips from Acushnet. During the transition to Acushnet beginning
in December 1996, Acushnet experienced delays and quality problems in the
production of grips, which adversely affected RG's customer relationships
and results of operations.
Under the amended Manufacturing and Supply Agreement, either Acushnet or
RG may voluntarily terminate the agreement upon payment of a specified
termination fee, among other things. During calendar year 1999 and
beyond, RG is required to purchase a minimum number of grips. Failure by
RG to purchase the minimum, during any calendar year, constitutes a
material breach of the Agreement pursuant to which Acushnet, at its
option, may terminate the Agreement without paying the termination fee.
Although the minimum requirements are not yet in effect, RG is currently
ordering fewer grips than will be required during calendar 1999 and
beyond.
RG currently has no back-up source of supply should the Company or
Acushnet elect to utilize its termination rights, and any transition to
alternative suppliers or the resumption of in-house manufacturing
operations by RG may result in production delays, the loss of sales and
key customers which would materially affect RG's financial condition and
results of operations. The contract requires Acushnet to provide RG with
10 months notice to terminate the contract. Although RG believes that it
has certain remedies available to it under its agreement with Acushnet
arising out of a voluntary termination of the agreement by Acushnet,
including the payment of termination fees and expenses, there can be no
assurance that RG would be able to successfully pursue such remedies or
that such remedies would adequately compensate RG for any losses incurred
by it.
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<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The annual meeting of stockholders was held on October 1, 1998.
(b) Lawrence Bain, Ronald L. Chalmers and Leslie Reesing were elected
as directors, each to serve a term of three years. Other directors whose terms
of office continued after the annual meeting are David E. Johnston, Kenneth J.
Warren, Robert G. J. Burg, II, Danny Edwards, Richard P. Johnston and Raymond J.
Minella.
(c) The only matters voted on at the annual meeting were the election
of directors and approval of the Royal Precision, Inc. Stock Option Plan.
Results of the voting were as follows:
Total number of shares entitled to vote present or represented at the
annual meeting: 5,341,858
Election of Directors:
FOR AUTHORITY WITHHELD
--- ------------------
Lawrence Bain 5,337,858 4,000
Ronald L. Chalmers 5,338,008 3,850
Leslie Reesing 5,336,508 5,350
Approval of Stock Option Plan: FOR AGAINST ABSTAIN NOT VOTED
--- ------- ------- ---------
4,915,770 17,440 1,347 407,301
(d) Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
(3) Certificate of Incorporation and Bylaws
-11-
<PAGE>
Exhibit 3.1. Amended and Restated Certificate of Incorporation of FM
Precision Golf Corp. (incorporated by reference to Annex IV to the Company's
Form S-4; No. 333-28841 (the "Form S-4")).
Exhibit 3.2. Bylaws of Royal Precision, Inc. (incorporated by reference
to Exhibit 3.2 to the Form S-4).
(4) Instruments Defining the Rights of Security Holders
Exhibit 4. 1. See Articles FOUR, FIVE and SEVEN of the Amended and
Restated Certificate of Incorporation of FM Precision Golf Corp. (incorporated
by reference to Exhibit 3.1 to the Form S-4).
Exhibit 4.2. See Article I, Sections 2.1 and 2.2 of Article II and
Section 7.3 of Article VII of the Bylaws of Royal Precision, Inc. (incorporated
by reference to Exhibit 3.2 to the Form S-4).
(10) Material Contracts
Exhibit 10.1. Credit and Security Agreement dated as of October 8, 1998
among FM Precision Golf Manufacturing Corp., FM Precision Golf Sales Corp. and
Norwest Business Credit, Inc.
Exhibit 10.2. Amended and Restated Credit and Security Agreement dated
as of October 8, 1998 among Royal Grip, Inc., Roxxi, Inc. and Norwest Business
Credit, Inc.
Exhibit 27.
Financial Data Schedule (submitted electronically for SEC information
only)
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the quarter
ended August 31, 1998.
-12-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ROYAL PRECISION, INC.
Date October 14, 1998 By /s/ Thomas Schneider
-------------------- ------------------------------------
Thomas Schneider, President and
Treasurer (duly authorized officer
and principal financial officer)
-13-
<PAGE>
EXHIBIT INDEX
PAGE IN
SEQUENTIALLY
NUMBERED
EXHIBIT COPY
- ------- ----
3.1 Amended and Restated Certificate of Incorporation of registrant
(incorporated by reference to Annex IV to the Company's Form
S-4, No. 333-28841) (the "Form S-4") *
3.2 Bylaws of Royal Precision, Inc. (incorporated by reference to
Exhibit 3.2 to the Form S-4) *
4.1 See Articles FOUR, FIVE and SEVEN of the Amended and Restated
Certificate of Incorporation of the registrant (incorporated by
reference to Exhibit 3.1 to the Form S-4. *
4.2 See Article I, Sections 2.1 and 2.2 of Article II and Section
7.3 of Article VII of the Bylaws of Royal Precision, Inc.
(incorporated by reference to Exhibit 3.2 to the Form S-4) *
10.1 Credit and Security Agreement dated as of October 8, 1998 among
FM Precision Golf Manufacturing Corp., FM Precision Golf Sales
Corp and Norwest Business Credit, Inc. 15
10.2 Amended and Restated Credit and Security Agreement dated as of
October 8, 1998 among Royal Grip, Inc., Roxxi, Inc. and Norwest
Business Credit, Inc. 74
27. Financial Data Schedule (submitted electronically for SEC
information only)
- --------
* Incorporated by reference
-14-
CREDIT AND SECURITY AGREEMENT
Dated as of ____________, 1998
FM PRECISION GOLF MANUFACTURING CORP., a Delaware corporation and FM
PRECISION GOLF SALES CORP., a Delaware corporation (collectively, jointly and
severally, the "Borrower"), and NORWEST BUSINESS CREDIT, INC., a Minnesota
corporation (the "Lender"), hereby agree as follows:
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 GAAP.
"Accounts" means all of the Borrower's accounts, as such term
is defined in the UCC, including without limitation the aggregate
unpaid obligations of customers and other account debtors to the
Borrower or either of them arising out of the sale or lease of goods or
rendition of services by the Borrower or either of them on an open
account or deferred payment basis.
"Advance" means a Revolving Advance or a Term Advance.
"Affiliate" or "Affiliates" means the Covenant Entities and
any other 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.
"Agreement" means this Amended and Restated Credit and
Security Agreement, as amended, supplemented or restated from time to
time which replaces the Original Credit Agreement in its entirety.
"Availability" means the positive difference, if any, of (i)
the Borrowing Base and (ii) the sum of (A) the outstanding principal
balance of the Revolving Note and (B) the L/C Amount.
"Banking Day" means a day other than a Saturday, Sunday or
other day on which banks are generally not open for business in
Phoenix, Arizona.
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<PAGE>
"Base Rate" means the rate of interest publicly announced from
time to time by Norwest Bank Minnesota as its "base rate" or, if such
bank ceases to announce a rate so designated, any similar successor
rate designated by the Lender.
"Book Net Worth" means the aggregate of the common and
preferred stockholders' equity in the Borrower, determined in
accordance with GAAP.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, the sum of:
(A) the lesser of (x) 85% of Eligible
Accounts, or (y) $4,000,000.00, plus
(B) the lesser of (x) 60% of Eligible
Inventory (exclusive of Eligible Raw
Materials Inventory), or (y)
$3,000,000.00 from the date of this
Agreement through January 31, 1999, and
$2,500,000.00 on February 1, 1999 and at
all times thereafter, plus
(C) the lesser of (x) 50% of Eligible Raw
Materials Inventory, or (y)
$3,000,000.00 from the date of this
Agreement through January 31, 1999, and
$2,500,000.00 on February 1, 1999 and at
all times thereafter.
"Capital Expenditures" for a period means any expenditure of
money for the purchase or construction of assets, or for improvements
or additions thereto, which are capitalized on the Borrower's balance
sheet.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, all sums on deposit in any
Collateral Accounts, and any items in any lockbox; together with (i)
all substitutions and replacements for and products of any of the
foregoing; (ii) proceeds of any and all of the foregoing; (iii) in the
case of all tangible goods, all accessions; (iv) all accessories,
attachments, parts, equipment and repairs now or hereafter attached or
affixed to or used in connection with any tangible goods; (v) all
warehouse receipts, bills of lading and other documents of title now or
hereafter covering such goods; and (vi) all sums on deposit in the
Special Account.
"Collateral Accounts" have the meaning given in the Collateral
Account Agreements.
"Collateral Account Agreements" means the Collateral Account
Agreements of even date herewith by and among FMM, FMS, Norwest Bank
Arizona and the Lender.
2
<PAGE>
"Collateral Assignment of Trademarks" means the Collateral
Assignment of Trademarks by FMM in favor of the Lender of even date
herewith.
"Commitment" means the Lender's commitment to make Advances
and to cause the Issuer to issue Letters of Credit to or for the
Borrower's account pursuant to Article II.
"Covenant Entities" means Royal Grip, Inc., Roxxi, Inc. and
Royal Precision, Inc.
"Credit Facility" means the credit facility being made
available to the Borrower by the Lender pursuant to Article II.
"Current Maturities of Long Term Debt" as of a given date
means the amount of the Borrower's long-term debt and capitalized
leases which became due during the applicable period ending on the
designated date.
"Debt" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in
determining total liabilities as shown on the liabilities side of a
balance sheet of that Person as at the date as of which Debt is to be
determined. For purposes of determining a Person's aggregate Debt at
any time, "Debt" shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.
"Debt Service Coverage Ratio" means the ratio of (i) the sum
of (A) Funds from Operations and (B) Interest Expense MINUS (C)
unfinanced portion of Capital Expenditures to (ii) the sum of (A)
Current Maturities of Long Term Debt (actually paid during the period)
and (B) Interest Expense.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the
first day of any month during which a Default or Event of Default has
occurred and ending on the date the Lender notifies the Borrower in
writing that such Default or Event of Default has been cured or waived.
"Default Rate" means, with respect to the Revolving Advances,
an annual rate equal to two percent (2%) over the Revolving Floating
Rate, which rate shall change when and as the Revolving Floating Rate
changes and with respect to the Term Advances, an annual rate equal to
two percent (2%) over the Term Floating Rate, which rate shall change
when and as the Term Floating Rate changes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Eligible Accounts" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
3
<PAGE>
(i) That portion of Accounts which are 60 days past
stated due date or which are unpaid 120 days or more after the
invoice date;
(ii) That portion of Accounts that is disputed or
subject to a claim of offset or a contra account;
(iii) 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;
(iv) 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 for which the Borrower has provided
evidence satisfactory to the Lender that (A) the Lender has a
first priority perfected security interest and (B) such
Accounts may be enforced by the Lender directly against such
unit of government under all applicable laws);
(v) Accounts owed by an account debtor located
outside the United States which are not (A) backed by a bank
letter of credit naming the Lender as beneficiary or assigned
to the Lender, in the Lender's possession or in a Related
Lender's possession and acceptable to the Lender in all
respects, in its sole discretion, or (B) covered by a foreign
receivables insurance policy acceptable to the Lender in its
sole discretion;
(vi) Accounts owed by an account debtor that is
insolvent, the subject of bankruptcy proceedings or has gone
out of business;
(vii) Accounts owed by a shareholder, Subsidiary,
Affiliate, officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected
security interest in the Lender's favor or which are subject
to any lien, security interest or claim in favor of any Person
other than the Lender including without limitation any payment
or performance bond;
(ix) That portion of Accounts that has been
restructured, extended, amended or modified;
(x) That portion of Accounts that constitutes
advertising, finance charges, service charges or sales or
excise taxes;
(xi) Accounts owed by an account debtor, regardless
of whether otherwise eligible, if 20% or more of the total
amount due under Accounts from such debtor is ineligible under
clauses (i), (ii) or (ix) above
4
<PAGE>
(xii) Accounts consisting of tooling charges; and
(xiii) Accounts owed by an account debtor (other than
Taylor Made, Callaway and Marubeni) regardless of whether
otherwise eligible, in excess of 15% of total Accounts.
(xiv) Accounts owed by Taylor Made and Callaway,
regardless of whether otherwise eligible, in excess of 25% of
total Accounts.
(xv) Accounts owed by Marubeni, regardless of whether
otherwise eligible, in excess of 50% of total Accounts.
(xvi) Accounts owed by Marubeni, regardless of
whether otherwise eligible, to the extent the aggregate amount
of such accounts exceed $500,000.00 of total Accounts.
(xvii) Accounts, or portions thereof, otherwise
deemed ineligible by the Lender in its sole discretion.
"Eligible Raw Materials Inventory" means that portion
of Eligible Inventory consisting of raw materials.
"Eligible Inventory" means all inventory of Borrower
valued at weighted average cost as determined in accordance
with GAAP; provided, however, that the following shall not in
any event be deemed Eligible Inventory:
(i) Inventory that is: in-transit (exclusive
of inventory in-transit between Premises locations);
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;
(ii) Packaging inventory;
(iii) Work-in-process inventory;
(iv) Inventory that is damaged, obsolete or
not currently saleable in the normal course of the
Borrower's operations;
5
<PAGE>
(v) Inventory that the Borrower has
returned, has attempted to return, is in the process
of returning or intends to return to the vendor
thereof;
(vi) Inventory that is subject to a security
interest in favor of any Person other than the
Lender;
(vii) Inventory that does not consist of
finished grips;
(viii) Slow-Moving Inventory;
(ix) Inventory that is subject to a
licensing agreement, which licensing agreement would
preclude or hinder the Lender from liquidating such
Inventory in the ordinary course of business; and
(x) Inventory otherwise deemed ineligible by
the Lender in its sole discretion.
"Environmental Laws" has the meaning specified in Section
5.12.
"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, and whether located on the Premises or
otherwise.
"Event of Default" has the meaning specified in Section 8.1.
"FMM" means FM Precision Golf Manufacturing Corp., a Delaware
corporation.
"FMS" means FM Precision Golf Sales Corp., a Delaware
corporation.
"Funding Date" has the meaning given in Section 2.1.
"Funds From Operations" for a given period means the sum of
(i) Net Income, (ii) depreciation and amortization, (iii) deferred
income taxes, and (iv) other non-cash items, each as determined for
such period in accordance with GAAP.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the
financial statements described in Section 5.5, except for any change in
accounting practices to the extent that, due to a promulgation of the
Financial Accounting Standards Board changing or implementing any new
accounting standard, the Borrower either (i) is required to implement
such change, or (ii) for future periods will be required to and for the
current period may in accordance with
6
<PAGE>
GAAP implement such change, for its financial statements to be in
conformity with GAAP (any such change is herein referred to as a
"Required GAAP Change"), provided that (1) the Borrower shall fully
disclose in such financial statements any such Required GAAP Change and
the effects of the Required GAAP Change on the Borrower's income,
retained earnings or other accounts, as applicable, and (2) the
Borrower's financial covenants set forth in Sections 6.12 through 6.15
and 7.10 shall be adjusted as necessary to reflect the effects of such
Required GAAP Change.
"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.
"Guarantor" means Royal Precision, Inc., a Delaware
corporation.
"Hazardous Substance" has the meaning given in Section 5.12.
"Interest Expense" means, for a fiscal year-to-date period,
the Borrower's total gross interest expense during such period
(excluding interest income), and shall in any event include, without
limitation or duplication, (i) interest expensed (whether or not paid)
on all Debt, (ii) the amortization of debt discounts, (iii) the
amortization of all fees payable in connection with the incurrence of
Debt to the extent included in interest expense, and (iv) the portion
of any capitalized lease obligation allocable to interest expense.
"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.
"Issuer" means the issuer of any Letter of Credit.
"L/C Amount" means the sum of (i) the aggregate 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 a form acceptable to the Issuer and the Lender.
"Letter of Credit" has the meaning specified in Section 2.2.
"Loan Documents" means this Agreement, the Notes and the
Security Documents.
"Maturity Date" means September 30, 2001.
"Maximum Line" means $4,000,000.00, unless said amount is
reduced pursuant to Section 2.12, in which event it means the amount to
which said amount is reduced.
7
<PAGE>
"Minimum Interest Charge" has the meaning given in Section
2.8(c).
"Mortgage Deed" means the Mortgage Deed and Security Agreement
by FMM in favor of Lender of even date herewith.
"Net Income" means for the applicable period, after-tax net
income from continuing operations as determined in accordance with
GAAP.
"Net Loss" means for the applicable period, after-tax net loss
from continuing operations as determined in accordance with GAAP.
"Norwest Bank Minnesota" means Norwest Bank Minnesota,
National Association.
"Note" means the Revolving Note or the Term Note, and "Notes"
means the Revolving Note and the Term Note.
"Obligations" means the Notes and each and every other 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, the Notes, any L/C
Application completed by the Borrower, or any other loan or credit
agreement or guaranty between the Borrower and the Lender, whether now
in effect or hereafter entered into.
"Obligation of Reimbursement" has the meaning given in Section
2.3(a).
"Patent Security Agreement" means the Patent Mortgage,
Assignment and Security Agreement by FMM in favor of the Lender of even
date herewith.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, 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 the Borrower's employees 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 D attached
hereto.
8
<PAGE>
"Real Property" means the real property subject to the lien of
the Mortgage Deed.
"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 Advance" has the meaning given in Section 2.1.
"Revolving Floating Rate" means an annual rate equal to the
sum of the Base Rate plus one-quarter of one percent (.25%), which
annual rate shall change when and as the Base Rate changes.
"Revolving Note" means the Borrower's revolving promissory
note, payable to the order of the Lender in substantially the form of
Exhibit A hereto and any note or notes issued in substitution therefor,
as the same may hereafter be amended, supplemented or restated from
time to time.
"Security Documents" means this Agreement, the Mortgage Deed,
the Collateral Account Agreements, the Patent Security Agreement and
any other document delivered to the Lender from time to time in
connection with the Original Credit Agreement, this Agreement or to
secure the Obligations, as the same may hereafter be amended,
supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Slow-Moving Inventory" means any inventory where 100% of the
like inventory has not turned in the previous twelve (12) months.
"Special Account" means a specified cash collateral account
maintained by a financial institution acceptable to the Lender in
connection with Letters of Credit, as contemplated by Section 2.4.
9
<PAGE>
"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 either Borrower, by either
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Term Advance" has the meaning specified in Section 2.6.
"Term Floating Rate" means an annual rate equal to the sum of
the Base Rate plus three-quarters of one percent (.75%), which annual
rate shall change when and as the Base Rate changes.
"Term Note" means the Borrower's promissory note, payable to
the order of the Lender in substantially the form of Exhibit B hereto
and any note or notes issued in substitution therefor, as the same may
hereafter be amended, supplemented or restated from time to time.
"Termination Date" means the earliest of (i) the Maturity
Date, (ii) the date the Borrower terminates the Credit Facility, or
(iii) the date the Lender demands payment of the Obligations after an
Event of Default pursuant to Section 8.2.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.13 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.
SECTION 1.2 CROSS REFERENCES. All references in this Agreement to
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
Article II.
