FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended: May 31, 1999
Commission file number: 0-21161
Q.E.P. CO., INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2983807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1081 HOLLAND DRIVE
BOCA RATON, FLORIDA 33487
(Address of principal executive offices)
(Zip code)
(561) 994-5550
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve 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
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of July 12, 1999: 2,674,894 shares of common stock, par value
$0.001 per share.
<PAGE>
Q.E.P. CO., INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets (Unaudited)
May 31, 1999 and February 28, 1999...............................3
Consolidated Statements of Income (Unaudited)
For the Three Months Ended May 31, 1999 and 1998.................4
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended May 31, 1999 and 1998.................5
Notes to Consolidated Financial Statements..................................6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................8
Item 3 - Qualitative and Quantitative Disclosures about Market Risk........12
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.................................................13
Item 6 - Exhibits and Reports on Form 8-K..................................13
Signatures.................................................................14
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1999 AND FEBRUARY 28, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 31, 1999 FEBRUARY 28, 1999
------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................... $ 308,096 $ 290,066
Accounts receivable, less allowance for doubtful accounts
of approximately $410,000 and $382,000 as of May 31, 1999
and February 28, 1999, respectively....................................... 15,123,664 15,223,097
Notes receivable............................................................. 679,743 678,743
Inventories.................................................................. 16,530,606 14,329,205
Prepaid expenses............................................................. 1,340,939 1,096,541
Deferred income taxes........................................................ 684,253 684,391
------------ ------------
Total current assets...................................................... 34,667,301 32,302,043
PROPERTY AND EQUIPMENT, NET......................................................... 3,470,940 3,543,079
DEFERRED INCOME TAXES............................................................... 1,121,292 1,121,194
INTANGIBLE ASSETS, NET.............................................................. 8,680,031 8,767,019
NOTES RECEIVABLE.................................................................... 1,652,397 1,843,364
OTHER ASSETS........................................................................ 772,889 674,453
------------ ------------
TOTAL ASSETS........................................................................ $ 50,364,850 $ 48,251,152
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Lines of credit.............................................................. $ 8,078,000 $ 6,084,209
Current maturities of long term debt......................................... 1,185,862 1,218,253
Accounts payable............................................................. 6,287,914 6,297,204
Accrued liabilities.......................................................... 3,276,560 3,681,368
------------ ------------
Total current liabilities................................................. 18,828,336 17,281,034
NOTES PAYABLE....................................................................... 5,342,731 5,643,945
SUBORDINATED LONG TERM DEBT......................................................... 6,971,463 6,899,390
DEFERRED INCOME TAXES............................................................... 528,424 528,387
COMMITMENTS AND CONTINGENCIES....................................................... -- --
SHAREHOLDERS' EQUITY
Preferred stock, 2,500,000 shares authorized, $1.00 par value; 336,660
shares issued and outstanding at May 31, 1999 and February 28, 1999....... 336,660 336,660
Common stock, 10,000,000 shares authorized, $.001 par value; 2,664,894 and
2,654,894 shares issued and outstanding at May 31, 1999 and
February 28, 1999, respectively........................................... 2,665 2,655
Additional paid-in capital................................................... 8,810,616 8,746,876
Retained earnings............................................................ 9,913,751 9,147,105
Cost of stock held in treasury............................................... (57,900) (57,900)
Accumulated other comprehensive income (311,896) (277,000)
------------ ------------
$ 18,693,896 $ 17,898,396
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......................................... $ 50,364,850 $ 48,251,152
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
<PAGE>
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MAY 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31, 1999 MAY 31, 1998
------------ ------------
<S> <C> <C>
Net Sales....................................... $ 27,167,061 $ 24,201,144
Cost of goods sold.............................. 18,722,427 17,042,339
------------ ------------
Gross profit............................. 8,444,634 7,158,805
------------ ------------
Costs and expenses..............................