AMOUNT AND TERMS OF THE CREDIT FACILITY
SECTION 2.1 REVOLVING 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 from the date all of the conditions set forth in Section 4.1
are satisfied (the "Funding Date") to the Termination Date, on the terms and
subject to the conditions herein set forth (the "Revolving Advances"). The
Lender shall have no obligation to make a Revolving Advance if, after giving
effect to such requested Revolving Advance, the sum of the outstanding and
unpaid Revolving Advances under this Section 2.1 or otherwise would exceed the
Borrowing Base less the L/C Amount. The Borrower's obligation to pay the
Revolving Advances shall be evidenced by the Revolving Note and shall be secured
by the Collateral as provided in Article III. Within the limits set forth in
this Section 2.1, the Borrower may borrow, prepay pursuant to Section 2.12 and
reborrow. The Borrower agrees to comply with the following procedures in
requesting Revolving Advances under this Section 2.1:
10
<PAGE>
(a) The Borrower shall make each request for a Revolving Advance
to the Lender before 11:00 a.m. (Phoenix time) of the day of the requested
Revolving Advance. Requests may be made in writing or by telephone, specifying
the date of the requested Revolving Advance and the amount thereof. Each request
shall be by (i) any officer of either Borrower; or (ii) any person designated as
either Borrower's agent by any officer of either Borrower in a writing delivered
to the Lender; or (iii) any person whom the Lender reasonably believes to be an
officer of either Borrower or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested Revolving
Advance by crediting the same to the Borrower's demand deposit account
maintained with Norwest Bank Arizona, N.A. unless the Lender and the Borrower
shall agree in writing to another manner of disbursement. Upon the Lender's
request, 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 repay all Advances even if the Lender does not
receive such confirmation and even if the person requesting an Advance was not
in fact authorized to do so. Any request for an Advance, whether written or
telephonic, shall be deemed to be a representation by the Borrower that the
conditions set forth in Section 4.2 have been satisfied as of the time of the
request.
SECTION 2.2 LETTERS OF CREDIT.
(a) Upon the request of either Borrower, the Lender may, in its
sole discretion, on the terms and subject to the conditions herein set forth,
cause an Issuer to issue, from the Funding Date to the Termination Date, one or
more irrevocable standby or documentary letters of credit (each, a "Letter of
Credit") for the Borrower's account. In the event Lender elects to issue one or
more Letters of Credit, the aggregate amount at any time outstanding of all such
Letters of Credit shall not exceed the lesser of:
(i) $500,000.00 less the L/C Amount, or
(ii) the Borrowing Base less the sum of (A) all outstanding
and unpaid Revolving Advances, and (B) the L/C Amount.
Each Letter of Credit, if any, shall be issued pursuant to a separate L/C
Application entered into by the Borrower and the Lender for the benefit of the
Issuer, completed in a manner satisfactory to the Lender and the Issuer. The
terms and conditions set forth in each such L/C Application shall supplement the
terms and conditions hereof, but if the terms of any such L/C Application and
the terms of this Agreement are inconsistent, the terms hereof shall control.
(b) No Letter of Credit shall be issued with an expiry date later
than the Termination Date in effect as of the date of issuance.
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(c) Any request to cause an Issuer to issue a Letter of Credit
under this Section 2.2 shall be deemed to be a representation by the Borrower
that the conditions set forth in Section 4.2 have been satisfied as of the date
of the request.
SECTION 2.3 PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT;
OBLIGATION OF REIMBURSEMENT.
The Borrower acknowledges that the Lender, as co-applicant,
will be liable to the Issuer for reimbursement of any and all draws under
Letters of Credit and for all other amounts required to be paid under the
applicable L/C Application. Accordingly, the Borrower agrees to pay to the
Lender any and all amounts required to be paid under the applicable L/C
Application, when and as required to be paid thereby, and the amounts designated
below, when and as designated:
(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 Issuer or the Lender may pay or incur relative to such draw and the
applicable L/C Application, plus interest on all such amounts, charges and
expenses as set forth below (the Borrower's obligation to pay all such amounts
is herein referred to as the "Obligation of Reimbursement").
(b) Whenever a draft is submitted under a Letter of Credit, the
Lender shall make a Revolving Advance in the amount of the Obligation of
Reimbursement and shall apply the proceeds of such Revolving Advance thereto.
Such Revolving Advance shall be repayable in accordance with and be treated in
all other respects as a Revolving Advance hereunder.
(c) If a draft is submitted under a Letter of Credit when the
Borrower is unable, because a Default Period then exists or for any other
reason, to obtain a Revolving Advance to pay the Obligation of Reimbursement,
the Borrower shall pay to the Lender on demand and in immediately available
funds, the amount of the Obligation of Reimbursement together with interest,
accrued from the date of the draft until payment in full at the Default Rate.
Notwithstanding the Borrower's inability to obtain a Revolving Advance for any
reason, the Lender is irrevocably authorized, in its sole discretion, to make a
Revolving Advance in an amount sufficient to discharge the Obligation of
Reimbursement and all accrued but unpaid interest thereon.
(d) The Borrower's obligation to pay any Revolving Advance made
under this Section 2.3, shall be evidenced by Revolving Note and shall bear
interest as provided in Section 2.8.
SECTION 2.4 SPECIAL ACCOUNT. If the Credit Facility is 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 L/C Amount. The Special Account shall be
an interest bearing account maintained for the Lender by any financial
institution acceptable to the Lender. Any interest earned on amounts deposited
in the Special Account shall be credited to 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 Obligations in the
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Lender's sole discretion, and shall not be subject to withdrawal by the Borrower
so long as the Lender maintains a security interest therein. 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 2.5 OBLIGATIONS ABSOLUTE. The Borrower's obligations arising
under Section 2.3 shall be absolute, unconditional and irrevocable, and shall be
paid strictly in accordance with the terms of Section 2.3, 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 Issuer or 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.
SECTION 2.6 TERM ADVANCE.
(a) The Lender agrees, on the terms and subject to the conditions
herein set forth, to make a one time non-revolving advance to the Borrower in
the amount of $4,300,000.00 (the "Term Advance").
(b) The Borrower's obligation to pay the Term Advance shall be
evidenced by the Term Note and shall be secured by the Collateral as provided in
Article III.
(c) The request for the disbursement of the Term Advance shall be
by an individual authorized pursuant to Section 2.1(a).
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(d) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall apply the proceeds of the Term Advance by crediting
the same to the Borrower's demand deposit account specified in Section 2.1(b)
unless the Lender and the Borrower shall agree in writing to another manner of
disbursement. Upon the Lender's request, the Borrower shall promptly confirm the
telephonic request for the Term Advance by executing and delivering an
appropriate confirmation certificate to the Lender. The Borrower shall be
obligated to repay the Term Advance notwithstanding the Lender's failure to
receive such confirmation and notwithstanding the fact that the person
requesting the same was not in fact authorized to do so. The request for the
Term Advance, whether written or telephonic, shall be deemed to be a
representation by the Borrower that the conditions set forth in Section 4.2 have
been satisfied as of the time of the request.
SECTION 2.7 PAYMENT OF TERM NOTE. The outstanding principal balance of
the Term Note shall be due and payable as follows:
(a) Beginning on November 1, 1998, and on the first day of each
month thereafter until October 1, 1999, in equal monthly installments of
$99,000.00 and beginning on November 1, 1999, and on the first day of each month
thereafter, in equal monthly installments of $65,000.00;
(b) On the Termination Date, the entire unpaid principal balance
of the Term Note, and all unpaid interest accrued thereon, shall in any event be
due and payable.
SECTION 2.8 INTEREST; MINIMUM INTEREST CHARGE; DEFAULT INTEREST;
PARTICIPATIONS; USURY. Interest accruing on the Notes shall be due and payable
in arrears on the first day of each month.
(a) REVOLVING NOTE. Except as set forth in Sections 2.8(d),
2.8(f) and 2.8(g), the outstanding principal balance of the Revolving Note shall
bear interest at the Revolving Floating Rate.
(b) TERM NOTE. Except as set forth in Sections 2.8(d), 2.8(f) and
2.8(g), the outstanding principal balance of the Term Note shall bear interest
at the Term Floating Rate.
(c) MINIMUM INTEREST CHARGE. Notwithstanding the interest payable
pursuant to Section 2.8(a), the Borrower shall pay to the Lender interest of not
less than $15,000.00 per calendar month (the "Minimum Interest Charge") during
the term of this Agreement, and the Borrower shall pay any deficiency between
the Minimum Interest Charge and the amount of interest otherwise calculated
under Sections 2.8(a) and 2.8(e) on the date and in the manner provided in
Section 2.10.
(d) DEFAULT INTEREST RATE. At any time during any Default Period,
in the Lender's sole 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, effective for any periods designated by the Lender
from time to time during that Default Period.
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(e) PARTICIPATIONS. If any Person shall acquire a participation
in the Advances under this Agreement, the Borrower shall be obligated to the
Lender to pay the full amount of all interest calculated under, 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 Floating Rate or the Term Floating Rate, or
otherwise elects to accept less than its pro rata share of such fees, charges
and other amounts due under this Agreement.
(f) USURY. 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.
Notwithstanding anything to the contrary contained in any Loan Document, all
agreements which either now are or which shall become agreements between the
Borrower and the Lender are hereby limited so that in no contingency or event
whatsoever shall the total liability for payments in the nature of interest,
additional interest and other charges exceed the applicable limits imposed by
any applicable usury laws. If any payments in the nature of interest, additional
interest and other charges made under any Loan Document are held to be in excess
of the limits imposed by any applicable usury laws, it is agreed that any such
amount held to be in excess shall be considered payment of principal hereunder,
and the indebtedness evidenced hereby shall be reduced by such amount so that
the total liability for payments in the nature of interest, additional interest
and other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrower and the
Lender. This provision shall never be superseded or waived and shall control
every other provision of the Loan Documents and all agreements between the
Borrower and the Lender, or their successors and assigns.
(g) SAVINGS CLAUSE. The Borrower agrees that the interest rate
contracted for includes the interest rate set forth herein plus any other
charges or fees set forth herein and costs and expenses incident to this
transaction paid by the Borrower to the extent that some are deemed interest
under applicable law.
SECTION 2.9 FEES.
(a) UNUSED LINE FEE. For the purposes of this Section 2.9(b),
"Unused Amount" means the Maximum Line reduced by (1) outstanding Revolving
Advances and (2) the L/C Amount. The Borrower agrees to pay to the Lender an
unused line fee at the rate of one-half of one percent (.5%) per annum on the
average daily Unused Amount from the date of this Agreement to and including the
Termination Date, due and payable monthly in arrears on the first day of the
month and on the Termination Date.
(b) LETTER OF CREDIT FEES. The Borrower agrees to pay the Lender
a fee with respect to each Letter of Credit, if any, accruing on a daily basis
and computed at the annual rate of three percent (3%) of the aggregate amount
that may then be drawn on all issued and outstanding Letters of Credit assuming
compliance with all conditions for drawing thereunder (the "Aggregate Face
Amount"), 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 or be returned
to the Lender, due and payable monthly in arrears on the first day of each month
and on the Termination Date.
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(c) LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrower agrees to
pay the Lender, on written demand, the administrative fees charged by the Issuer
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 Issuer for such services
rendered on behalf of customers of the Issuer generally.
(d) AUDIT FEES. The Borrower hereby agrees to pay the Lender, on
demand, audit fees of $60.00 per hour (or Lender's then applicable rate) per
auditor in connection with any audits or inspections by the Lender of any
collateral or the operations or business of the Borrower, together with all
actual out-of-pocket costs and expenses incurred in conducting any such audit or
inspection (collectively, "Out-of-Pockets"). So long as there is not any then
existing Event of Default or Default Period, such audit fees shall not exceed
$5,000.00 per audit plus all applicable Out-of-Pockets and audits shall be
performed not more frequently than quarterly. Lender shall send to Borrower an
invoice applicable to such audit fees, out-of-pocket costs and expenses,
provided, however, any failure of Lender to send such invoices shall not relieve
Borrower of its obligations under this Section 2.9(d).
SECTION 2.10 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST DUE AND
PAYABLE. Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Interest shall be
payable in arrears on the first day of each month and on the Termination Date.
SECTION 2.11 [INTENTIONALLY DELETED]
SECTION 2.12 VOLUNTARY PREPAYMENT; REDUCTION OF THE MAXIMUM LINE;
TERMINATION OF THE CREDIT FACILITY BY THE BORROWER. Except as otherwise provided
herein, the Borrower may prepay the Revolving Advances in whole at any time or
from time to time in part. The Borrower may prepay the Term Advances (other than
in accordance with Section 2.7), terminate the Credit Facility or reduce the
Maximum Line at any time if it (i) gives the Lender at least 30 days' prior
written notice and (ii) pays the Lender the prepayment, termination or line
reduction fees in accordance with Section 2.13. Any prepayment of the Term
Advances (other than in accordance with Section 2.7) or reduction in the Maximum
Line must be in an amount not less than $250,000.00 or an integral multiple
thereof. No reduction of the Maximum Line shall in any way effect the Minimum
Interest Charges. If the Borrower reduces the Maximum Line to zero, all
Obligations shall be immediately due and payable. Any partial prepayments of the
Term Note (other than in accordance with Section 2.7) shall be applied to
principal payments due and owing in inverse order of their maturities. Upon
termination of the Credit Facility and payment and performance of all
Obligations, the Lender shall release or terminate the Security Interest and the
Security Documents to which the Borrower is entitled by law.
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SECTION 2.13 TERMINATION, LINE REDUCTION AND PREPAYMENT FEES; WAIVER
OF TERMINATION, PREPAYMENT aND LINE REDUCTION FEES.
(a) TERMINATION AND LINE REDUCTION FEES. If the Credit Facility
is terminated for any reason as of a date other than the Maturity Date, or the
Borrower reduces the Maximum Line, the Borrower shall pay the Lender a fee in an
amount equal to a percentage of the Maximum Line (or the reduction, as the case
may be) as follows: (i) three percent (3%) if the termination or reduction
occurs on or before the first anniversary of the Funding Date; (ii) two percent
(2%) if the termination or reduction occurs after the first anniversary of the
Funding Date but on or before the second anniversary of the Funding Date; and
(iii) one percent (1%) if the termination or reduction occurs after the second
anniversary of the Funding Date.
(b) PREPAYMENT FEES. If the Term Note are prepaid for any reason
except in accordance with Section 2.7, the Borrower shall pay to the Lender a
fee in an amount equal to a percentage of the amount prepaid as follows: (i)
three percent (3%) if prepayment occurs on or before the first anniversary of
the Funding Date; (ii) two percent (2%) if prepayment occurs after the first
anniversary of the Funding Date but on or before the second anniversary of the
Funding Date; and (iii) one percent (1%) if prepayment occurs after the second
anniversary of the Funding Date.
(c) WAIVER OF TERMINATION AND LINE REDUCTION FEES. The Borrower
will not be required to pay the termination fees otherwise due under this
Section 2.13 if such termination is made because of refinancing by an affiliate
of the Lender.
SECTION 2.14 MANDATORY PREPAYMENT. Without notice or demand, if the
sum of the outstanding principal balance of the Revolving Advances plus the L/C
Amount shall at any time exceed the Borrowing Base, the Borrower shall (i)
first, immediately prepay the Revolving Advances to the extent necessary to
eliminate such excess; and (ii) if prepayment in full of the Revolving Advances
is insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess. Any payment received by the Lender under this Section 2.14 or
under Section 2.12 may be applied to the Obligations, in such order and in such
amounts as the Lender, in its discretion, may from time to time determine;
provided that any prepayment under Section 2.12 which the Borrower designates as
a partial prepayment of the Term Note shall be applied to principal installments
of the Term Note in inverse order of maturity. For each day or portion thereof
that the Revolving Advances shall exceed the Borrowing Base, the Borrower shall
pay to the Lender an overadvance charge (which charge shall be in addition to
and not in lieu of any other interest, fees or charges payable by Borrower
hereunder) in the amount of $100.00; provided however, that if such day occurs
during a Default Period, the overadvance charge for such day shall be $200.00.
SECTION 2.15 PAYMENT. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations 1 Banking
Day after receipt by the Lender. The Lender may hold all payments not
constituting immediately available funds for two (2) additional days before
applying them to the Obligations. Notwithstanding anything in Section 2.1, the
Borrower hereby authorizes the Lender, in its discretion at any time or from
time to time without the Borrower's request and even if the conditions set forth
in Section 4.2 would not be satisfied, to
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make a Revolving Advance in an amount equal to the portion of the Obligations
from time to time due and payable.
SECTION 2.16 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 2.17 USE OF PROCEEDS. The Borrower shall use the proceeds of
Revolving Advances, each Letter of Credit, and the Term Advances if any, for
ordinary working capital purposes.
SECTION 2.18 LIABILITY RECORDS. The Lender may maintain from time to
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within 30 days after
receipt.
Article III.
SECURITY INTEREST; OCCUPANCY; SETOFF
SECTION 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
SECTION 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS. The
Lender may at any time (upon the occurrence of an Event of Default or during a
Default Period) 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 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 the
Borrower's agent and attorney-in-fact, 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 otherwise handle 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
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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, whether or not a Default Period then exists, the Lender may (but need
not), in the Lender's name or in the Borrower's name, execute and deliver proof
of claim, 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.
SECTION 3.4 OCCUPANCY.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time during a Default Period.
(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 Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitment, 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, that if 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 (other than income 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. Without limiting the generality of any of the
Security Documents, the Borrower hereby grants to the Lender a non-exclusive,
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 during any
Default Period.
SECTION 3.6 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:
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Name and address of Debtors:
FM Precision Golf Manufacturing Corp.
535 Migeon Avenue
Torrington, Connecticut 06790
Federal Tax Identification No. 06 1453898
FM Precision Golf Sales Corp.
535 Migeon Avenue
Torrington, Connecticut 06790
Federal Tax Identification No. 06 1453897
Name and address of Secured Party:
Norwest Business Credit, Inc.
Norwest Tower, Mail Station 9025
3300 North Central Avenue
Phoenix, Arizona 85012-2501
SECTION 3.7 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 the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any 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.
Article IV.
CONDITIONS OF LENDING
SECTION 4.1 CONDITIONS PRECEDENT TO THE INITIAL REVOLVING AND TERM
ADVANCES AND THE INITIAL LETTER OF CREDIT. The Lender's obligation to make the
initial Revolving Advance, cause to be issued any Letter of Credit, or make the
one time disbursement of the Term Advance hereunder 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 by the Borrower.
(b) The Revolving Note and the Term Note, properly executed by
the Borrower.
(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent (and Memorandum thereof) with respect to each such lease.
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(d) 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 or assignments of patents, trademarks
or copyrights have been filed and remain in effect against the Borrower except
those financing statements and assignments of patents, trademarks or copyrights
relating to Permitted Liens or to liens held by Persons who have agreed in
writing that upon receipt of proceeds of the Advances, they will deliver UCC
releases and/or terminations and releases of such assignments of patents,
trademarks or copyrights satisfactory to the Lender, and (iii) the Lender has
duly filed all financing statements necessary to perfect the Security Interest,
to the extent the Security Interest is capable of being perfected by filing.
(e) A certificate of the Secretary or Assistant Secretary of each
of FMM and FMS certifying as to (i) the resolutions of the Borrower's directors
and, if required, shareholders, authorizing the execution, delivery and
performance of the Loan Documents, (ii) the articles of incorporation and bylaws
of each of FMM and FMS, and (iii) the signatures of the officers or agents
authorized to execute and deliver the Loan Documents and other instruments,
agreements and certificates, including Advance requests, on behalf of each of
FMM and FMS.
(f) Evidence that each of FMM and FMS 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.
(g) A certificate of an officer of each of FMM and FMS confirming
the representations and warranties set forth in Article V.
(h) An opinion of counsel to each of FMM and FMS, addressed to
the Lender, together with the results of a litigation search or searches showing
all actions or proceedings where each of FMM and FMS is a defendant or involving
a claim against the Borrower.
(i) the Collateral Assignment of Trademarks properly executed by
Borrower.
(j) A guaranty, properly executed by Guarantor, pursuant to which
Guarantor unconditionally guarantees the full and prompt payment of all
Obligations.