Shipping................................. 2,127,713 1,724,836
General and administrative............... 2,258,601 1,960,615
Selling and marketing.................... 2,422,256 1,966,459
Other (income) expense................... (8,546) 14,500
------------ ------------
6,800,024 5,666,410
------------ ------------
Operating income......................... 1,644,610 1,492,395
Interest income................................. 27,774 28,516
Interest expense................................ (433,277) (445,124)
------------ ------------
Income before provision for income taxes........ 1,239,107 1,075,787
Provision for income taxes...................... (466,276) (429,287)
------------ ------------
Net income...................................... $ 772,831 $ 646,500
============ ============
Basic and diluted earnings per common share..... $ 0.29 $ 0.24
Weighted average number of shares outstanding... 2,684,604 2,702,659
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE>
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MAY 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31, 1999 MAY 31, 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................... $ 772,831 $ 646,500
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ................. 330,136 292,280
Deferred income taxes ......................... -- 25,999
Bad debt expense .............................. 93,995 6,000
Changes in assets and liabilities:
Accounts receivable ........................ 5,438 (971,980)
Inventories ................................ (2,201,401) (1,079,802)
Other current assets ....................... (244,398) (27,945)
Other assets ............................... (80,005) 140,145
Accounts payable and accrued liabilities ... (414,237) 439,484
----------- -----------
Net cash used in operating activities ...... (1,737,641) (529,319)
----------- -----------
Cash flows from investing activities:
Capital expenditures .......................... (117,151) (346,490)
----------- -----------
Cash flows from financing activities:
Net borrowings under lines of credit .......... 1,993,791 1,010,359
Repayments of long-term debt .................. (333,605) (289,308)
Payments received on notes receivable ......... 189,967 243,447
Proceeds from exercise of stock options ....... 63,750 --
Dividends ..................................... (6,185) (2,500)
----------- -----------
Net cash provided by financing activities ..... 1,907,718 961,998
----------- -----------
Cumulative currency translation adjustment ........... (34,896) (35,928)
----------- -----------
Net increase in cash ................................. 18,030 50,261
Cash and cash equivalents at beginning of period ..... 290,066 239,984
----------- -----------
Cash and cash equivalents at end of period ........... $ 308,096 $ 290,245
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ................................. $ 498,374 $ 182,429
Income taxes paid ............................. $ 652,500 --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
<PAGE>
Q.E.P. CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. BASIS OF PRESENTATION
The accompanying financial statements for the interim periods are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the periods
presented. These financial statements should be read in conjunction with the
financial statements and notes thereto, together with Management's Discussion
and Analysis of Financial Condition and Results of Operations, contained in the
Annual Report on Form 10-K for the year ended February 28, 1999, of Q.E.P. Co.,
Inc. (the "Company") as filed with the Securities and Exchange Commission. The
February 28, 1999 balance sheet was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles. The results of operations for the three months ended May 31, 1999
are not necessarily indicative of the results for the full fiscal year ending
February 29, 2000.
Note 2. INVENTORIES
The major classes of inventories are as follows:
<TABLE>
<CAPTION>
MAY 31, 1999 FEBRUARY 28, 1999
------------ -----------------
<S> <C> <C>
Raw materials and work-in process............ $ 5,374,529 $ 3,881,685
Finished goods............................... 11,156,077 10,447,520
------------ ------------
$ 16,530,606 $ 14,329,205
============ ============
</TABLE>
Note 3. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income, after
deducting preferred stock dividends accumulated during the period, by the
weighted average-number of shares of common stock outstanding during each
period. Diluted earnings per share is computed by dividing net income by the
weighted average number of shares of common and dilutive common stock equivalent
shares outstanding during the period. Diluted common stock equivalent shares
consist of stock options and warrant common stock equivalent shares which are
not utilized when the effect is antidilutive.
For the three months ended May 31, 1999 and 1998, the weighted average
number of basic shares of common stock outstanding amounted to 2,664,894 and
2,654,894, respectively. For the three months ended May 31, 1999 and 1998, the
weighted average number of diluted shares of common stock outstanding amounted
to 2,684,604 and 2,702,659, respectively.
Note 4. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income." This pronouncement established
new rules for the reporting and display of the Company's comprehensive income
and its components. SFAS 130 requires foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders'
6
<PAGE>
Q.E.P. CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
equity, to be included in other comprehensive income. During the first quarter
of fiscal 2000 and fiscal 1999, the Company's comprehensive income totaled
$737,935 and $610,572, respectively.