(k) Evidence from the Borrower satisfactory to the Lender
establishing the amount of the Borrowing Base and a request for a Revolving
Advance from the Borrower in an amount such that the minimum Availability of the
Borrower after such Advance (the "Initial Advance") and payment of all fees of
the Lender required hereunder shall be not less than $750,000.00.
(l) An opinion of counsel to Guarantor, addressed to the Lender.
(m) Payment of the fees and commissions due through the date of
the Initial Advance or Letter of Credit under Section 2.9 and expenses incurred
by the Lender through such date and required to be paid by the Borrower under
Section 9.7, including all legal expenses incurred through the date of this
Agreement.
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(n) The Patent Security Agreement properly executed by Borrower.
(o) The Collateral Assignment of Trademarks properly executed by
Borrower.
(p) The Mortgage Deed properly executed by Borrower.
(q) Current certificates issued by the Secretaries of State of
Delaware and Connecticut certifying that FMM and FMS are in compliance with all
applicable organizational requirements of such States.
(r) Management Support Agreements in favor of Lender properly
executed by Tom Schneider, Ronald L. Chalmers and Kevin Neill.
(s) Assignment with respect to Letter of Credit proceeds properly
executed by Borrower and Norwest Bank Arizona.
(t) Such other documents as the Lender in its sole discretion may
require.
SECTION 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF
CREDIT. The Lender's obligation to make each Advance or to cause the Issuer to
issue any Letter of Credit shall be subject to the further conditions precedent
that on such date:
(a) the representations and warranties contained in Article V are
correct on and as of the date of such Advance or issuance of Letter of Credit 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 or the issuance of such Letter of Credit, as the case may be, 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; TAX IDENTIFICATION NUMBER. FMM 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. FMS 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
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transacted by it makes such licensing or qualification necessary. 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 existence, the Borrower
has done business solely under the names set forth in Schedule 5.1 hereto. The
Borrower's chief executive office and principal place of business is located at
the addresses set forth in Schedule 5.1 hereto, and all of the Borrower's
records relating to its business or the Collateral are kept at said location.
All Inventory and Equipment is located at that location or at one of the other
locations set forth in Schedule 5.1 hereto. The Borrower's tax identification
number is correctly set forth in Section 3.6 hereto.
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 (i) require
any consent or approval of the stockholders of either FMM or FMS; (ii) 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;
(iii) 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 either FMM or FMS or of the articles of incorporation or bylaws
of either FMM or FMS; (iv) to the best of Borrower's knowledge after due
inquiry, 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 either FMM or FMS is a party or by which it or its properties may be bound
or affected; or (v) 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 Interest) upon or with
respect to any of the properties now owned or hereafter acquired by either FMM
or FMS.
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 FMM and FMS, enforceable against FMM and FMS in
accordance with their respective terms.
SECTION 5.4 SUBSIDIARIES. Except as set forth in Schedule 5.4 hereto,
neither Borrower has Subsidiaries.
SECTION 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The Borrower has
heretofore furnished to the Lender consolidated audited financial statements of
Royal Precision, Inc. for its fiscal year ended May 31, 1998 and consolidated
unaudited financial statements for the fiscal year-to-date period ended July 31,
1998 and those statements fairly present the Borrower's financial condition on
the dates thereof and the results of its operations and cash flows for the
periods then ended and were prepared in accordance with GAAP except for footnote
disclosures and year end adjustments. Since the date of the most recent
financial statements to the date of this Agreement, there has been no material
adverse change in the Borrower's business, properties or condition (financial or
otherwise).
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SECTION 5.6 LITIGATION. To the best of Borrower's knowledge after due
inquiry, there are no actions, suits or proceedings pending or, to the
Borrower's knowledge, threatened against or affecting either Borrower or any of
their Affiliates or the properties of either Borrower or any of their 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. Neither Borrower is 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. To the best of Borrower's knowledge after due
inquiry, the Borrower and 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 its Affiliates 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 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 clear and absolute
title to all Collateral described in the collateral reports provided to the
Lender and all other Collateral, properties and assets reflected in the latest
financial statements referred to in Section 5.5 and all proceeds thereof, free
and clear of all mortgages, security interests, liens and encumbrances, except
for Permitted Liens. No financing statement naming the Borrower as debtor is on
file in any office except to perfect only Permitted Liens.
SECTION 5.10 PLANS. Except as disclosed to the Lender in writing prior
to the date hereof, neither Borrower nor any of their Affiliates maintains or
has maintained any Plan. Neither 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 Borrower nor any of their 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).
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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 Borrower's financial
condition, properties or operations.
SECTION 5.12 ENVIRONMENTAL MATTERS.
(A) DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(i) "Environmental Law" means any federal, state, local or
other governmental statute, regulation, law or ordinance dealing with the
protection of human health and the environment.
(ii) "Hazardous Substances" means pollutants, contaminants,
hazardous substances, hazardous wastes, petroleum and fractions thereof, and all
other chemicals, wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present in,
on or under the Premises any Hazardous Substances in such form or quantity as to
create any liability or obligation for either the Borrower or the Lender under
common law of any jurisdiction or under any Environmental Law, and no Hazardous
Substances have ever been stored, buried, spilled, leaked, discharged, emitted
or released in, on or under the Premises in such a way as to create any such
liability, except for those Hazardous Substances identified in the April 1996
Phase II Environmental Site Assessment of the Premises by GZA GeoEnvironmental,
Inc. with respect to which Brunswick Corporation is contractually obligated to
remediate.
(c) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any liability
under any Environmental Law.
(d) There are no requests, claims, notices, investigations,
demands, administrative proceedings, hearings or litigation, relating in any way
to the Premises or the Borrower, alleging liability under, violation of, or
noncompliance with any Environmental Law or any license, permit or other
authorization issued pursuant thereto that have not been appropriately resolved
to the satisfaction of the administrative agency having jurisdiction over the
matter.
(e) To the Borrower's best knowledge, the Borrower's businesses
are and have in the past always been conducted in accordance with all
Environmental Laws and all licenses, permits and other authorizations required
pursuant to any Environmental Law and necessary for the lawful and efficient
operation of such businesses are in the Borrower's possession and are in full
force and effect. No permit required under any Environmental Law is scheduled to
expire within 12 months (other than those that are renewed on an annual basis)
and there is no threat known to the Borrower that any such permit currently held
by Borrower will be withdrawn, terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises is not listed
on the
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National Priorities List, the Comprehensive Environmental Response, Compensation
and Liability Information System or any similar federal, state or local list,
schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental
assessments in Borrower's possession or which Borrower has knowledge of, audits,
reports, permits, licenses and other documents describing or relating in any way
to the Premises or Borrower's businesses (while under the ownership of the
Borrower).
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
Interest 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. Each right to payment in excess of
$500.00 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.
Article VI.
BORROWER'S AFFIRMATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain 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 120 days after
the end of each fiscal year of the Borrower consolidated and consolidating
audited financial statements of
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FMM, FMS and the Covenant Entities with the unqualified opinion of Arthur
Andersen, L.L.P. or such other independent certified public accountants selected
by the Borrower and acceptable to the Lender, which annual financial statements
shall include the consolidated balance sheet of FMM, FMS and the Covenant
Entities as at the end of such fiscal year and the related consolidated
statements of income, retained earnings and cash flows, all in reasonable detail
and prepared in accordance with GAAP applied on a basis consistent with the
accounting practices applied in the financial statements referred to in Section
5.5 hereof, together with a report signed by such accountants stating that in
making the investigations necessary for said opinion they obtained no knowledge,
except as specifically stated, of any Default or Event of Default hereunder and
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;
(b) as soon as available and in any event within 25 days after
the end of each month, a consolidated unaudited/internal balance sheet and
statements of income and retained earnings of FMM and FMS as at the end of and
for such month and for the year to date period then ended, prepared, if the
Lender so requests, on a consolidating and consolidated basis to include the
Covenant Entities and any other 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 GAAP, subject to year-end audit
adjustments; and accompanied by a certificate of the Vice President of Finance
or any other officer of each of FMM and FMS, substantially in the form of
Exhibit C hereto stating (i) that such financial statements have been prepared
in accordance with GAAP, subject to year-end audit adjustments and footnotes,
(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 7.10;
(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) 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 Borrower's good faith
projections and certified by the Borrower's Vice President of Finance or any
other officer as being the most accurate 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;
(e) 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 5.12 or which
seek a monetary recovery against the Borrower in excess of $25,000.00;
(f) as promptly as practicable (but in any event not later than
five business
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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;
(g) 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 Borrower's Vice President of Finance
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;
(h) 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 Borrower's Vice President of Finance 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;
(i) promptly upon knowledge thereof, notice of (i) any disputes
or claims by the Borrower's customers in excess of $20,000.00; (ii) credit memos
in excess of $20,000.00; (iii) any goods returned to or recovered by the
Borrower valued in excess of $20,000.00; and (iv) any change in the persons
constituting the Borrower's officers and directors;
(j) promptly upon 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;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent to
its stockholders;
(l) promptly after the sending or filing thereof, copies of all
regular and periodic reports which the Borrower shall file with the Securities
and Exchange Commission or any national securities exchange;
(m) daily copies of all invoices in excess of $10,000.00,
together with all shipping documentation applicable thereto;
(n) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which could
materially and adversely affect the Borrower's 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.
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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 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 GAAP and, upon the Lender's
request, 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
Borrower's affairs 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, 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 Lender may at any time and from
time to time send or require the Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
SECTION 6.4 COMPLIANCE WITH LAWS.
(a) The Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would materially
and adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral, only
for lawful purposes, without violation of any federal, state or local law,
statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental Laws
and obtain and comply with all permits, licenses and similar approvals required
by any Environmental Laws, and will not generate, use, transport, treat, store
or dispose of any Hazardous Substances in such a manner as to create any
liability or obligation under the common law of any jurisdiction or any
Environmental Law.
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 Interest, 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 and so long as the Collateral and Lender's lien thereon is not in
any manner impaired by any enforcement remedy available to the tax levying
entity during the period of such contest.
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SECTION 6.6 MAINTENANCE OF PROPERTIES.
(a) The Borrower will keep and maintain the Collateral, 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 Lender's judgment,
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 against all claims or
demands of all persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security interests,
liens and encumbrances except Permitted Liens.
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 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 Lender's benefit acceptable to the Lender. All policies of liability
insurance required hereunder shall name the Lender as an additional insured.
SECTION 6.8 PRESERVATION OF EXISTENCE. Each Borrower will preserve and
maintain its 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.
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SECTION 6.10 COLLATERAL ACCOUNTS.
(a) Each Borrower agrees to deposit in its respective Collateral
Accounts or, at the Lender's option, to deliver to the Lender all collections on
Accounts, contract rights, chattel paper and other rights to payment
constituting Collateral (but not the proceeds of any loan to Borrower as a
borrower made by any party other than Lender and permitted under the terms of
this Agreement), and all other cash proceeds of Collateral, which the Borrower
may receive 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 Accounts, 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 Accounts 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 Accounts shall be transferred to the Lender's general
account, and the Lender may deposit in its general account or in the Collateral
Accounts 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 or the Borrower shall, after allowing two Banking Days after
deposit in the Collateral Accounts, deposit such funds to the Lender's Account
No. 00-28-995 at Norwest Bank Minnesota, NA. The Lender from time to time at its
discretion shall, after allowing (i) one Banking Day after direct deposit in the
Lender's Account No. 00-28-995 at Norwest Bank Minnesota, NA, and/or (ii) such
later date as may be required for collection, apply such funds to the payment of
any and all Obligations, in any order or manner of application satisfactory to
the Lender. All items delivered to the Lender or deposited in the Collateral
Accounts 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 Accounts, the bank maintaining such account, the
amount of that item, or such bank 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 Accounts,
whether or not in fact endorsed by the Borrower.
(b) If a Default or Default Period exists and upon demand of the
Lender, the Borrower shall establish one or more lockbox accounts as directed by
the Lender with such banks or depository institutions as shall be satisfactory
to the Lender and shall irrevocably direct all present and future Account
Debtors and other Persons obligated to make payments constituting Collateral to
make such payments directly to such lockbox account. 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
such lockbox and shall include such lockbox address or addresses. All payments
received in such lockbox accounts shall be processed to the Collateral Accounts.
(c) Amounts deposited in the Collateral Accounts shall not bear
interest and shall not be subject to withdrawal by the Borrower, except after
full payment and discharge of all Obligations.
SECTION 6.11 PERFORMANCE BY THE LENDER. If the Borrower at any time
fails to
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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, 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 Lender's performance or observance of such covenants of the Borrower, the
Borrower hereby irrevocably appoints the Lender, or the Lender's delegate,
acting alone, as the Borrower's attorney in fact (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 covenants that
FMM, FMS and the Covenant Entities shall, as of the last day of each fiscal
quarter, on and after November 30, 1998, maintain a consolidated average minimum
debt service coverage ratio (based upon the period set forth below) as follows:
Quarter Ending Debt Service Coverage Ratio
- -------------- ------------------------------
November 30, 1998 0.001 to 1 based upon the immediately
preceding six month period
February 28, 1999 0.001 to 1 based upon the immediately
preceding nine month period
May 31, 1999 .5 to 1 based upon the immediately
preceding twelve month period
August 31, 1999 .75 to 1 based upon the immediately
preceding three month period
November 30, 1999 .75 to 1 based upon the immediately
preceding six month period
February 28, 2000 .85 to 1 based upon the immediately
preceding nine month period
May 31, 2000 and each May 31 1.05 to 1 based upon the immediately
thereafter preceding twelve month period
August 31, 2000 and each August 31 1.05 to 1 based upon the immediately
thereafter preceding twelve month period
November 30, 2000 and each November 30 1.05 to 1 based upon the immediately
thereafter preceding twelve month period
February 28, 2001 and each February 28 1.05 to 1 based upon the immediately
thereafter preceding twelve month period
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The debt service coverage ratio shall be calculated according
to the following formula:
Funds From Operations + Interest Expense - Unfinanced
Portion of Capital Expenditures
-----------------------------------------------------
Current Maturities Long-Term Debt
(actually paid during the period) + Interest Expense
SECTION 6.13 NET WORTH. The Borrower covenants that, as of May 31,
1998 FMM, FMS and the Covenant Entities had an aggregate consolidated Net Worth
of $14,327,322.00. The Borrower covenants that the said aggregate consolidated
Net Worth as of the end of each future fiscal quarter end shall increase by not
less than (or in the event a decrease is allowed, decrease by not more than) the
amounts set forth below as measured from the immediately preceding fiscal year
ending aggregate consolidated Net Worth.
Quarter Ending Net Worth Increase (Decrease)
-------------- -----------------------------
November 30, 1998 ($500,000.00)
February 28, 1999 ($300,000.00)
May 31, 1999 $400,000.00
August 31, 1999 and each August 31
thereafter $0.00
November 30, 1999 and each
November 30 thereafter ($300,000.00)
February 28, 2000 and each
February 28 thereafter ($100,000.00)
May 31, 2000 and each May 31 $600,000.00
thereafter
SECTION 6.14 NET INCOME. The Borrower covenants that beginning with
the fiscal quarter ending November 30, 1998, and continuing each fiscal quarter
thereafter, FMM, FMS and the Covenant Entities shall achieve an aggregate
consolidated Net Income of at least (or, in the event a Net Loss is allowed for
such fiscal quarter, a Net Loss of not more than) the amount set forth below for
each fiscal quarter as measured from the immediately preceding fiscal year end.
Quarter Ending Net Worth Increase (Decrease)
-------------- -----------------------------
November 30, 1998 ($500,000.00)
February 28, 1999 ($300,000.00)
May 31, 1999 $400,000.00
August 31, 1999 and each August 31
thereafter $0.00
November 30, 1999 and each ($300,000.00)
November 30 thereafter
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February 28, 2000 and each ($100,000.00)
February 28 thereafter
May 31, 2000 and each May 31 $600,000.00
thereafter
SECTION 6.15 STOP LOSS. The Borrower covenants that beginning with
September, 1998 and continuing for each month thereafter, FMM, FMS and the
Covenant Entities shall not achieve an aggregate consolidated Net Loss in excess
of the amounts set forth below for each month as measured from the last day of
the immediately preceding month.
Month Maximum Net Loss
----- ----------------
August of each year $400,000.00
September of each year $150,000.00
October of each year $200,000.00
November of each year $100,000.00
December of each year $250,000.00
January of each year $50,000.00
February of each year $0.00
March of each year $0.00
April of each year $0.00
May of each year $0.00
June of each year $0.00
July of each year $0.00
Article VII.
NEGATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
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, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's 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 Borrower's business or operations as presently
conducted;
(b) mortgages, deeds of trust, pledges, liens, security interests
and assignments in existence on the date hereof and listed in Schedule 7.1
hereto, securing indebtedness
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for borrowed money permitted under Section 7.2;
(c) the Security Interest and liens and security interests
created by the Security Documents; and
(d) purchase money security interests relating to Capital
Expenditures (and which attach only to the assets acquired by such Capital
Expenditures) made after the date of this Agreement by the Borrower or any
Affiliate 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 letters of credit issued on
the Borrower's behalf, 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 Schedule 7.2 hereto;
(c) indebtedness relating to liens permitted in accordance with
Section 7.1; and
(d) indebtedness permitted pursuant to Section 7.19.
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;
(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 Schedule 7.2 hereto; and
(c) indemnifications arising in the ordinary course of business.
SECTION 7.4 INVESTMENTS AND SUBSIDIARIES.
(a) The Borrower will not purchase or hold beneficially any stock
or other securities or evidences 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:
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(i) 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-1" or "A-2" by Standard & Poors 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);
(ii) travel advances or loans to the Borrower's officers and
employees not exceeding at any one time an aggregate of $75,000.00; and
(iii) advances in the form of progress payments, prepaid
rent not exceeding 2 months or security deposits.
(iv) loans, advances or any other credits at any time
disbursed and outstanding after the date of this Agreement shown on the balance
sheet of Borrower granted to the Covenant Entities not to exceed in the
aggregate (i) $1,500,000.00 through the first anniversary date of the Funding
Date, (ii) $2,250,000.00 after the first anniversary of the Funding Date through
the second anniversary of the Funding Date, and (iii) $3,000,000.00 after the
second anniversary of the Funding Date through the Termination Date.
(v) payments to the Covenant Entities so long as they are
expensed in accordance with GAAP, and appear on all statements of income
required pursuant to Section 6.1
(b) The Borrower will not create or permit to exist any
Subsidiary, other than the Subsidiar(y)(ies) in existence on the date hereof and
listed in Schedule 5.4.
SECTION 7.5 DIVIDENDS. Except for dividends payable solely to
Guarantor for actual operating expenses of Guarantor, Borrower will not declare
or pay any dividends (other than dividends payable solely in stock of the
Borrower) 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.
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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. During each fiscal year, FMM, FMS
and the Covenant Entities will not incur or contract to incur Capital
Expenditures in the aggregate of more than $2,000,000.00. In addition, during
the 1999 fiscal year, FMM, FMS and the Covenant Entities will not incur or
contract to incur Capital Expenditures paid with working capital in the
aggregate of more than $1,750,000.00. In addition, during each fiscal year
thereafter, FMM, FMS and the Covenant Entities will not incur or contract to
incur Capital Expenditures paid with working capital in the aggregate of more
than $850,000.00.
SECTION 7.11 ACCOUNTING. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. 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 during the existence of any Default Period, grant any discount,
credit or allowance to any customer of the Borrower or accept any return of
goods sold, or at any time (whether before or after notice from the Lender)
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.
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 Interest. The Borrower will not change
its name.
SECTION 7.16 ORGANIZATIONAL DOCUMENTS. The Borrower will not amend its
certificate of incorporation, articles of incorporation or bylaws.