Note 5. FUTURE EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133 "Accounting of Derivative Instruments and
Hedging Activities" was issued. This standard establishes new accounting and
reporting standards requiring that every derivative financial instrument be
recorded in the balance sheet as either assets or liabilities and measured at
fair value. SFAS 133 requires that changes in the derivative's fair value should
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allow a derivative's gains and
losses to offset related results on the hedge item in the income statement and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accurately.
SFAS 133 is effective for fiscal years beginning after June 15, 2000.
The effect of adopting the Standard is currently being evaluated but
is not expected to have a material effect on the Company's financial position or
results of operations.
Note 6. RECLASSIFICATIONS
Certain amounts in the 1998 presentation have been reclassified to
conform to the 1999 presentation.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Q.E.P. Co., Inc. ("the Company") manufactures, markets and distributes
a broad line of specialty tools and related products for the home improvement
market. The Company markets over 4,000 specialty tools and related products used
primarily for surface preparation and installation of ceramic tile, carpet,
marble and drywall. The Company's products are sold to home improvement
retailers, specialty distributors, original equipment manufacturers and chain or
independent hardware, tile and carpet retailers for use by the do-it-yourself
consumer as well as the construction or remodeling professional. Dollar figures
set forth below are rounded to the nearest thousand.
This report contains forward-looking statements which are made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. Statements as to what the Company "believes", "intends", "expects" or
"anticipates" and other similarly anticipatory expressions, are generally
forward-looking and are made only as of the date of this report. Additionally,
the statements are subject to risks and uncertainties which could cause actual
results to differ materially from those discussed in the forward-looking
statements and from historical results of operations. Among the risks and
uncertainties which could cause such a difference are those relating to the
Company's dependence upon a limited number of customers for a substantial
portion of its sales, the Company's reliance upon suppliers and sales agents for
the purchase of finished products which are then resold by it, the Company's
dependence upon certain key personnel, its ability to manage its growth and the
risk of economic and market factors affecting the Company or its customers.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1999 COMPARED TO THREE MONTHS ENDED MAY 31,
1998
Net sales for the three months ended May 31, 1999 (the "fiscal 2000
period") were approximately $27,167,000, compared to $24,201,000 for the three
months ended May 31, 1998 (the "fiscal 1999 period"), an increase of $2,966,000
or 12.2%. Although selling prices remained relatively stable, there was an
increase in the volume of sales to home center retailers (resulting from new
product introduction and new store openings) independent distributors (resulting
principally from increased market penetration) and an expansion of the Company's
customer base.
Gross profit for the fiscal 2000 period was approximately $8,445,000,
compared to $7,159,000 for the fiscal 1999 period, an increase of $1,286,000 or
18.0%. As a percentage of net sales, gross profit increased to 31.1% in the
fiscal 2000 period from 29.6% in the fiscal 1999 period. This increase was
primarily a result of a change in product mix to higher margin products offset
in part by increased prices of raw materials.
8
<PAGE>
Shipping expenses for the fiscal 2000 period were approximately
$2,128,000, compared to $1,725,000 for the fiscal 1999 period, an increase of
$403,000 or 23.4%. As a percentage of net sales, these expenses increased to
7.8% in the fiscal 2000 period from 7.1% in the fiscal 1999 period due in part
to an approximate 5% increase in freight rates charged by common carriers. The
balance of the increase is primarily the result of a higher sales volume.
General and administrative expenses for the fiscal 2000 period were
approximately $2,259,000, compared with $1,961,000 for the fiscal 1999 period,
an increase of $298,000 or 15.2%. As a percentage of net sales, these expenses
increased to 8.3% in the fiscal 2000 period from 8.1% in the fiscal 1999. The
actual increase was primarily the result of the addition of key management
personnel, domestically, and severance payments incurred by Roberts Holland.
Selling and marketing costs for the fiscal 2000 period were
approximately $2,422,000, compared to $1,966,000 for the fiscal 1999 period, an
increase of $456,000 or 23.2%. As a percentage of net sales, these expenses
increased to 8.9% in the fiscal 2000 period from 8.1% in the fiscal 1999 period
primarily as a result of the addition of commissioned sales representatives in
the second quarter of fiscal 1999. The actual increase was primarily due to
increased commissions and volume rebate and marketing allowances resulting from
the higher sales volume.
Interest income and interest expense decreased $1,000 and $12,000,
respectively during the fiscal 2000 period compared to the fiscal 1999 period.
The decrease in interest expense was a result of the decrease in borrowings
associated with the long-term debt offset by an increase in interest associated
with short-term financing.
Provision for income taxes was approximately $466,000 in the fiscal
2000 period, compared to $429,000 in the fiscal 1999 period, an increase of
$37,000 or 8.6%. The effective tax rate was approximately 37.6% for the fiscal
2000 period compared to 39.9% for the fiscal 1999 period. The effective tax rate
is based upon the most recent effective tax rates available.
Net income for the fiscal 2000 period increased to $773,000 from
$647,000 in the fiscal 1999 period, an increase of $126,000 or 19.5%. Net income
as a percentage of net sales increased to 2.8% in fiscal 2000 compared to 2.7%
in fiscal 1999, primarily for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of May 31, 1999 increased from approximately
$15,021,000 at February 28, 1999 to $15,839,000, an increase of $818,000,
primarily as a result of the Company's operations and an increase in inventory,
associated with the higher sales volume, offset by an increase in short-term
borrowings. Any cash in excess of anticipated requirements is invested in
commercial paper or overnight repurchase agreements with a financial
institution. The Company states the value of such investments at market price
and classifies them as cash equivalents on its balance sheet.
Net cash used in operating activities during the three month period
ended May 31, 1999 was $1,738,000 compared to $529,000 for the comparable period
in fiscal 1999. The change in the use of cash by operating activities was
primarily due to the Company's operations offset by an increase in inventory and
a reduction in accounts payable. Net cash used in investing activities was
$117,000 compared to $346,000 for the comparable period in fiscal 1999. The
expenditures for capital equipment
9
<PAGE>
were lower in fiscal 2000 primarily due to the purchase of computer equipment in
fiscal 1999.
Net cash provided by financing activities was $1,908,000 compared to
$962,000 in the comparable period in fiscal 1999 due to increased borrowings to
support the increase in inventory offset by collections on notes receivable.
On June 14, 1999, the Company amended its revolving credit and term
loan facility agreement with its existing financial institution. The amended
agreement provides for additional borrowings of up to $5,000,000 for the
Company's foreign subsidiaries. This amount and the existing $10,000,000
domestic facility permit borrowings against a fixed percentage of eligible
accounts receivable and inventory as defined. Interest is payable at LIBOR plus
1.25% (6.06% at May 31, 1999) or an alternative currency rate plus 1.25%. The
domestic revolving credit agreement terminates July 2003 while the foreign
facility terminates June 2001. The credit facility is collateralized by accounts
receivable, inventory, equipment and certain real property. Under the terms of
the agreement, the Company is required to maintain certain financial ratios and
conditions. The agreement also prohibits the Company from incurring certain
additional indebtedness, limits certain investments, advances or loans and
restricts substantial asset sales and capital expenditures. The terms of the
Company's bank credit facility also prohibits the payment of dividends except
with the lender's consent. At May 31, 1999, the Company had $2,458,000 available
for future borrowings under the domestic credit facility. Prior to the
establishment of the foreign credit facility as described above, the Company had
a short-term credit line with a European financial institution utilized by
Roberts Holland. This facility, which was repaid with the proceeds of the new
credit facility, had an outstanding balance of approximately $2,500,000 at May
31, 1999 and was collateralized by accounts receivable, inventory, machinery and
equipment and a $2,750,000 standby letter of credit under the Company's domestic
revolving credit facility from the Company's domestic financial institution. The
Company's European subsidiary also maintains a factoring arrangement whereby the
Company is advanced a percentage against accounts receivable. The balance at May
31, 1999 was $888,000 and a substantial portion of this amount was repaid with
the proceeds of the new credit facility. In connection with the acquisition of
Roberts Consolidated, the Company issued $7,500,000 of subordinated debentures.