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<PAGE>
SECTION 7.17 SALARIES. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any director in a director capacity, officer or any member
of their families, by more than 20% in any one year, either individually or for
all such persons in the aggregate, or pay any such increase from any source
other than profits earned in the year of payment.
SECTION 7.18 ISSUANCE OF STOCK/LOSS OF VOTING CONTROL. The Borrower
will not issue or sell any stock of the Borrower. The Borrower shall not permit
or suffer to occur any transfer, assignment, pledge or other disposition of any
or all of the issued and outstanding stock of the Borrower so as to materially
change the voting control of the Borrower.
SECTION 7.19 PAYMENTS TO AFFILIATES. Neither FMM nor FMS shall,
without the express written consent of Lender, which consent may be granted or
withheld in Lender's sole discretion, make any transfer, conveyance, loan or
payment of any kind to FMS (from FMM), FMM (from FMS) to any Covenant Entity or
to any other Affiliates (i) in the aggregate in excess of $1,500,000.00 per
fiscal year, or (ii) which is not for fair and adequate consideration.
SECTION 7.20 MANAGEMENT CONTROL. The Borrower shall not permit or
suffer to occur any change in its current executive management personnel (Tom
Schneider, Ronald L. Chalmers and Kevin Neill).
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 the Obligations when they become
due and payable;
(b) Failure to pay when due any amount specified in Section 2.3
relating to the Borrower's Obligation of Reimbursement, or failure to pay
immediately when due or upon termination of the Credit Facility any amounts
required to be paid for deposit in the Special Account under Section 2.4 or;
(c) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement;
(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement other than a covenant or
agreement which is specifically dealt with in this Section 8.1 and the
continuance thereof for a period of 5 days after the actual knowledge thereof by
an executive officer of either Borrower or receipt of written notice thereof
from the Lender; or
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(e) Any of FMM, FMS or any Covenant Entity shall be or become
insolvent, or admit in writing its inability to pay its or his debts as they
mature, or make an assignment for the benefit of creditors; or any of FMM, FMS
or any Covenant Entity shall apply for or consent to the appointment of any
receiver, trustee, or similar officer for it or for all or any substantial part
of its property; or such receiver, trustee or similar officer shall be appointed
without the application or consent of FMM, FMS or any Covenant Entity, as the
case may be; or any of FMM, FMS or a Covenant Entity 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 under the laws of any jurisdiction; or any
such proceeding shall be instituted (by petition, application or otherwise)
against FMM, FMS or any Covenant Entity and shall not be dismissed within 60
calendar days; 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 FMM, FMS or any Covenant Entity; or
(f) A petition shall be filed by or against (which when filed
against shall not be dismissed within 60 calendar days) any of FMM, FMS or any
Covenant Entity under the United States Bankruptcy Code naming FMM or FMS as
debtor; or
(g) Any representation or warranty made by the Borrower in this
Agreement, by Guarantor in any guaranty delivered to the Lender, or by the
Borrower (or any of its officers) or Guarantor 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 or any such guaranty
shall prove to have been incorrect in any material respect when deemed to be
effective;
(h) The rendering against either FMM or FMS of a final judgment,
decree or order for the payment of money in excess of $25,000.00 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;
(i) A default under any bond, debenture, note or other evidence
of indebtedness of either 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;
(j) 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
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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 Borrower's assets in favor of the Plan;
(k) 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;
(l) An event of default shall occur under that certain Amended
and Restated Credit and Security Agreement of even date herewith by and between
Lender, Royal Grip, Inc. and Roxxi, Inc. (the "RG Credit Agreement"), as the RG
Credit Agreement may from time to time be modified, amended or restated.
Borrower hereby acknowledges that it shall have no right to approve any such
modifications, amendments or restatements;
(m) An event of default shall occur under any document,
instrument or agreement executed from time to time in connection with the RG
Credit Agreement (collectively, the "RG Security Documents"), as the RG Security
Documents may from time to time be modified, amended or restated. Borrower
hereby acknowledges that it shall have no right to approve any such
modifications, amendments or restatements;
(n) Either 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
Lender's prior written consent;
(o) Either Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when 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;
(p) Any event of default shall occur (and not be cured within the
prescribed cure period) under the Manufacturing Agreement or the Capital Lease
Agreement; or
(q) Default in the payment of any amount owed by the Borrower to
the Lender other than any indebtedness arising hereunder;
(r) Any Guarantor shall repudiate, purport to revoke or fail to
perform any such Guarantor's obligations under such Guarantor's guaranty in
favor of the Lender, any Guarantor shall cease to validly exist;
(s) Any event or circumstance with respect to the Borrower shall
occur such that the Lender shall believe in good faith that the prospect of
payment of all or any part of the Obligations or the performance by the Borrower
under the Loan Documents is impaired or any material adverse change in the
business or financial condition of the Borrower shall occur.
(t) Any breach, default or event of default by or attributable to
any Affiliate under any agreement between such Affiliate and the Lender.
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SECTION 8.2 RIGHTS AND REMEDIES. During any Default Period, the Lender
may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations shall
become and be forthwith due and payable, without presentment, notice of
dishonor, protest or further notice of any kind, all of which the Borrower
hereby expressly waives;
(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 Obligations;
(d) 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 2.14 an amount
equal to the aggregate maximum amount available to be drawn under all Letters of
Credit then outstanding, assuming compliance with all conditions for drawing
thereunder;
(e) 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
thereof, 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;
(f) the Lender may exercise and enforce its rights and remedies
under the Loan Documents; and
(g) the Lender may exercise any other rights and remedies
available to it by law or agreement. Notwithstanding the foregoing, upon the
occurrence of an Event of Default described in subsections (e) or (f) of Section
8.1, the 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 before
the date of intended disposition or other action.
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Article IX.
MISCELLANEOUS
SECTION 9.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay by 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.
(a) 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 (i) personally delivered, (ii) sent by first
class United States mail, (iii) sent by overnight courier of national
reputation, or (iv) transmitted by telecopy, in each case addressed or
telecopied to the party to whom notice is being given at its address or
telecopier number as set forth below:
If to FMM or FMS:
c/o FM Precision Golf Manufacturing Corp.
535 Migeon Avenue
Torrington, Connecticut 06790
Telecopier: (602) 627-0271
Attention: Tom Schneider
If to the Lender:
Norwest Business Credit, Inc.
Norwest Tower, Mail Station 9025
3300 North Central Avenue
Phoenix, Arizona 85012-2501
Telecopier: (602) 263-6215
Attention: Clif Moschnik
or, as to each party, at such other address or telecopier number as may
hereafter be designated by
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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 shall not be effective until received by the
Lender.
(b) A copy of each notice to Borrower shall also be sent to:
Mr. Ken Warren
5920 Cromdale #1
Dublin, Ohio 43017
Telecopier: (614) 766-1974
The copies of notices sent in accordance with this Section
9.3(b) are informational and are not required in order for the notices given
pursuant to Section 9.3(a) above to be effective.
SECTION 9.4 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 Interest or the Lender's rights under the Loan
Documents (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 the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.5 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 9.6 COSTS AND EXPENSES. The Borrower agrees to pay on demand
all costs and expenses, including (without limitation) attorneys' fees, incurred
by the Lender in connection with the Obligations, this Agreement, the Loan
Documents, any Letters of Credit, 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 Interest.
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Section 9.7 INDEMNITY. In addition to the payment of expenses pursuant
to Section 9.7, FMM and FMS, jointly and severally, agree 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, attorneys and agents of
the foregoing (the "Indemnitees") from and against any of the following
(collectively, "Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of the
execution and delivery of the Loan Documents or the making of the Advances;
(ii) any claims, loss or damage to which any Indemnitee may
be subjected if any representation or warranty contained in Section 5.12 proves
to be incorrect in any respect or as a result of any violation of the covenant
contained in Section 6.4(b); and
(iii) any and all other 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 the foregoing and any other 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 any such Indemnitee, in any manner related to or arising out of or in
connection with the making of the Advances and the Loan Documents or the use or
intended use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
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 costs 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 obligations of FMM
and FMS under this Section 9.8 shall survive the termination of this Agreement
and the discharge of the Borrower's other obligations hereunder.
Section 9.8 PARTICIPANTS. 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 Lender's participants, successors or assigns.
Section 9.9 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.
44
<PAGE>
SECTION 9.10 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT;
EXCHANGING INFORMATION. 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 Lender's prior written consent.
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. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, Norwest Corporation, and all direct and indirect
subsidiaries of Norwest Corporation, may exchange any and all information they
may have in their possession regarding the Borrower and its Affiliates, and the
Borrower waives any right of confidentiality it may have with respect to such
exchange of such information.
SECTION 9.11 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 9.12 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.
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 Arizona. This
Agreement shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Arizona. The parties hereto
hereby (i) consents to the personal jurisdiction of the state and federal courts
located in the State of Arizona, County of Maricopa in connection with any
controversy related to this Agreement; (ii) waives any argument that venue in
any such forum is not convenient, (iii) agrees that any litigation initiated by
the Lender or the Borrower in connection with this Agreement or the other Loan
Documents shall be venued in either the Superior Court of Maricopa County,
Arizona, or the United States District Court, District of Arizona; and (iv)
agrees that a final judgment in any such suit, action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
45
<PAGE>
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.
FM PRECISION GOLF MANUFACTURING
CORP., INC., a Delaware corporation
By __________________________________
Its ________________________________
FM PRECISION GOLF SALES CORP.,
a Nevada corporation
By __________________________________
Its ________________________________
NORWEST BUSINESS CREDIT, INC., a
Minnesota corporation
By __________________________________
Its ________________________________
46
<PAGE>
Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Form of Term Note
Exhibit C Compliance Certificate
Exhibit D Premises
-------------------
Schedule 5.1 Trade Names, Chief Executive Office, Principal
Place of Business, and Locations of Collateral
Schedule 5.4 Subsidiaries
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
47
<PAGE>
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$4,000,000.00 Phoenix, Arizona
____________, 1998
For value received, the undersigned, FM PRECISION GOLF
MANUFACTURING CORP., a Delaware corporation, and FM PRECISION GOLF SALES CORP.,
a Delaware corporation (collectively, jointly and severally, "Borrower"), hereby
jointly and severally promise to pay on the Termination Date under the Credit
Agreement (defined below), to the order of NORWEST BUSINESS CREDIT, INC., a
Minnesota corporation (the "Lender"), at its main office in Phoenix, Arizona, 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 and N0/100 Dollars ($4,000,000.00) or, if less,
the aggregate unpaid principal amount of all Revolving Advances made by the
Lender to the Borrower under the Credit Agreement (defined below) 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 Credit and Security Agreement of even date herewith (as the
same may hereafter be amended, supplemented or restated from time to time, 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 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.
Both entities constituting the Borrower hereby jointly and
severally agree 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.
Revolving Note A-1
<PAGE>
Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.
FM PRECISION GOLF MANUFACTURING
CORP., a Delaware corporation
By __________________________________
Its ________________________________
FM PRECISION GOLF SALES CORP.,
a Nevada corporation
By __________________________________
Its ________________________________
Revolving Note A-2
<PAGE>
Exhibit B to Credit and Security Agreement
TERM NOTE
$4,300,000.00 Phoenix, Arizona
____________, 1998
For value received, the undersigned, FM PRECISION GOLF
MANUFACTURING CORP., a Delaware corporation, and FM PRECISION GOLF SALES CORP.,
a Delaware corporation (collectively, jointly and severally, "Borrower"), hereby
jointly and severally promise to pay on the Termination Date under the Credit
Agreement (defined below), to the order of NORWEST BUSINESS CREDIT, INC., a
Minnesota corporation (the "Lender"), at its main office in Phoenix, Arizona, 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, THREE HUNDRED THOUSAND and NO/100 Dollars
($4,300,000.00) or, if less, the aggregate unpaid principal amount of all Term
Advances made by the Lender to the Borrower under the Credit Agreement (defined
below) 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 Credit and Security Agreement of even
date herewith (as the same may hereafter be amended, supplemented or restated
from time to time, 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.
Both entities constituting the Borrower hereby jointly and
severally agree 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.
Term Note B-1
<PAGE>
Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.
FM PRECISION GOLF MANUFACTURING
CORP., a Delaware corporation
By __________________________________
Its ________________________________
FM PRECISION GOLF SALES CORP.,
a Delaware corporation
By __________________________________
Its ________________________________
Term Note B-2
<PAGE>
Exhibit C to Credit and Security Agreement
COMPLIANCE CERTIFICATE
To: ______________________
Norwest Business Credit, Inc.
Date: ______________________
Subject: ______________________
Financial Statements
In accordance with our Credit and Security Agreement dated as
of ____________________ (the "Credit Agreement"), attached are the consolidated
financial statements of FM Precision Golf Manufacturing Corp. and FM Precision
Golf Sales Corp. (the "Borrower") and the Covenant Entities and the year-to-date
period then ended (the "Current Financials"). All terms in this certificate have
the meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the financial condition of the Borrower as of the date thereof.
Events of Default. (Check one):
------------------
___ The undersigned does not have knowledge of the
occurrence of a Default or Event of Default under the Credit
Agreement.
___ The undersigned has knowledge of the occurrence
of a Default or Event of Default under the Credit Agreement
and attached hereto is a statement of the facts with respect
to thereto.
FINANCIAL COVENANTS. I further hereby certify as follows:
___ The Reporting Date does not correspond to the end
of the Borrower's fiscal quarters, hence I am completing only
paragraphs ___ below.
___ The Reporting Date corresponds to the end of one
of the Borrower's fiscal quarters, hence I am completing all
paragraphs below.
1. MINIMUM DEBT SERVICE COVERAGE RATIO. Pursuant to
Section 6.12 of the Credit Agreement, for the applicable
period ending on the Reporting Date, the Borrower's and the
Covenant Entities' consolidated Debt Service Coverage Ratio
was ___ to 1.00, which ____ satisfies ____ does not satisfy
the requirement that such ratio be no less than ____ to 1.00.
Compliance Certificate C-1
<PAGE>
2. MINIMUM NET WORTH. Pursuant to Section 6.13 of the
Credit Agreement, as of the Reporting Date, the Borrower's and
Covenant Entities' consolidated Book Net Worth was
$_______________, which ____ satisfies ____ does not satisfy
the requirement that such amounts be not less than
$_______________ on the Reporting Date.
3. MINIMUM NET INCOME. Pursuant to Section 6.14 of
the Credit Agreement, as of the Reporting Date, the Borrower's
and Covenant Entities' aggregate Net Income for the applicable
period was $___________, which ___ satisfies ___ does not
satisfy the requirement that such amounts be not less than
$______ on the Reporting Date.
4. STOP LOSS. Pursuant to Section 6.15 of the Credit
Agreement, as of the Reporting Date, the Borrower and Covenant
Entities achieved an aggregate Net Loss of $__________, which
_____ satisfies _____ does not satisfy the requirement that
such amount be not more than $__________ on the Reporting
Date.
5. CAPITAL EXPENDITURES. Pursuant to Section 7.10 of
the Credit Agreement, for the year-to-date period ending on
the Reporting Date, the Borrower has expended or contracted to
expend during the fiscal year ending December 31, 199_, for
Capital Expenditures, $__________ in the aggregate and
$_________ for Capital Expenditures paid for with working
capital which ____ satisfies ____ does not satisfy the
requirement that such expenditures not exceed $2,000,000.00 in
the aggregate and $800,000.00 for Capital Expenditures paid
for with working capital during the fiscal year ended December
31, 199_, and each fiscal year thereafter.
6. SALARIES. As of the Reporting Date, the Borrower
____ is ____ is not in compliance with Section 7.17 of the
Credit Agreement concerning salary increases.
Officers Percentage Increase
-------- -------------------
--------------------------- -------------------------------
--------------------------- -------------------------------
--------------------------- -------------------------------
(To be completed within 30 days of any officer salary increase)
7. PAYMENTS TO AFFILIATES. Pursuant to Section 7.19
of the Credit Agreement, for the year-to-date period ending on
the Reporting Date, FMM and FMS have in the aggregate made
transfers, conveyances, loans and payments to Affiliates in
the amount of $_________ which ____ satisfies ____ does not
satisfy the requirement that such amount not exceed
$1,500,000.00 in the aggregate during any fiscal year.
Compliance Certificate C-2
<PAGE>
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
FM PRECISION GOLF MANUFACTURING
CORP., INC., a Delaware corporation
By __________________________________
Its ________________________________
FM PRECISION GOLF SALES CORP.,
a Nevada corporation
By __________________________________
Its ________________________________
Compliance Certificate C-3
<PAGE>
Exhibit D to Credit and Security Agreement
PREMISES
The Premises referred to in the Credit and Security Agreement
are legally described as follows:
Lot 1 and that part of Lot 3, REYWEST SCOTTSDALE AIRPARK CORPORATE CENTER,
according to Book 307 of Maps, page 3, records of Maricopa County, Arizona;
BEGINNING at the most Southerly corner of Lot 3;
thence North 57(degree)48'05" East 15.95 feet along the Southeasterly
line of Lot 3 to the most Westerly corner of Lot 2;
thence North 32(degree)11'55" West parallel to the Southwesterly line of
Lot 3 205 feet more or less to the Northwesterly line of Lot 3;
thence South 43(degree)55'22" West along the Northwesterly line of Lot 3
16 feet more or less to the most Westerly corner of Lot 3;
thence South 32(degree)11'55" East 201.34 feet along the Southwesterly
line of Lot 3 to the POINT OF BEGINNING.
<PAGE>
Schedule 5.1 to Credit and Security
Agreement
Trade Names, Chief Executive Office, Principal Place of Business, and Locations
of Collateral
TRADE NAMES
None
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
FM Precision Golf 535 Migeon Avenue
Manufacturing Corp.: Torrington, Connecticut 06790
FM Precision Golf 535 Migeon Avenue
Sales Corp. Torrington, Connecticut 06790
OTHER INVENTORY AND EQUIPMENT LOCATIONS
None
<PAGE>
Schedule 5.4 to Credit and Security
Agreement
SUBSIDIARIES
FMS is a subsidiary FMM
<PAGE>
Schedule 7.1 to Credit and Security
Agreement
PERMITTED LIENS
CREDITOR COLLATERAL JURISDICTION FILING DATE FILING NO.
- -------- ---------- ------------ ----------- ----------
NONE
<PAGE>
Schedule 7.2 to Credit and Security
Agreement
PERMITTED INDEBTEDNESS AND GUARANTIES
Indebtedness
Creditor Principal Maturity Monthly Collateral
- -------- --------- -------- ------- ----------
Amount Date Payment
------ ---- -------
None
Guaranties
----------
Primary Obligor Amount and Description of Beneficiary of Guaranty
- --------------- ------------------------- -----------------------
Obligation Guaranteed
---------------------
None
AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
Dated as of ____________, 1998
ROYAL GRIP, INC., a Nevada corporation, and ROXXI, INC., a
Nevada corporation (collectively, jointly and severally, the "Borrower"), and
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby
agree as follows:
The Borrower and the Lender have entered into the Credit and
Security Agreement dated as of February 10, 1997, as amended by the First
Amendment to Credit and Security Agreement dated as of April 11, 1997, the
Second Amendment to Credit and Security Agreement dated as of August 28, 1997
and the Third Amendment to Credit and Security Agreement dated as of May 1, 1998
(collectively, the "Original Credit Agreement").
The Lender has agreed to make certain loan advances to the
Borrower pursuant to the terms and conditions set forth in the Original Credit
Agreement.
The loan advances under the Original Credit Agreement are
evidenced by the Borrower's Revolving and Term Note dated as of February 10,
1997, in the maximum principal amount of $2,450,000.00 and payable to the order
of the Lender (the "Note").
All indebtedness of the Borrower to the Lender is secured
pursuant to the terms of the Original Credit Agreement and all other Security
Documents as defined therein and shall be guaranteed pursuant to the
unconditional guaranty of the Guarantor.
Borrower and Lender wish to amend and restate the terms of the
Original Credit Agreement in its entirety.
Now, therefore, in consideration of the premises and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
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 GAAP.
1
<PAGE>
"Accounts" means all of the Borrower's accounts, as such term
is defined in the UCC, including without limitation the aggregate
unpaid obligations of customers and other account debtors to the
Borrower or either of them arising out of the sale or lease of goods or
rendition of services by the Borrower or either of them on an open
account or deferred payment basis.
"Advance" means a Revolving Advance or a Term Advance.
"Affiliate" or "Affiliates" means the Covenant Entities and
any other 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.
"Agreement" means this Amended and Restated Credit and
Security Agreement, as amended, supplemented or restated from time to
time which replaces the Original Credit Agreement in its entirety.
"Availability" means the positive difference, if any, of (i)
the Borrowing Base and (ii) the sum of (A) the outstanding principal
balance of the Revolving Note and (B) the L/C Amount.
"Banking Day" means a day other than a Saturday, Sunday or
other day on which banks are generally not open for business in
Phoenix, Arizona.
"Base Rate" means the rate of interest publicly announced from
time to time by Norwest Bank Minnesota as its "base rate" or, if such
bank ceases to announce a rate so designated, any similar successor
rate designated by the Lender.
"Book Net Worth" means the aggregate of the common and
preferred stockholders' equity in the Borrower, determined in
accordance with GAAP.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, the sum of:
(A) the lesser of (x) 80% of Eligible Accounts,
or (y) $1,500,000.00, plus
(B) the lesser of (x) 60% of Eligible Royal Grip
Inventory plus 50% of Eligible Roxxi
Inventory (exclusive of Eligible Roxxi Raw
Materials Inventory), or (y) $600,000.00,
plus
2
<PAGE>
(C) the lesser of (x) 25% of Eligible Roxxi Raw
Materials Inventory, or (y) $250,000.00.
"Capital Expenditures" for a period means any expenditure of
money for the purchase or construction of assets, or for improvements
or additions thereto, which are capitalized on the Borrower's balance
sheet.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, all sums on deposit in any
Collateral Account, and any items in any lockbox; together with (i) all
substitutions and replacements for and products of any of the
foregoing; (ii) proceeds of any and all of the foregoing; (iii) in the
case of all tangible goods, all accessions; (iv) all accessories,
attachments, parts, equipment and repairs now or hereafter attached or
affixed to or used in connection with any tangible goods; (v) all
warehouse receipts, bills of lading and other documents of title now or
hereafter covering such goods; and (vi) all sums on deposit in the
Special Account.
"Collateral Accounts" has the meaning given in the Collateral
Account Agreements.
"Collateral Account Agreements" means the Collateral Account
Agreements dated February 10, 1997, by and among Royal Grip, Roxxi,
Norwest Bank Arizona and the Lender.
"Commitment" means the Lender's commitment to make Advances
and to cause the Issuer to issue Letters of Credit to or for the
Borrower's account pursuant to Article II.
"Covenant Entities" means FM Precision Golf Manufacturing
Corp., FM Precision Golf Sales Corp. and Royal Precision, Inc.
"Credit Facility" means the credit facility being made
available to the Borrower by the Lender pursuant to Article II.
"Current Maturities of Long Term Debt" as of a given date
means the amount of the Borrower's long-term debt and capitalized
leases which became due during the applicable period ending on the
designated date.
"Debt" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in
determining total liabilities as shown on the liabilities side of a
balance sheet of that Person as at the date as of which Debt is to be
determined. For purposes of determining a Person's aggregate Debt at
any time, "Debt" shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.
"Debt Service Coverage Ratio" means the ratio of (i) the sum
of (A) Funds from Operations and (B) Interest Expense MINUS (C)
unfinanced portion of Capital Expenditures to (ii) the sum of (A)
Current Maturities of Long Term Debt (actually paid during the period)
and (B) Interest Expense.
3
<PAGE>
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the
first day of any month during which a Default or Event of Default has
occurred and ending on the date the Lender notifies the Borrower in
writing that such Default or Event of Default has been cured or waived.
"Default Rate" means, with respect to the Revolving Advances,
an annual rate equal to two percent (2%) over the Revolving Floating
Rate, which rate shall change when and as the Revolving Floating Rate
changes and with respect to the Term Advances, an annual rate equal to
two percent (2%) over the Term Floating Rate, which rate shall change
when and as the Term Floating Rate changes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Eligible Accounts" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
(i) That portion of Accounts which are 60 days past
stated due date or which are unpaid 120 days or more after the
invoice date;
(ii) That portion of Accounts that is disputed or
subject to a claim of offset or a contra account;
(iii) 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;
(iv) 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 for which the Borrower has provided
evidence satisfactory to the Lender that (A) the Lender has a
first priority perfected security interest and (B) such
Accounts may be enforced by the Lender directly against such
unit of government under all applicable laws);
(v) Accounts owed by an account debtor located
outside the United States which are not (A) backed by a bank
letter of credit naming the Lender as beneficiary or assigned
to the Lender, in the Lender's possession or in a Related
Lender's possession and acceptable to the Lender in all
respects, in its sole discretion, or (B) covered by a foreign
receivables insurance policy acceptable to the Lender in its
sole discretion;
(vi) Accounts owed by an account debtor that is
insolvent, the subject of bankruptcy proceedings or has gone
out of business;
4
<PAGE>
(vii) Accounts owed by a shareholder, Subsidiary,
Affiliate, officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected
security interest in the Lender's favor or which are subject
to any lien, security interest or claim in favor of any Person
other than the Lender including without limitation any payment
or performance bond;
(ix) That portion of Accounts that has been
restructured, extended, amended or modified;
(x) That portion of Accounts that constitutes
advertising, finance charges, service charges or sales or
excise taxes;
(xi) Accounts owed by an account debtor, regardless
of whether otherwise eligible, if 20% or more of the total
amount due under Accounts from such debtor is ineligible under
clauses (i), (ii)or (ix) above
(xii) Accounts consisting of tooling charges; and
(xiii) Accounts owed by an account debtor (other than
Taylor Made, Callaway and Marubeni) regardless of whether
otherwise eligible, in excess of 15% of total Accounts.
(xiv) Accounts owed by Taylor Made and Callaway,
regardless of whether otherwise eligible, in excess of 25% of
total Accounts.
(xv) Accounts owed by Marubeni, regardless of whether
otherwise eligible, in excess of 50% of total Accounts.
(xvi) Accounts owed by Marubeni, regardless of
whether otherwise eligible, to the extent the aggregate amount
of such accounts exceed $500,000.00 of total Accounts.
(xvii) Accounts, or portions thereof, otherwise
deemed ineligible by the Lender in its sole discretion.
"Eligible Roxxi Inventory" means all inventory of Roxxi valued
at weighted average cost as determined in accordance with GAAP;
provided, however, that the following shall not in any event be deemed
Eligible Roxxi Inventory:
(i) Inventory that is: in-transit; located at any
warehouse or other premises not approved by the Lender in
writing; located outside of
5
<PAGE>
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;
(ii) Packaging, label or irregular inventory;
(iii) Work-in-process inventory;
(iv) Inventory that is damaged, obsolete or not
currently saleable in the normal course of the Borrower's
operations;
(v) Inventory that the Borrower has returned, has
attempted to return, is in the process of returning or intends
to return to the vendor thereof;
(vi) Inventory that is subject to a security interest
in favor of any Person other than the Lender;
(vii) Slow-Moving Inventory;
(viii) Inventory that is subject to a licensing
agreement, which licensing agreement would preclude or hinder
the Lender from liquidating such Inventory in the ordinary
course of business; and
(ix) Inventory otherwise deemed ineligible by the
Lender in its sole discretion.
"Eligible Roxxi Raw Materials Inventory" means that portion of
Eligible Roxxi Inventory consisting of raw materials.
"Eligible Royal Grip Inventory" means all inventory of Royal
Grip valued at weighted average cost as determined in accordance with
GAAP; provided, however, that the following shall not in any event be
deemed Eligible Royal Grip Inventory:
(i) Inventory that is: in-transit (exclusive of
inventory in-transit between Premises locations); 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;
6
<PAGE>
(ii) Packaging inventory;
(iii) Work-in-process inventory;
(iv) Inventory that is damaged, obsolete or not
currently saleable in the normal course of the Borrower's
operations;
(v) Inventory that the Borrower has returned, has
attempted to return, is in the process of returning or intends
to return to the vendor thereof;
(vi) Inventory that is subject to a security interest
in favor of any Person other than the Lender;
(vii) Inventory that does not consist of finished
grips;
(viii) Slow-Moving Inventory;
(ix) Inventory that is subject to a licensing
agreement, which licensing agreement would preclude or hinder
the Lender from liquidating such Inventory in the ordinary
course of business; and
(x) Inventory otherwise deemed ineligible by the
Lender in its sole discretion.
"Environmental Laws" has the meaning specified in Section
5.12.
"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, and whether located on the Premises or
otherwise.
"Event of Default" has the meaning specified in Section 8.1.
"Funding Date" has the meaning given in Section 2.1.
"Funds From Operations" for a given period means the sum of
(i) Net Income, (ii) depreciation and amortization, (iii) deferred
income taxes, and (iv) other non-cash items, each as determined for
such period in accordance with GAAP.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the
financial statements described in Section 5.5, except for any change in
accounting practices to the extent that, due to a promulgation of the
Financial Accounting Standards Board changing or implementing
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any new accounting standard, the Borrower either (i) is required to
implement such change, or (ii) for future periods will be required to
and for the current period may in accordance with GAAP implement such
change, for its financial statements to be in conformity with GAAP (any
such change is herein referred to as a "Required GAAP Change"),
provided that (1) the Borrower shall fully disclose in such financial
statements any such Required GAAP Change and the effects of the
Required GAAP Change on the Borrower's income, retained earnings or
other accounts, as applicable, and (2) the Borrower's financial
covenants set forth in Sections 6.12 through 6.15 and 7.10 shall be
adjusted as necessary to reflect the effects of such Required GAAP
Change.
"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.
"Guarantor" means Royal Precision, Inc., a Delaware
corporation.
"Hazardous Substance" has the meaning given in Section 5.12.
"Interest Expense" means, for a fiscal year-to-date period,
the Borrower's total gross interest expense during such period
(excluding interest income), and shall in any event include, without
limitation or duplication, (i) interest expensed (whether or not paid)
on all Debt, (ii) the amortization of debt discounts, (iii) the
amortization of all fees payable in connection with the incurrence of
Debt to the extent included in interest expense, and (iv) the portion
of any capitalized lease obligation allocable to interest expense.
"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.
"Issuer" means the issuer of any Letter of Credit.
"L/C Amount" means the sum of (i) the aggregate 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 a form acceptable to the Issuer and the Lender.
"Letter of Credit" has the meaning specified in Section 2.2.
"Loan Documents" means this Agreement, the Notes and the
Security Documents.
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"Maturity Date" means September 30, 2001.
"Maximum Line" means $1,500,000.00, unless said amount is
reduced pursuant to Section 2.12, in which event it means the amount to
which said amount is reduced.
"Minimum Interest Charge" has the meaning given in Section
2.8(c).
"Net Income" means for the applicable period, after-tax net
income from continuing operations as determined in accordance with
GAAP.
"Net Loss" means for the applicable period, after-tax net loss
from continuing operations as determined in accordance with GAAP.
"Norwest Bank Minnesota" means Norwest Bank Minnesota,
National Association.
"Note" means the Revolving Note or either Term Note, and
"Notes" means the Revolving Note and the Term Notes.
"Obligations" means the Notes and each and every other 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, the Notes, any L/C
Application completed by the Borrower, or any other loan or credit
agreement or guaranty between the Borrower and the Lender, whether now
in effect or hereafter entered into.
"Obligation of Reimbursement" has the meaning given in Section
2.3(a).
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, 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 the Borrower's employees 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 D attached
hereto.
"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
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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 Advance" has the meaning given in Section 2.1.
"Revolving Floating Rate" means an annual rate equal to the
sum of the Base Rate plus one-quarter of one percent (.25%), which
annual rate shall change when and as the Base Rate changes.
"Revolving Note" means the Borrower's revolving promissory
note, payable to the order of the Lender in substantially the form of
Exhibit A hereto and any note or notes issued in substitution therefor,
as the same may hereafter be amended, supplemented or restated from
time to time.
"Roxxi" means Roxxi, Inc., a Nevada corporation.
"Royal Grip" means Royal Grip, Inc., a Nevada corporation.
"Security Documents" means this Agreement, the Collateral
Account Agreements, the Assignment of Security Agreements, the
Assignment of Capital Lease Agreement, the Assignment of Patents, the
Collateral Assignment of Trademarks, the Patent Mortgage, the
Assignment of Trademarks, each as described in the Original Credit
Agreement and any other document delivered to the Lender from time to
time in connection with the Original Credit Agreement, this Agreement
or to secure the Obligations, as the same may hereafter be amended,
supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Slow-Moving Inventory" means any inventory where 100% of the
like inventory has not turned in the previous twelve (12) months.
"Special Account" means a specified cash collateral account
maintained by a financial institution acceptable to the Lender in
connection with Letters of Credit, as contemplated by Section 2.4.
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"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 either Borrower, by either
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Term Advance" has the meaning specified in Section 2.6.
"Term Floating Rate" means an annual rate equal to the sum of
the Base Rate plus three-quarters of one percent (.75%), which annual
rate shall change when and as the Base Rate changes.
"Term Notes" means the Borrower's promissory notes, payable to
the order of the Lender in substantially the form of Exhibits B-1 and
B-2 hereto and any note or notes issued in substitution therefor, as
the same may hereafter be amended, supplemented or restated from time
to time.
"Termination Date" means the earliest of (i) the Maturity
Date, (ii) the date the Borrower terminates the Credit Facility, or
(iii) the date the Lender demands payment of the Obligations after an
Event of Default pursuant to Section 8.2.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.13 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.
SECTION 1.2 CROSS REFERENCES. All references in this Agreement
to Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
Article II.
AMOUNT AND TERMS OF THE CREDIT FACILITY
SECTION 2.1 REVOLVING 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 from the date all of the conditions set forth in
Section 4.1 are satisfied (the "Funding Date") to the Termination Date, on the
terms and subject to the conditions herein set forth (the "Revolving Advances").
The Lender shall have no obligation to make a Revolving Advance if, after giving
effect to such requested Revolving Advance, the sum of the outstanding and
unpaid Revolving Advances under this Section 2.1 or otherwise would exceed the
Borrowing Base less the L/C Amount. The Borrower's obligation to pay the
Revolving Advances shall be evidenced by the Revolving Note and shall be secured
by the Collateral as provided in Article III. Within the limits set forth in
this Section 2.1, the Borrower may borrow, prepay pursuant to Section 2.12 and
reborrow. The Borrower agrees to comply with the following procedures in
requesting Revolving Advances under this Section 2.1:
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(a) The Borrower shall make each request for a Revolving
Advance to the Lender before 11:00 a.m. (Phoenix time) of the day of the
requested Revolving Advance. Requests may be made in writing or by telephone,
specifying the date of the requested Revolving Advance and the amount thereof.
Each request shall be by (i) any officer of either Borrower; or (ii) any person
designated as either Borrower's agent by any officer of either Borrower in a
writing delivered to the Lender; or (iii) any person whom the Lender reasonably
believes to be an officer of either Borrower or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested Revolving
Advance by crediting the same to the Borrower's demand deposit account
maintained with Norwest Bank Arizona, N.A. unless the Lender and the Borrower
shall agree in writing to another manner of disbursement. Upon the Lender's
request, 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 repay all Advances even if the Lender does not
receive such confirmation and even if the person requesting an Advance was not
in fact authorized to do so. Any request for an Advance, whether written or
telephonic, shall be deemed to be a representation by the Borrower that the
conditions set forth in Section 4.2 have been satisfied as of the time of the
request.
SECTION 2.2 LETTERS OF CREDIT.
(a) Upon the request of either Borrower, the Lender may, in
its sole discretion, on the terms and subject to the conditions herein set
forth, cause an Issuer to issue, from the Funding Date to the Termination Date,
one or more irrevocable standby or documentary letters of credit (each, a
"Letter of Credit") for the Borrower's account. In the event Lender elects to
issue one or more Letters of Credit, the aggregate amount at any time
outstanding of all such Letters of Credit shall not exceed the lesser of:
(i) $200,000.00 less the L/C Amount, or
(ii) the Borrowing Base less the sum of (A) all
outstanding and unpaid Revolving Advances and (B) the L/C Amount.
Each Letter of Credit, if any, shall be issued pursuant to a separate L/C
Application entered into by the Borrower and the Lender for the benefit of the
Issuer, completed in a manner satisfactory to the Lender and the Issuer. The
terms and conditions set forth in each such L/C Application shall
supplement the terms and conditions hereof, but if the terms of any such L/C
Application and the terms of this Agreement are inconsistent, the terms hereof
shall control.
(b) No Letter of Credit shall be issued with an expiry date
later than the Termination Date in effect as of the date of issuance.
(c) Any request to cause an Issuer to issue a Letter of Credit
under this Section 2.2 shall be deemed to be a representation by the Borrower
that the conditions set forth in Section 4.2 have been satisfied as of the date
of the request.
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SECTION 2.3 PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT;
OBLIGATION OF REIMBURSMENT.
The Borrower acknowledges that the Lender, as co-applicant,
will be liable to the Issuer for reimbursement of any and all draws under
Letters of Credit and for all other amounts required to be paid under the
applicable L/C Application. Accordingly, the Borrower agrees to pay to the
Lender any and all amounts required to be paid under the applicable L/C
Application, when and as required to be paid thereby, and the amounts designated
below, when and as designated:
(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 Issuer or the Lender may pay or incur relative to such draw and the
applicable L/C Application, plus interest on all such amounts, charges and
expenses as set forth below (the Borrower's obligation to pay all such amounts
is herein referred to as the "Obligation of Reimbursement").
(b) Whenever a draft is submitted under a Letter of Credit,
the Lender shall make a Revolving Advance in the amount of the Obligation of
Reimbursement and shall apply the proceeds of such Revolving Advance thereto.
Such Revolving Advance shall be repayable in accordance with and be treated in
all other respects as a Revolving Advance hereunder.
(c) If a draft is submitted under a Letter of Credit when the
Borrower is unable, because a Default Period then exists or for any other
reason, to obtain a Revolving Advance to pay the Obligation of Reimbursement,
the Borrower shall pay to the Lender on demand and in immediately available
funds, the amount of the Obligation of Reimbursement together with interest,
accrued from the date of the draft until payment in full at the Default Rate.
Notwithstanding the Borrower's inability to obtain a Revolving Advance for any
reason, the Lender is irrevocably authorized, in its sole discretion, to make a
Revolving Advance in an amount sufficient to discharge the Obligation of
Reimbursement and all accrued but unpaid interest thereon.
(d) The Borrower's obligation to pay any Revolving Advance
made under this Section 2.3, shall be evidenced by Revolving Note and shall bear
interest as provided in Section 2.8.
SECTION 2.4 SPECIAL ACCOUNT. If the Credit Facility is
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 L/C Amount. The Special
Account shall be an interest bearing account maintained for the Lender by any
financial institution acceptable to the Lender. Any interest earned on amounts
deposited in the Special Account shall be credited to 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 Obligations in the Lender's sole discretion,
and shall not be subject to withdrawal by the Borrower so long as the Lender
maintains a security interest therein. The Lender agrees
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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 2.5 OBLIGATIONS ABSOLUTE. The Borrower's obligations
arising under Section 2.3 shall be absolute, unconditional and irrevocable, and
shall be paid strictly in accordance with the terms of Section 2.3, 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 Issuer or 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.
SECTION 2.6 TERM ADVANCES.
(a) The Lender has made, on the terms and subject to the
conditions herein set forth, a one-time non-revolving advance to the Borrower.
Said advance was in the amount of $700,000.00 (the "First Term Advance"), and
Borrower hereby acknowledges that the First Term Advance (i) is fully disbursed,
and (ii) as of the date of this Agreement has a current outstanding principal
balance of $496,000.00.
(b) The Lender agrees, on the terms and subject to the
conditions herein set forth, to make a one time non-revolving advance to the
Borrower in the amount of $840,000.00 (the "Second Term Advance").
(c) The First Term Advance and the Second Term Advance are
collectively referred to as the "Term Advances". The Borrower's obligation to
pay the Term Advances shall be evidenced by the Term Notes and shall be secured
by the Collateral as provided in Article III.
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(d) The request for the disbursement of the Second Term
Advance shall be by an individual authorized pursuant to Section 2.1(a).
(e) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall apply the proceeds of the Second Term Advance to
the outstanding Revolving Advances and disburse any overage by crediting the
same to the Borrower's demand deposit account specified in Section 2.1(b) unless
the Lender and the Borrower shall agree in writing to another manner of
disbursement. Upon the Lender's request, the Borrower shall promptly confirm the
telephonic request for the Second Term Advance by executing and delivering an
appropriate confirmation certificate to the Lender. The Borrower shall be
obligated to repay the Second Term Advance notwithstanding the Lender's failure
to receive such confirmation and notwithstanding the fact that the person
requesting the same was not in fact authorized to do so. The request for the
Second Term Advance, whether written or telephonic, shall be deemed to be a
representation by the Borrower that the conditions set forth in Section 4.2 have
been satisfied as of the time of the request.
SECTION 2.7 PAYMENT OF TERM NOTES. The outstanding principal
balance of the Term Notes shall be due and payable as follows:
(a) With respect to the First Term Advance, beginning
on October 1, 1998, and on the first day of each month thereafter, in equal
monthly installments of $12,000.00;
(b) With respect to the Second Term Advance, (i) beginning on
November 1, 1998, and on the first day of each month thereafter through and
until October 1, 1999, in equal monthly installments of $28,000.00, and (ii)
beginning on November 1, 1999, and on the first day of each month thereafter, in
equal monthly installments of $10,500.00; and
(c) On the Termination Date, the entire unpaid principal
balance of the Term Notes, and all unpaid interest accrued thereon, shall in any
event be due and payable.
SECTION 2.8 INTEREST; MINIMUM INTEREST CHARGE; DEFAULT
INTEREST; PARTICIPATIONS; USURY. Interest accruing on the Notes shall be due and
payable in arrears on the first day of each month.
(a) REVOLVING NOTE. Except as set forth in Sections 2.8(d),
2.8(f) and 2.8(g), the outstanding principal balance of the Revolving Note shall
bear interest at the Revolving Floating Rate.
(b) TERM NOTES. Except as set forth in Sections 2.8(d) and
2.8(f), the outstanding principal balance of the Term Notes shall bear interest
at the Term Floating Rate.
(c) MINIMUM INTEREST CHARGE. Notwithstanding the interest
payable pursuant to Section 2.8(a), the Borrower shall pay to the Lender
interest of not less than $6,500.00 per calendar month (the "Minimum Interest
Charge") during the term of this Agreement, and the Borrower shall pay any
deficiency between the Minimum Interest Charge and the amount of interest
otherwise calculated under Sections 2.8(a) and 2.8(e) on the date and in the
manner provided in Section 2.10.
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(d) DEFAULT INTEREST RATE. At any time during any Default
Period, in the Lender's sole 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, effective for any periods designated by
the Lender from time to time during that Default Period.
(e) PARTICIPATIONS. If any Person shall acquire a
participation in the Advances under this Agreement, the Borrower shall be
obligated to the Lender to pay the full amount of all interest calculated under,
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 Floating Rate or the Term
Floating Rate, or otherwise elects to accept less than its pro rata share of
such fees, charges and other amounts due under this Agreement.
(f) USURY. 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. Notwithstanding anything to the contrary contained in any Loan Document,
all agreements which either now are or which shall become agreements between the
Borrower and the Lender are hereby limited so that in no contingency or event
whatsoever shall the total liability for payments in the nature of interest,
additional interest and other charges exceed the applicable limits imposed by
any applicable usury laws. If any payments in the nature of interest, additional
interest and other charges made under any Loan Document are held to be in excess
of the limits imposed by any applicable usury laws, it is agreed that any such
amount held to be in excess shall be considered payment of principal hereunder,
and the indebtedness evidenced hereby shall be reduced by such amount so that
the total liability for payments in the nature of interest, additional interest
and other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrower and the
Lender. This provision shall never be superseded or waived and shall control
every other provision of the Loan Documents and all agreements between the
Borrower and the Lender, or their successors and assigns.
(g) SAVINGS CLAUSE. The Borrower agrees that the interest rate
contracted for includes the interest rate set forth herein plus any other
charges or fees set forth herein and costs and expenses incident to this
transaction paid by the Borrower to the extent that some are deemed interest
under applicable law.
SECTION 2.9 FEES.
(a) UNUSED LINE FEE. For the purposes of this Section 2.9(b),
"Unused Amount" means the Maximum Line reduced by (1) outstanding Revolving
Advances and (2) the L/C Amount. The Borrower agrees to pay to the Lender an
unused line fee at the rate of one-half of one percent (.5%) per annum on the
average daily Unused Amount from the date of this Agreement to and including the
Termination Date, due and payable monthly in arrears on the first day of the
month and on the Termination Date.
(b) LETTER OF CREDIT FEES. The Borrower agrees to pay the
Lender a fee with respect to each Letter of Credit, if any, accruing on a daily
basis and computed at the annual rate of three percent (3%) of the aggregate
amount that may then be drawn on all issued and outstanding Letters of Credit
assuming compliance with all conditions for drawing
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thereunder (the "Aggregate Face Amount"), 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 or be returned to the Lender, due and payable monthly in
arrears on the first day of each month and on the Termination Date.
(c) LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrower agrees
to pay the Lender, on written demand, the administrative fees charged by the
Issuer 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 Issuer for such
services rendered on behalf of customers of the Issuer generally.
(d) AUDIT FEES. The Borrower hereby agrees to pay the Lender,
on demand, audit fees of $60.00 per hour (or Lender's then applicable rate) per
auditor in connection with any audits or inspections by the Lender of any
collateral or the operations or business of the Borrower, together with all
actual out-of-pocket costs and expenses incurred in conducting any such audit or
inspection (collectively, "Out-of-Pockets"). So long as there is not any then
existing Event of Default or Default Period, such audit fees shall not exceed
$2,500.00 per audit plus all applicable Out-of-Pockets and audits shall be
performed not more frequently than quarterly. Lender shall send to Borrower an
invoice applicable to such audit fees, out-of-pocket costs and expenses,
provided, however, any failure of Lender to send such invoices shall not relieve
Borrower of its obligations under this Section 2.9(d).
SECTION 2.10 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST
DUE AND PAYABLE. Interest accruing on the outstanding principal balance of the
Advances and fees hereunder outstanding from time to time shall be computed on
the basis of actual number of days elapsed in a year of 360 days. Interest shall
be payable in arrears on the first day of each month and on the Termination
Date.
Section 2.11 [INTENTIONALLY DELETED]
SECTION 2.12 VOLUNTARY PREPAYMENT; REDUCTION OF THE MAXIMUM
LINE; TERMINATION OF THE CREDIT FACILITY BY THE BORROWER. Except as otherwise
provided herein, the Borrower may prepay the Revolving Advances in whole at any
time or from time to time in part. The Borrower may prepay the Term Advances
(other than in accordance with Section 2.7), terminate the Credit Facility or
reduce the Maximum Line at any time if it (i) gives the Lender at least 30 days'
prior written notice and (ii) pays the Lender the prepayment, termination or
line reduction fees in accordance with Section 2.13. Any prepayment of the Term
Advances (other than in accordance with Section 2.7) or reduction in the Maximum
Line must be in an amount not less than $250,000.00 or an integral multiple
thereof. No reduction of the Maximum Line shall in any way effect the Minimum
Interest Charges. If the Borrower reduces the Maximum Line to zero, all
Obligations shall be immediately due and payable. Any partial prepayments of the
Term Notes (other than in accordance with Section 2.7) shall be applied to
principal payments due and owing in inverse order of their maturities. Upon
termination of the Credit Facility and payment and performance of all
Obligations, the Lender shall release or terminate the Security Interest and the
Security Documents to which the Borrower is entitled by law.
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SECTION 2.13 TERMINATION, LINE REDUCTION AND PREPAYMENT FEES;
WAIVER OF TERMINATION, PREPAYMENT aND LINE REDUCTION FEES.
(a) TERMINATION AND LINE REDUCTION FEES. If the Credit
Facility is terminated for any reason as of a date other than the Maturity Date,
or the Borrower reduces the Maximum Line, the Borrower shall pay the Lender a
fee in an amount equal to a percentage of the Maximum Line (or the reduction, as
the case may be) as follows: (i) three percent (3%) if the termination or
reduction occurs on or before the first anniversary of the Funding Date; (ii)
two percent (2%) if the termination or reduction occurs after the first
anniversary of the Funding Date but on or before the second anniversary of the
Funding Date; and (iii) one percent (1%) if the termination or reduction occurs
after the second anniversary of the Funding Date.
(b) PREPAYMENT FEES. If the Term Notes are prepaid for any
reason except in accordance with Section 2.7, the Borrower shall pay to the
Lender a fee in an amount equal to a percentage of the amount prepaid as
follows: (i) three percent (3%) if prepayment occurs on or before the first
anniversary of the Funding Date; (ii) two percent (2%) if prepayment occurs
after the first anniversary of the Funding Date but on or before the second
anniversary of the Funding Date; and (iii) one percent (1%) if prepayment occurs
after the second anniversary of the Funding Date.
(c) WAIVER OF TERMINATION AND LINE REDUCTION FEES. The
Borrower will not be required to pay the termination fees otherwise due under
this Section 2.13 if such termination is made because of refinancing by an
affiliate of the Lender.
SECTION 2.14 MANDATORY PREPAYMENT. Without notice or demand,
if the sum of the outstanding principal balance of the Revolving Advances plus
the L/C Amount shall at any time exceed the Borrowing Base, the Borrower shall
(i) first, immediately prepay the Revolving Advances to the extent necessary to
eliminate such excess; and (ii) if prepayment in full of the Revolving Advances
is insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess. Any payment received by the Lender under this Section 2.14 or
under Section 2.12 may be applied to the Obligations, in such order and in such
amounts as the Lender, in its discretion, may from time to time determine;
provided that any prepayment under Section 2.12 which the Borrower designates as
a partial prepayment of the Term Notes shall be applied to principal
installments of the Term Notes in inverse order of maturity. For each day or
portion thereof that the Revolving Advances shall exceed the Borrowing Base, the
Borrower shall pay to the Lender an overadvance charge (which charge shall be in
addition to and not in lieu of any other interest, fees or charges payable by
Borrower hereunder) in the amount of $100.00; provided however, that if such day
occurs during a Default Period, the overadvance charge for such day shall be
$200.00.
SECTION 2.15 PAYMENT. All payments to the Lender shall be made
in immediately available funds and shall be applied to the Obligations 1 Banking
Day after receipt by the Lender. The Lender may hold all payments not
constituting immediately available funds for two (2) additional days before
applying them to the Obligations. Notwithstanding anything in Section 2.1, the
Borrower hereby authorizes the Lender, in its discretion at any time or from
time to time without the Borrower's request and even if the conditions set forth
in Section 4.2 would
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not be satisfied, to make a Revolving Advance in an amount equal to the portion
of the Obligations from time to time due and payable.
SECTION 2.16 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 2.17 USE OF PROCEEDS. The Borrower shall use the
proceeds of Revolving Advances, each Letter of Credit, and the Term Advances if
any, for ordinary working capital purposes.
SECTION 2.18 LIABILITY RECORDS. The Lender may maintain from
time to time, at its discretion, liability records as to the Obligations. All
entries made on any such record shall be presumed correct until the Borrower
establishes the contrary. Upon the Lender's demand, the Borrower will admit and
certify in writing the exact principal balance of the Obligations that the
Borrower then asserts to be outstanding. Any billing statement or accounting
rendered by the Lender shall be conclusive and fully binding on the Borrower
unless the Borrower gives the Lender specific written notice of exception within
30 days after receipt.
Article III.
SECURITY INTEREST; OCCUPANCY; SETOFF
SECTION 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby
pledges, assigns and grants to the Lender a security interest (collectively
referred to as the "Security Interest") in the Collateral, as security for the
payment and performance of the Obligations.
SECTION 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER
OBLIGORS. The Lender may at any time (upon the occurrence of an Event of Default
or during a Default Period) 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 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
the Borrower's agent and attorney-in-fact, 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 otherwise handle 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.
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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, whether or not a Default Period then exists, the Lender
may (but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, 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.
SECTION 3.4 OCCUPANCY.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time during a Default Period.
(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 Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitment, 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, that if 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 (other than income 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. Without limiting the generality of any of
the Security Documents, the Borrower hereby grants to the Lender a
non-exclusive, 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 during any Default Period.
SECTION 3.6 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:
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Name and address of Debtors:
Royal Grip, Inc.
15170 North Hayden Road #1
Scottsdale, Arizona 85260
Federal Tax Identification No. 86-0615648
Roxxi, Inc.
2621 SE 15th Street
Oklahoma City, Oklahoma 73129
Federal Tax Identification No. 86-0801779
Name and address of Secured Party:
Norwest Business Credit, Inc.
Norwest Tower, Mail Station 9025
3300 North Central Avenue
Phoenix, Arizona 85012-2501
SECTION 3.7 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 the Borrower by the
Lender, whether or not due, against any Obligation, whether or not due. In
addition, each other Person holding a participating interest in any Obligations
shall have the right to appropriate or setoff any 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.
Article IV.
CONDITIONS OF LENDING
SECTION 4.1 CONDITIONS PRECEDENT TO THE INITIAL REVOLVING AND
TERM ADVANCES AND THE INITIAL LETTER OF CREDIT. The Lender's obligation to make
the initial Revolving Advance, cause to be issued any Letter of Credit, or make
the one time disbursement of the Second Term Advance hereunder 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 by the Borrower.
(b) The Revolving Note and the Term Notes, properly executed
by the Borrower.
(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent (and Memorandum thereof) with respect to each such lease.
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(d) 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 or assignments of patents,
trademarks or copyrights have been filed and remain in effect against the
Borrower except those financing statements and assignments of patents,
trademarks or copyrights relating to Permitted Liens or to liens held by Persons
who have agreed in writing that upon receipt of proceeds of the Advances, they
will deliver UCC releases and/or terminations and releases of such assignments
of patents, trademarks or copyrights satisfactory to the Lender, and (iii) the
Lender has duly filed all financing statements necessary to perfect the Security
Interest, to the extent the Security Interest is capable of being perfected by
filing.
(e) A certificate of the Secretary or Assistant Secretary of
each of Royal Grip and Roxxi certifying as to (i) the resolutions of the
Borrower's directors and, if required, shareholders, authorizing the execution,
delivery and performance of the Loan Documents, (ii) the articles of
incorporation and bylaws of each of Royal Grip and Roxxi, and (iii) the
signatures of the officers or agents authorized to execute and deliver the Loan
Documents and other instruments, agreements and certificates, including Advance
requests, on behalf of each of Royal Grip and Roxxi.
(f) Evidence that each of Royal Grip and Roxxi 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.
(g) A certificate of an officer of each of Royal Grip and
Roxxi confirming the representations and warranties set forth in Article V.
(h) An opinion of counsel to each of Royal Grip and Roxxi,
addressed to the Lender, together with the results of a litigation search or
searches showing all actions or proceedings where each of Royal Grip and Roxxi
is a defendant or involving a claim against the Borrower.
(i) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the Lender's
favor and with all liability insurance naming the Lender as an additional
insured.
(j) A guaranty, properly executed by Guarantor, pursuant to
which Guarantor unconditionally guarantees the full and prompt payment of all
Obligations.
(k) Evidence from the Borrower satisfactory to the Lender
establishing the amount of the Borrowing Base and a request for a Revolving
Advance from the Borrower in an amount such that the minimum Availability of the
Borrower after such Advance (the "Initial Advance") and payment of all fees of
the Lender required hereunder shall be not less than $750,000.00.
(l) An opinion of counsel to Guarantor, addressed to the
Lender.
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(m) Payment of the fees and commissions due through the date
of the Initial Advance or Letter of Credit under Section 2.9 and expenses
incurred by the Lender through such date and required to be paid by the Borrower
under Section 9.7, including all legal expenses incurred through the date of
this Agreement.
(n) UCC-2 Financing Statement Partial Release with respect to
grip inventory located at Acushnet Rubber Company, Inc. properly executed by
Fleet National Bank.
(o) Acknowledgment Agreement properly executed by Acushnet
Rubber Company, Inc.
(p) UCC-2 Assignment of Financing Statement applicable to the
UCC-1 Financing Statement filed with the Massachusetts Secretary of State at
Filing No. 448837.
(q) [INTENTIONALLY DELETED]
(r) Management Support Agreements in favor of Lender properly
executed by Tom Schneider, Ronald L. Chalmers and Kevin Neill.
(s) Assignment with respect to Letter of Credit proceeds
properly executed by Borrower and Norwest Bank Arizona.
(t) Such other documents as the Lender in its sole discretion
may require.
SECTION 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS
OF CREDIT. The Lender's obligation to make each Advance or to cause the Issuer
to issue any Letter of Credit shall be subject to the further conditions
precedent that on such date:
(a) the representations and warranties contained in Article V
are correct on and as of the date of such Advance or issuance of Letter of
Credit 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 or the issuance of such Letter of Credit, as the case may be,
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; TAX IDENTIFICATION NUMBER.
Royal Grip is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Nevada
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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. Roxxi
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Nevada, 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. 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 existence, the Borrower has done business solely under the
names set forth in Schedule 5.1 hereto. The Borrower's chief executive office
and principal place of business is located at the addresses set forth in
Schedule 5.1 hereto, and all of the Borrower's records relating to its business
or the Collateral are kept at said location. All Inventory and Equipment is
located at that location or at one of the other locations set forth in Schedule
5.1 hereto. The Borrower's tax identification number is correctly set forth in
Section 3.6 hereto.
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 (i) require
any consent or approval of the stockholders of either Royal Grip or Roxxi; (ii)
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;
(iii) 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 either Royal Grip or Roxxi or of the articles of incorporation
or bylaws of either Royal Grip or Roxxi; (iv) to the best of Borrower's
knowledge after due inquiry, 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 either Royal Grip or Roxxi is a party or by which it or
its properties may be bound or affected including without limitation that
certain Capital Lease Agreement dated December 21, 1996 or that Manufacturing
Supply Agreement dated December 21, 1996, as amended by Instrument dated April
4, 1997; or (v) 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 Interest) upon or with
respect to any of the properties now owned or hereafter acquired by either Royal
Grip or Roxxi.
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 Royal Grip and Roxxi, enforceable
against Royal Grip and Roxxi in accordance with their respective terms.
SECTION 5.4 SUBSIDIARIES. Except as set forth in Schedule 5.4
hereto, neither Borrower has Subsidiaries.
SECTION 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The
Borrower has heretofore furnished to the Lender consolidated audited financial
statements of Royal Precision,
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Inc. for its fiscal year ended May 31, 1998 and consolidated unaudited financial
statements for the fiscal year-to-date period ended July 31, 1998 and those
statements fairly present the Borrower's financial condition on the dates
thereof and the results of its operations and cash flows for the periods then
ended and were prepared in accordance with GAAP except for footnote disclosures
and year end adjustments. Since the date of the most recent financial statements
to the date of this Agreement, there has been no material adverse change in the
Borrower's business, properties or condition (financial or otherwise).
SECTION 5.6 LITIGATION. To the best of Borrower's knowledge
after due inquiry, there are no actions, suits or proceedings pending or, to the
Borrower's knowledge, threatened against or affecting either Borrower or any of
their Affiliates or the properties of either Borrower or any of their 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. Neither Borrower is 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. To the best of Borrower's knowledge after
due inquiry, the Borrower and 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 its Affiliates 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 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 clear and
absolute title to all Collateral described in the collateral reports provided to
the Lender and all other Collateral, properties and assets reflected in the
latest financial statements referred to in Section 5.5 and all proceeds thereof,
free and clear of all mortgages, security interests, liens and encumbrances,
except for Permitted Liens. No financing statement naming the Borrower as debtor
is on file in any office except to perfect only Permitted Liens.
SECTION 5.10 PLANS. Except as disclosed to the Lender in
writing prior to the date hereof, neither Borrower nor any of their Affiliates
maintains or has maintained any Plan. Neither 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 Borrower nor any of
their Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
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(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 Borrower's financial
condition, properties or operations.
SECTION 5.12 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
(i) "Environmental Law" means any federal, state,
local or other governmental statute, regulation, law or ordinance dealing with
the protection of human health and the environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials listed in,
regulated by or identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present
in, on or under the Premises any Hazardous Substances in such form or quantity
as to create any liability or obligation for either the Borrower or the Lender
under common law of any jurisdiction or under any Environmental Law, and no
Hazardous Substances have ever been stored, buried, spilled, leaked, discharged,
emitted or released in, on or under the Premises in such a way as to create any
such liability.
(c) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any liability
under any Environmental Law.
(d) There are not and, to the Borrower's knowledge, there
never have been any requests, claims, notices, investigations, demands,
administrative proceedings, hearings or litigation, relating in any way to the
Premises or the Borrower, alleging liability under, violation of, or
noncompliance with any Environmental Law or any license, permit or other
authorization issued pursuant thereto. To the Borrower's best knowledge, no such
matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in accordance with all
Environmental Laws and all licenses, permits and other authorizations required
pursuant to any Environmental Law and necessary for the lawful and efficient
operation of such businesses are in the Borrower's possession and are in full
force and effect. No permit required under any Environmental Law is scheduled to
expire within 12 months (other than those that are renewed on an annual basis)
and
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there is no threat known to the Borrower that any such permit currently held by
Borrower will be withdrawn, terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and
never have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or any
similar federal, state or local list, schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental
assessments in Borrower's possession or which Borrower has knowledge of, audits,
reports, permits, licenses and other documents describing or relating in any way
to the Premises or Borrower's businesses.
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 Interest 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. Each right to payment in
excess of $500.00 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.
Article VI.
BORROWER'S AFFIRMATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain 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:
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(a) as soon as available, and in any event within 120 days
after the end of each fiscal year of the Borrower consolidated and consolidating
audited financial statements of Royal Grip, Roxxi and the Covenant Entities with
the unqualified opinion of Arthur Andersen, L.L.P. or such other independent
certified public accountants selected by the Borrower and acceptable to the
Lender, which annual financial statements shall include the consolidated balance
sheet of Royal Grip, Roxxi and the Covenant Entities as at the end of such
fiscal year and the related consolidated statements of income, retained earnings
and cash flows, all in reasonable detail and prepared in accordance with GAAP
applied on a basis consistent with the accounting practices applied in the
financial statements referred to in Section 5.5 hereof, together with a report
signed by such accountants stating that in making the investigations necessary
for said opinion they obtained no knowledge, except as specifically stated, of
any Default or Event of Default hereunder and 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;
(b) as soon as available and in any event within 25 days after
the end of each month, a consolidated unaudited/internal balance sheet and
statements of income and retained earnings of Royal Grip and Roxxi as at the end
of and for such month and for the year to date period then ended, prepared, if
the Lender so requests, on a consolidating and consolidated basis to include the
Covenant Entities and any other 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 GAAP, subject to year-end audit
adjustments; and accompanied by a certificate of the Vice President of Finance
or any other officer of each of Royal Grip and Roxxi, substantially in the form
of Exhibit C hereto stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments and
footnotes, (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 7.10;
(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) 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 Borrower's good
faith projections and certified by the Borrower's Vice President of Finance or
any other officer as being the most accurate 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;
(e) 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 5.12
or which seek a monetary recovery against the Borrower in excess of $25,000.00;
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(f) 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;
(g) 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 Borrower's Vice President of
Finance 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;
(h) 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 Borrower's Vice President of Finance 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;
(i) promptly upon knowledge thereof, notice of (i) any
disputes or claims by the Borrower's customers in excess of $20,000.00; (ii)
credit memos in excess of $20,000.00; (iii) any goods returned to or recovered
by the Borrower valued in excess of $20,000.00; and (iv) any change in the
persons constituting the Borrower's officers and directors;
(j) promptly upon 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;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent to
its stockholders;
(l) promptly after the sending or filing thereof, copies of
all regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(m) daily copies of all invoices in excess of $10,000.00,
together with all shipping documentation applicable thereto;
(n) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which could
materially and adversely affect the Borrower's 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
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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 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 GAAP and, upon the Lender's
request, 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
Borrower's affairs 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, 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 Lender may at any time
and from time to time send or require the Borrower to send requests for
verification of accounts or notices of assignment to account debtors and other
obligors. The Lender may also at any time and from time to time telephone
account debtors and other obligors to verify accounts.
SECTION 6.4 COMPLIANCE WITH LAWS.
(a) The Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would materially
and adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral, only
for lawful purposes, without violation of any federal, state or local law,
statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental Laws
and obtain and comply with all permits, licenses and similar approvals required
by any Environmental Laws, and will not generate, use, transport, treat, store
or dispose of any Hazardous Substances in such a manner as to create any
liability or obligation under the common law of any jurisdiction or any
Environmental Law.
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
Interest, 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
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proceedings and so long as the Collateral and Lender's lien thereon is not in
any manner impaired by any enforcement remedy available to the tax levying
entity during the period of such contest.
SECTION 6.6 MAINTENANCE OF PROPERTIES.
(a) The Borrower will keep and maintain the Collateral, 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
Lender's judgment, 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 against all claims
or demands of all persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security interests,
liens and encumbrances except Permitted Liens.
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 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 Lender's benefit acceptable to the Lender. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured.
SECTION 6.8 PRESERVATION OF EXISTENCE. Each Borrower will
preserve and maintain its 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 COLLATERAL ACCOUNT.
(a) Each Borrower agrees to deposit in its respective
Collateral Account or, at the Lender's option, to deliver to the Lender all
collections on Accounts, contract rights, chattel paper and other rights to
payment constituting Collateral (but not the proceeds of
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any loan to Borrower as a borrower made by any party other than Lender and
permitted under the terms of this Agreement), and all other cash proceeds of
Collateral, which the Borrower may receive 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 Accounts, 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 Accounts 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 Accounts shall be transferred to
the Lender's general account, and the Lender may deposit in its general account
or in the Collateral Accounts 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 or the Borrower shall, after allowing
two Banking Days after deposit in the Collateral Accounts, deposit such funds to
the Lender's Account No. 00-28-995 at Norwest Bank Minnesota, NA. The Lender
from time to time at its discretion shall, after allowing (i) one Banking Day
after direct deposit in the Lender's Account No. 00-28-995 at Norwest Bank
Minnesota, NA, and/or (ii) such later date as may be required for collection,
apply such funds to the payment of any and all Obligations, in any order or
manner of application satisfactory to the Lender. All items delivered to the
Lender or deposited in the Collateral Accounts 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 Accounts, the bank
maintaining such account, the amount of that item, or such bank 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 Accounts, whether or not in fact endorsed by the
Borrower.
(b) If a Default or Default Period exists and upon demand of
the Lender, the Borrower shall establish one or more lockbox accounts as
directed by the Lender with such banks or depository institutions as shall be
satisfactory to the Lender and shall irrevocably direct all present and future
Account Debtors and other Persons obligated to make payments constituting
Collateral to make such payments directly to such lockbox account. 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 such lockbox and shall include such lockbox address or
addresses. All payments received in such lockbox accounts shall be processed to
the Collateral Accounts.
(c) 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.
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, immediately upon the occurrence of such failure, without notice or lapse
of time),
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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 Lender's performance or observance of such covenants of the Borrower, the
Borrower hereby irrevocably appoints the Lender, or the Lender's delegate,
acting alone, as the Borrower's attorney in fact (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 covenants that
Royal Grip, Roxxi and the Covenant Entities shall, as of the last day of each
fiscal quarter, on and after November 30, 1998, maintain a consolidated average
minimum debt service coverage ratio (based upon the period set forth below) as
follows:
QUARTER ENDING DEBT SERVICE COVERAGE RATIO
- -------------- ---------------------------
November 30, 1998 0.001 to 1 based upon the immediately
preceding six month period
February 28, 1999 0.001 to 1 based upon the immediately
preceding nine month period
May 31, 1999 .5 to 1 based upon the immediately
preceding twelve month period
August 31, 1999 .75 to 1 based upon the immediately
preceding three month period
November 30, 1999 .75 to 1 based upon the immediately
preceding six month period
February 28, 2000 .85 to 1 based upon the immediately
preceding nine month period
May 31, 2000 and each May 31 thereafter 1.05 to 1 based upon the immediately
preceding twelve month period
August 31, 2000 and each August 31 1.05 to 1 based upon the immediately
thereafter preceding twelve month period
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November 30, 2000 and each November 1.05 to 1 based upon the immediately
30 thereafter preceding twelve month period
February 28, 2001 and each February 28 1.05 to 1 based upon the immediately
thereafter preceding twelve month period
The debt service coverage ratio shall be calculated according
to the following formula:
<TABLE>
<S><C>
FUNDS FROM OPERATIONS + INTEREST EXPENSE - UNFINANCED PORTION OF CAPITAL EXPENDITURES
- --------------------------------------------------------------------------------------
Current Maturities Long-Term Debt (actually paid during the period) + Interest Expense
</TABLE>
SECTION 6.13 NET WORTH. The Borrower covenants that, as of May
31, 1998 Royal Grip, Roxxi and the Covenant Entities had an aggregate
consolidated Net Worth of $14,327,322.00. The Borrower covenants that the said
aggregate consolidated Net Worth as of the end of each future fiscal quarter end
shall increase by not less than (or in the event a decrease is allowed, decrease
by not more than) the amounts set forth below as measured from the immediately
preceding fiscal year ending aggregate consolidated Net Worth.
QUARTER ENDING NET WORTH INCREASE (DECREASE)
-------------- -----------------------------
November 30, 1998 ($500,000.00)
February 28, 1999 ($300,000.00)
May 31, 1999 $400,000.00
August 31, 1999 and each August 31 $0.00
thereafter
November 30, 1999 and each ($300,000.00)
November 30 thereafter
February 28, 2000 and each ($100,000.00)
February 28 thereafter
May 31, 2000 and each May 31 $600,000.00
thereafter
SECTION 6.14 NET INCOME. The Borrower covenants that beginning
with the fiscal quarter ending November 30, 1998, and continuing each fiscal
quarter thereafter, Royal Grip, Roxxi and the Covenant Entities shall achieve an
aggregate consolidated Net Income of at least (or, in the event a Net Loss is
allowed for such fiscal quarter, a Net Loss of not more than) the amount set
forth below for each fiscal quarter as measured from the immediately preceding
fiscal year end.
QUARTER ENDING NET WORTH INCREASE (DECREASE)
-------------- -----------------------------
November 30, 1998 ($500,000.00)
February 28, 1999 ($300,000.00)
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May 31, 1999 $400,000.00
August 31, 1999 and each August 31 $0.00
thereafter
November 30, 1999 and each ($300,000.00)
November 30 thereafter
February 28, 2000 and each ($100,000.00)
February 28 thereafter
May 31, 2000 and each May 31 $600,000.00
thereafter
SECTION 6.15 STOP LOSS. The Borrower covenants that beginning
with September, 1998 and continuing for each month thereafter, Royal Grip, Roxxi
and the Covenant Entities shall not achieve an aggregate consolidated Net Loss
in excess of the amounts set forth below for each month as measured from the
last day of the immediately preceding month.
MONTH MAXIMUM NET LOSS
----- ----------------
August of each year $400,000.00
September of each year $150,000.00
October of each year $200,000.00
November of each year $100,000.00
December of each year $250,000.00
January of each year $50,000.00
February of each year $0.00
March of each year $0.00
April of each year $0.00
May of each year $0.00
June of each year $0.00
July of each year $0.00
Article VII.
NEGATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower agrees that, without the
Lender's prior written consent:
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
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assets, now owned or hereafter acquired, to secure any indebtedness; EXCLUDING,
HOWEVER, from the operation of the foregoing, the following (collectively,
"Permitted Liens"):
(a) in the case of any of the Borrower's 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 Borrower's business or operations as presently
conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in Schedule
7.1 hereto, securing indebtedness for borrowed money permitted under Section
7.2;
(c) the Security Interest and liens and security interests
created by the Security Documents; and
(d) purchase money security interests relating to Capital
Expenditures (and which attach only to the assets acquired by such Capital
Expenditures) made after the date of this Agreement by the Borrower or any
Affiliate 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 letters of credit issued
on the Borrower's behalf, 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 Schedule 7.2 hereto;
(c) indebtedness relating to liens permitted in accordance
with Section 7.1; and
(d) indebtedness permitted pursuant to Section 7.19.
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;
(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 Schedule 7.2 hereto; and
(c) indemnifications arising in the ordinary course of
business.
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SECTION 7.4 INVESTMENTS AND SUBSIDIARIES.
(a) The Borrower will not purchase or hold beneficially any
stock or other securities or evidences 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:
(i) 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-1" or "A-2" by Standard & Poors 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);
(ii) travel advances or loans to the Borrower's
officers and employees not exceeding at any one time an aggregate of $75,000.00;
and
(iii) advances in the form of progress payments,
prepaid rent not exceeding 2 months or security deposits.
(iv) loans, advances or any other credits at any time
disbursed and outstanding after the date of this Agreement shown on the balance
sheet of Borrower granted to the Covenant Entities not to exceed in the
aggregate (i) $1,500,000.00 through the first anniversary date of the Funding
Date, (ii) $2,250,000.00 after the first anniversary of the Funding Date through
the second anniversary of the Funding Date, and (iii) $3,000,000.00 after the
second anniversary of the Funding Date through the Termination Date.
(v) payments to the Covenant Entities so long as they
are expensed in accordance with GAAP, and appear on all statements of income
required pursuant to Section 6.1
(b) The Borrower will not create or permit to exist any
Subsidiary, other than the Subsidiar(y)(ies) in existence on the date hereof and
listed in Schedule 5.4.
SECTION 7.5 DIVIDENDS. Except for dividends payable solely to
Guarantor for actual operating expenses of Guarantor, Borrower will not declare
or pay any dividends (other than dividends payable solely in stock of the
Borrower) 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
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<PAGE>
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. During each fiscal year,
Royal Grip, Roxxi and the Covenant Entities will not incur or contract to incur
Capital Expenditures in the aggregate of more than $2,000,000.00. In addition,
during the 1999 fiscal year, Royal Grip, Roxxi and the Covenant Entities will
not incur or contract to incur Capital Expenditures paid with working capital in
the aggregate of more than $1,750,000.00. In addition, during each fiscal year
thereafter, Royal Grip, Roxxi and the Covenant Entities will not incur or
contract to incur Capital Expenditures paid with working capital in the
aggregate of more than $850,000.00.
SECTION 7.11 ACCOUNTING. The Borrower will not adopt any
material change in accounting principles other than as required by GAAP. 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 during the existence of any Default Period, grant any
discount, credit or allowance to any customer of the Borrower or accept any
return of goods sold, or at any time (whether before or after notice from the
Lender) 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.
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
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<PAGE>
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 Interest.
The Borrower will not change its name.
SECTION 7.16 ORGANIZATIONAL DOCUMENTS. The Borrower will not
amend its certificate of incorporation, articles of incorporation or bylaws.
SECTION 7.17 SALARIES. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any director in a director capacity, officer or any member
of their families, by more than 20% in any one year, either individually or for
all such persons in the aggregate, or pay any such increase from any source
other than profits earned in the year of payment.
SECTION 7.18 ISSUANCE OF STOCK/LOSS OF VOTING CONTROL. Except
as required in order for the Borrower to comply with its contractual obligations
contained in that certain Manufacturing Supply Agreement dated December 21, 1996
entered into by and between Royal Grip and Acushnet (the "Manufacturing
Agreement"), the Borrower will not issue or sell any stock of the Borrower. The
Borrower shall not permit or suffer to occur any transfer, assignment, pledge or
other disposition of any or all of the issued and outstanding stock of the
Borrower so as to materially change the voting control of the Borrower.
SECTION 7.19 PAYMENTS TO AFFILIATES. Neither Royal Grip nor
Roxxi shall, without the express written consent of Lender, which consent may be
granted or withheld in Lender's sole discretion, make any transfer, conveyance,
loan or payment of any kind to Royal Grip (from Roxxi), Roxxi (from Royal Grip),
to any Covenant Entity or to any other Affiliates (i) in the aggregate in excess
of $1,500,000.00 per fiscal year, or (ii) which is not for fair and adequate
consideration.
SECTION 7.20 MANAGEMENT CONTROL. The Borrower shall not permit
or suffer to occur any change in its current executive management personnel (Tom
Schneider, Ronald L. Chalmers and Kevin Neill).
SECTION 7.21 TRADE PAYABLE. Royal Grip shall not at any time
allow the difference between the then applicable "End of the Month Payoff
Balance", as described in Exhibit A of the Capital Lease Agreement, and Royal
Grip's trade payables owed to Acushnet Rubber Company, to be less than
$500,000.00.
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 the Obligations when they become
due and payable;
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(b) Failure to pay when due any amount specified in Section
2.3 relating to the Borrower's Obligation of Reimbursement, or failure to pay
immediately when due or upon termination of the Credit Facility any amounts
required to be paid for deposit in the Special Account under Section 2.4 or;
(c) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement;
(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement other than a covenant or
agreement which is specifically dealt with in this Section 8.1 and the
continuance thereof for a period of 5 days after the actual knowledge thereof by
an executive officer of either Borrower or receipt of written notice thereof
from the Lender; or
(e) Any of Royal Grip, Roxxi or any Covenant Entity shall be
or become insolvent, or admit in writing its inability to pay its or his debts
as they mature, or make an assignment for the benefit of creditors; or any of
Royal Grip, Roxxi or any Covenant Entity shall apply for or consent to the
appointment of any receiver, trustee, or similar officer for it or for all or
any substantial part of its property; or such receiver, trustee or similar
officer shall be appointed without the application or consent of Royal Grip,
Roxxi or a Covenant Entity, as the case may be; or any of Royal Grip, Roxxi or
any Covenant Entity 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 under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against Royal Grip, Roxxi or
any Covenant Entity and shall not be dismissed within 60 calendar days; 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
Royal Grip, Roxxi or any Covenant Entity; or
(f) A petition shall be filed by or against (which when filed
against shall not be dismissed within 60 calendar days) any of Royal Grip, Roxxi
or any Covenant Entity under the United States Bankruptcy Code naming Royal Grip
or Roxxi as debtor; or
(g) Any representation or warranty made by the Borrower in
this Agreement, by Guarantor in any guaranty delivered to the Lender, or by the
Borrower (or any of its officers) or Guarantor 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 or any such guaranty
shall prove to have been incorrect in any material respect when deemed to be
effective;
(h) The rendering against either Royal Grip or Roxxi of a
final judgment, decree or order for the payment of money in excess of $25,000.00
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;
(i) A default under any bond, debenture, note or other
evidence of indebtedness of either Borrower owed to any Person other than the
Lender, or under any
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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;
(j) 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 Borrower's assets in favor of the Plan;
(k) 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;
(l) An event of default shall occur under that certain Credit
and Security Agreement dated ___________, 1998 by and between Lender, FM
Precision Golf Manufacturing Corp. and FM Precision Golf Sales Corp. (the "FM
Credit Agreement"), as the FM Credit Agreement may from time to time be
modified, amended or restated. Borrower hereby acknowledges that it shall have
no right to approve any such modifications, amendments or restatements;
(m) An event of default shall occur under any document,
instrument or agreement executed from time to time in connection with the FM
Credit Agreement (collectively, the "FM Security Documents"), as the FM Security
Documents may from time to time be modified, amended or restated. Borrower
hereby acknowledges that it shall have no right to approve any such
modifications, amendments or restatements;
(n) Either 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
Lender's prior written consent;
(o) Either Borrower shall fail to pay, withhold, collect or
remit any tax or tax deficiency when 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;
(p) Any event of default shall occur (and not be cured within
the prescribed cure period) under the Manufacturing Agreement or the Capital
Lease Agreement; or
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(q) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder;
(r) Any Guarantor shall repudiate, purport to revoke or fail
to perform any such Guarantor's obligations under such Guarantor's guaranty in
favor of the Lender, any Guarantor shall cease to validly exist;
(s) Any event or circumstance with respect to the Borrower
shall occur such that the Lender shall believe in good faith that the prospect
of payment of all or any part of the Obligations or the performance by the
Borrower under the Loan Documents is impaired or any material adverse change in
the business or financial condition of the Borrower shall occur.
(t) Any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and the Lender.
SECTION 8.2 RIGHTS AND REMEDIES. During any Default Period,
the Lender may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations shall
become and be forthwith due and payable, without presentment, notice of
dishonor, protest or further notice of any kind, all of which the Borrower
hereby expressly waives;
(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 Obligations;
(d) 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 2.14 an
amount equal to the aggregate maximum amount available to be drawn under all
Letters of Credit then outstanding, assuming compliance with all conditions for
drawing thereunder;
(e) 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
thereof, 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;
(f) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
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(g) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (e) or (f) of Section 8.1, the 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 before the date of intended disposition or other action.
Article IX.
MISCELLANEOUS
SECTION 9.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or
delay by 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.
(a) 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 (i) personally delivered, (ii) sent
by first class United States mail, (iii) sent by overnight courier of national
reputation, or (iv) transmitted by telecopy, in each case addressed or
telecopied to the party to whom notice is being given at its address or
telecopier number as set forth below:
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If to Royal Grip or Roxxi:
c/o Royal Grip, Inc.
15170 North Hayden Road #1
Scottsdale, Arizona 85260
Telecopier: (602) 627-0270
Attention: Tom Schneider
If to the Lender:
Norwest Business Credit, Inc.
Norwest Tower, Mail Station 9025
3300 North Central Avenue
Phoenix, Arizona 85012-2501
Telecopier: (602) 263-6215
Attention: Clif Moschnik
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 shall not be
effective until received by the Lender.
(b) A copy of each notice to Borrower shall also be sent to:
Mr. Ken Warren
5920 Cromdale #1
Dublin, Ohio 43017
Telecopier: (614) 766-1974
The copies of notices sent in accordance with this Section
9.3(b) are informational and are not required in order for the notices given
pursuant to Section 9.3(a) above to be effective.
SECTION 9.4 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 Interest or the Lender's rights
under the Loan Documents (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 the Loan Documents and the Security
Interest, regardless of whether any such item was or was not executed, delivered
or endorsed in a similar context or on a prior occasion).
SECTION 9.5 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
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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 9.6 COSTS AND EXPENSES. The Borrower agrees to pay on
demand all costs and expenses, including (without limitation) attorneys' fees,
incurred by the Lender in connection with the Obligations, this Agreement, the
Loan Documents, any Letters of Credit, 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 Interest.
SECTION 9.7 INDEMNITY. In addition to the payment of expenses
pursuant to Section 9.7, Royal Grip and Roxxi, jointly and severally, agree 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,
attorneys and agents of the foregoing (the "Indemnitees") from and against any
of the following (collectively, "Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of the
execution and delivery of the Loan Documents or the making of the Advances;
(ii) any claims, loss or damage to which any
Indemnitee may be subjected if any representation or warranty contained in
Section 5.12 proves to be incorrect in any respect or as a result of any
violation of the covenant contained in Section 6.4(b); and
(iii) any and all other 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 the foregoing and any other 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 any such Indemnitee, in any manner related to or arising out of or in
connection with the making of the Advances and the Loan Documents or the use or
intended use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
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 costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of
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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 obligations of Royal
Grip and Roxxi under this Section 9.8 shall survive the termination of this
Agreement and the discharge of the Borrower's other obligations hereunder.
SECTION 9.8 PARTICIPANTS. 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 Lender's participants, successors or
assigns.
SECTION 9.9 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 9.10 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT;
EXCHANGING INFORMATION. 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 Lender's prior written consent.
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. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, Norwest Corporation, and all direct and indirect
subsidiaries of Norwest Corporation, may exchange any and all information they
may have in their possession regarding the Borrower and its Affiliates, and the
Borrower waives any right of confidentiality it may have with respect to such
exchange of such information.
SECTION 9.11 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 9.12 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.
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 Arizona.
This Agreement shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Arizona. The parties
hereto hereby (i) consents to the personal jurisdiction of the state and federal
courts located in the State of Arizona, County of Maricopa in connection with
any controversy related to this Agreement; (ii) waives any argument that venue
in any such forum is not convenient, (iii) agrees that any litigation initiated
by the Lender or the Borrower in
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connection with this Agreement or the other Loan Documents shall be venued in
either the Superior Court of Maricopa County, Arizona, or the United States
District Court, District of Arizona; and (iv) agrees that a final judgment in
any such suit, action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED ON OR PERTAINING TO THIS AGREEMENT.
SECTION 9.14 RELEASE. Royal Grip and Roxxi hereby absolutely
and unconditionally releases and forever discharges the Lender, and any and all
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which Royal
Grip and Roxxi have had, now has or has made claim to have against any such
person for or by reason of any act, omission, matter, cause or thing whatsoever
arising from the beginning of time to and including the date of this Agreement,
whether such claims, demands and causes of action are matured or unmatured or
known or unknown.
SECTION 9.15 EFFECT OF AGREEMENT. This Agreement shall become
effective only upon the satisfaction of all of the conditions contained within
Section 4.1 hereof. At such time as this Agreement becomes effective, it shall
in all respects supersede the Original Credit Agreement, and all Advances (past,
present and future) made by Lender to Borrower shall in all respects be governed
by this Agreement. Until such time as all of the conditions contained in Section
4.1 have been fully satisfied, this Agreement shall be of no force and effect,
and all Advances (past, present and future) made by Lender to Borrower shall in
all respects be governed by the Original Credit Agreement.
SECTION 9.16 PRIORITY OF LIENS. Nothing herein is intended to
change the priority of any lien or security interest Lender has in any property
of the Borrower. All such liens and security interests remain in full force and
effect, unmodified, and in all respects are ratified, confirmed and approved.
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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.
ROYAL GRIP, INC., a Nevada corporation
By __________________________________
Its ______________________________
ROXXI, INC., a Nevada corporation
By __________________________________
Its ______________________________
NORWEST BUSINESS CREDIT, INC., a
Minnesota corporation
By __________________________________
Its ______________________________
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Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Form of Term Notes
Exhibit C Compliance Certificate
Exhibit D Premises
-------------------
Schedule 5.1 Trade Names, Chief Executive Office, Principal
Place of Business, and Locations of Collateral
Schedule 5.4 Subsidiaries
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
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Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$1,500,000.00 Phoenix, Arizona
____________, 1998
For value received, the undersigned, ROYAL GRIP, INC., a
Nevada corporation, and ROXXI, INC., a Nevada corporation (collectively, jointly
and severally, "Borrower"), hereby jointly and severally promise to pay on the
Termination Date under the Credit Agreement (defined below), to the order of
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its
main office in Phoenix, Arizona, 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 One Million Five Hundred
Thousand and No/100 Dollars ($1,500,000.00) or, if less, the aggregate unpaid
principal amount of all Revolving Advances made by the Lender to the Borrower
under the Credit Agreement (defined below) 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 (as the same may hereafter be amended, supplemented or restated from
time to time, 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 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.
Both entities constituting the Borrower hereby jointly and
severally agree 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.
This Note, upon its execution, is a partial replacement of,
partially issued in substitution and not in satisfaction of a promissory note,
and a portion of the indebtedness hereunder is the same indebtedness evidenced
by that certain Revolving and Term Note in the amount of $2,450,000.00 made by
Borrower to the Lender and dated February 10, 1997. The indebtedness evidenced
by said Revolving and Term Note is not extinguished hereby.
Revolving Note Exhibit A
1
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Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.
ROYAL GRIP, INC., a Nevada corporation
By __________________________________
Its ______________________________
ROXXI, INC., a Nevada corporation
By __________________________________
Its ______________________________
Revolving Note Exhibit A
2
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Exhibit B-1 to Credit and Security Agreement
TERM NOTE
$496,000.00 Phoenix, Arizona
____________, ____
For value received, the undersigned, ROYAL GRIP, INC., a
Nevada corporation, and ROXXI, INC., a Nevada corporation (collectively, jointly
and severally, "Borrower"), hereby jointly and severally promise to pay on the
Termination Date under the Credit Agreement (defined below), to the order of
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its
main office in Phoenix, Arizona, 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 Hundred Ninety-Six
Thousand and No/100 Dollars ($496,000.00) or, if less, the aggregate unpaid
principal amount of all Term Advances made by the Lender to the Borrower under
the Credit Agreement (defined below) 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 (as the
same may hereafter be amended, supplemented or restated from time to time, 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 one of the Term Notes 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.
Both entities constituting the Borrower hereby jointly and
severally agree 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.
This Note, upon its execution, is a partial replacement of,
partially issued in substitution and not in satisfaction of a promissory note,
and a portion of the indebtedness hereunder is the same indebtedness evidenced
by that certain Revolving and Term Note in the amount of $2,450,000.00 made by
Borrower to the Lender and dated February 10, 1997. The indebtedness evidenced
by said Revolving and Term Note is not extinguished hereby.
Term Note Exhibit B-1
1
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Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.
ROYAL GRIP, INC., a Nevada corporation
By __________________________________
Its ______________________________
ROXXI, INC., a Nevada corporation
By __________________________________
Its ______________________________
Term Note Exhibit B-1
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Exhibit B-2 to Credit and Security Agreement
TERM NOTE
$840,000.00 Phoenix, Arizona
____________, 1998
For value received, the undersigned, ROYAL GRIP, INC., a
Nevada corporation, and ROXXI, INC., a Nevada corporation (collectively, jointly
and severally, "Borrower"), hereby jointly and severally promise to pay on the
Termination Date under the Credit Agreement (defined below), to the order of
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its
main office in Phoenix, Arizona, 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 EIGHT HUNDRED FORTY THOUSAND
and NO/100 Dollars ($840,000.00) or, if less, the aggregate unpaid principal
amount of all Term Advances made by the Lender to the Borrower under the Credit
Agreement (defined below) 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 (as the
same may hereafter be amended, supplemented or restated from time to time, 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.
Both entities constituting the Borrower hereby jointly and
severally agree 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.
Term Note Exhibit B-2
1
<PAGE>
Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.
ROYAL GRIP, INC., a Nevada corporation
By __________________________________
Its ______________________________
ROXXI, INC., a Nevada corporation
By __________________________________
Its ______________________________
Term Note Exhibit B-2
2
<PAGE>
Exhibit C to Credit and Security Agreement
COMPLIANCE CERTIFICATE
To: _____________________________
Norwest Business Credit, Inc.
Date: _____________________________
Subject: _____________________________
Financial Statements
In accordance with our Credit and Security Agreement dated as
of ____________________ (the "Credit Agreement"), attached are the consolidated
financial statements of Royal Grip, Inc. and Roxxi, Inc. (the "Borrower") and
the Covenant Entities and the year-to-date period then ended (the "Current
Financials"). All terms in this certificate have the meanings given in the
Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the financial condition of the Borrower as of the date thereof.
EVENTS OF DEFAULT. (Check one):
___ The undersigned does not have knowledge of the
occurrence of a Default or Event of Default under the Credit
Agreement.
___ The undersigned has knowledge of the occurrence
of a Default or Event of Default under the Credit Agreement
and attached hereto is a statement of the facts with respect
to thereto.
FINANCIAL COVENANTS. I further hereby certify as follows:
___ The Reporting Date does not correspond to the end
of the Borrower's fiscal quarters, hence I am completing only
paragraphs ___ below.
___ The Reporting Date corresponds to the end of one
of the Borrower's fiscal quarters, hence I am completing all
paragraphs below.
1. MINIMUM DEBT SERVICE COVERAGE RATIO. Pursuant to
Section 6.12 of the Credit Agreement, for the applicable
period ending on the Reporting Date, the Borrower's and the
Covenant Entities' consolidated Debt Service Coverage Ratio
was ___ to 1.00, which ____ satisfies ____ does not satisfy
the requirement that such ratio be no less than ____ to 1.00.
Compliance Certificate Exhibit C
1
<PAGE>
2. MINIMUM NET WORTH. Pursuant to Section 6.13 of the
Credit Agreement, as of the Reporting Date, the Borrower's and
Covenant Entities' consolidated Book Net Worth was
$_______________, which ____ satisfies ____ does not satisfy
the requirement that such amounts be not less than
$_______________ on the Reporting Date.
3. MINIMUM NET INCOME. Pursuant to Section 6.14 of
the Credit Agreement, as of the Reporting Date, the Borrower's
and Covenant Entities' aggregate Net Income for the applicable
period was $___________, which ___ satisfies ___ does not
satisfy the requirement that such amounts be not less than
$______ on the Reporting Date.
4. STOP LOSS. Pursuant to Section 6.15 of the Credit
Agreement, as of the Reporting Date, the Borrower and Covenant
Entities achieved an aggregate Net Loss of $__________, which
_____ satisfies _____ does not satisfy the requirement that
such amount be not more than $__________ on the Reporting
Date.
5. CAPITAL EXPENDITURES. Pursuant to Section 7.10 of
the Credit Agreement, for the year-to-date period ending on
the Reporting Date, the Borrower has expended or contracted to
expend during the fiscal year ending December 31, 199_, for
Capital Expenditures, $__________ in the aggregate and
$_________ for Capital Expenditures paid for with working
capital which ____ satisfies ____ does not satisfy the
requirement that such expenditures not exceed $2,000,000.00 in
the aggregate and $800,000.00 for Capital Expenditures paid
for with working capital during the fiscal year ended December
31, 199_, and each fiscal year thereafter.
6. SALARIES. As of the Reporting Date, the Borrower
____ is ____ is not in compliance with Section 7.17 of the
Credit Agreement concerning salary increases.
OFFICERS PERCENTAGE INCREASE
________________________ ___________________________
________________________ ___________________________
________________________ ___________________________
(To be completed within 30 days of any officer salary
increase)
7. PAYMENTS TO AFFILIATES. Pursuant to Section 7.19
of the Credit Agreement, for the year-to-date period ending on
the Reporting Date, Royal Grip and Roxxi have in the aggregate
made transfers, conveyances, loans and payments to Affiliates
in the amount of $_________ which ____ satisfies ____ does not
Compliance Certificate Exhibit C
2
<PAGE>
satisfy the requirement that such amount not exceed
$1,500,000.00 in the aggregate during any fiscal year.
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
ROYAL GRIP, INC., a Nevada corporation
By __________________________________
Its ______________________________
ROXXI, INC., a Nevada corporation
By __________________________________
Its ______________________________
Compliance Certificate Exhibit C
3
<PAGE>
Exhibit D to Credit and Security Agreement
PREMISES
The Premises referred to in the Credit and Security Agreement
are legally described as follows:
Lot 1 and that part of Lot 3, REYWEST SCOTTSDALE AIRPARK CORPORATE CENTER,
according to Book 307 of Maps, page 3, records of Maricopa County, Arizona;
BEGINNING at the most Southerly corner of Lot 3;
thence North 57(degree)48'05" East 15.95 feet along the Southeasterly
line of Lot 3 to the most Westerly corner of Lot 2;
thence North 32(degree)11'55" West parallel to the Southwesterly line
of Lot 3 205 feet more or less to the Northwesterly line of
Lot 3;
thence South 43(degree)55'22" West along the Northwesterly line of
Lot 3 16 feet more or less to the most Westerly corner of Lot
3;
thence South 32(degree)11'55" East 201.34 feet along the
Southwesterly line of Lot 3 to the POINT OF BEGINNING.
<PAGE>
Schedule 5.1 to Credit and Security
Agreement
Trade Names, Chief Executive Office, Principal Place of
Business, and Locations of Collateral
TRADE NAMES
None
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
Royal Grip: 15170 North Hayden Road #1
Scottsdale, Arizona 85260
Roxxi: 2621 SE 15th Street
Oklahoma City, Oklahoma 73129
OTHER INVENTORY AND EQUIPMENT LOCATIONS
744 Belleville Avenue
New Bedford, Massachusetts 02742-6912
535 Migeon Avenue
Torrington, Connecticut 06790
<PAGE>
Schedule 5.4 to Credit and Security
Agreement
SUBSIDIARIES
Roxxi is a subsidiary of Royal Grip
<PAGE>
Schedule 7.1 to Credit and Security
Agreement
PERMITTED LIENS
Creditor Collateral Jurisdiction Filing Date Filing No.
- -------- ---------- ------------ ----------- ----------
NONE
<PAGE>
Schedule 7.2 to Credit and Security
Agreement
PERMITTED INDEBTEDNESS AND GUARANTIES
INDEBTEDNESS
Creditor Principal Maturity Monthly Collateral
- -------- --------- -------- ------- ----------
Amount Date Payment
------ ---- -------
None
$6,300,000.00 Owed by Roxxi to Royal Grip
GUARANTIES
Primary Obligor Amount and Description of Beneficiary of Guaranty
- --------------- ------------------------- -----------------------
Obligation Guaranteed
---------------------
None
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-31-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,661
<ALLOWANCES> 602
<INVENTORY> 3,900
<CURRENT-ASSETS> 7,113
<PP&E> 5,584
<DEPRECIATION> 928
<TOTAL-ASSETS> 24,229
<CURRENT-LIABILITIES> 6,930
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 14,337
<TOTAL-LIABILITY-AND-EQUITY> 24,229
<SALES> 6,832
<TOTAL-REVENUES> 6,832
<CGS> 4,534
<TOTAL-COSTS> 2,156
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134
<INCOME-PRETAX> 8
<INCOME-TAX> 5
<INCOME-CONTINUING> 3
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