These debentures mature on April 1, 2001 and bear interest at 8%. They were
recorded at their fair value on the date of issuance in the amount of $6,515,000
and the discount will be amortized over the life of the debentures. At May 31,
1999 and February 28, 1999, the amortized balance of this obligation was
$6,971,463 and $6,899,390, respectively.
On October 30, 1998, the Company entered into interest rate swap
agreements with its primary lender. The interest rate swap agreements hedge the
Company's exposure on certain floating rate obligations in the aggregate
principal amount of $5.5 million. The purpose of the interest rate swaps is to
convert the Company's floating rate interest obligations to obligations having
an average fixed rate of 4.75% per annum for an average period of 1.75 years.
The fixing of interest rates reduces in part the Company's exposure to the
uncertainty of floating interest rates. The differentials paid or received by
the Company on the interest rate swap agreements are recognized as adjustments
to interest expense in the period incurred. For the three months ended May 31,
1999, the Company reduced interest expense by approximately $7,000 as a result
of the interest rate swap agreements. The Company is exposed to credit loss in
the event of nonperformance by any counter-party to the interest rate swap
agreements. The Company does not anticipate nonperformance by such lender, and
no material loss would be expected from the non-performance of the lender.
The Company believes its existing cash balances, internally generated
funds from operations and its available bank lines of credit will provide the
liquidity necessary to satisfy the Company's working capital needs, including
the growth in inventory and accounts receivable balances, and will be adequate
to finance anticipated capital expenditures for the foreseeable future.
10
<PAGE>
MANAGEMENT INFORMATION SYSTEMS - YEAR 2000
The Company upgraded its domestic management information systems
during fiscal 1999 and its foreign systems during the first quarter of fiscal
2000, which, among other things, ensure proper processing of transactions
relating to the Year 2000 and beyond. The Company continues to evaluate
appropriate courses of action including the effect of Year 2000 on replacement
of certain analog systems. The Company does not expect the costs associated with
Year 2000 compliance to have a material effect on its financial position or
results of operations. All costs for corrective actions associated with Year
2000 compliance will be funded with cash flow generated from operations and
expensed as incurred.
RISKS OF YEAR 2000 ISSUES
The Company participates in the electronic data interchange program
maintained by many of its larger customers including Home Depot, Lowe's,
HomeBase and Hechinger/Builders Square. The Company's principal customers have
provided written notification advising the Company that they are in the process
of, or have been, addressing Year 2000 compliance. Failure by any of these
principal customers to adequately address these Year 2000 issues could have a
material adverse effect on the Company.
In addition, the Company has contacted its significant suppliers and
other service providers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issues. The Company is currently evaluating supplier responses to date and is
not yet in a position to fully assess any third party's compliance efforts with
the Year 2000 issues or the actual expected impact on the Company if any third
party's Year 2000 compliance efforts fail. The Company presently expects to
complete this evaluation by October 31, 1999. However, based upon preliminary
analysis, the Company does not believe that the costs, if any, that the Company
would incur as a result of any failure of its suppliers to address their Year
2000 issues would have a material adverse effect on its financial position or
results of operations. This assessment is based upon a preliminary inquiry into
this matter, management may determine that this assessment is incorrect and
there can be no assurance that the final assessment of this matter will not
differ significantly from the preliminary conclusions.
The costs associated with Year 2000 compliance of the Company's analog
system and the costs associated with any Year 2000 non-compliance on the part of
third parties with which the Company does business are based on management's
best estimates, utilizing numerous assumptions of future events including the
continued availability of certain resources, the existence of third party
modification and contingency plans and other factors. However, there can be no
guarantee that those estimates will be achieved and actual results could differ
materially from those plans. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, the ability of, and the resources available to, third parties on
which the Company relies to address Year 2000 issues, and similar uncertainties.
CONTINGENCY PLANS
In an attempt to mitigate the above risks, the Company, by October 31,
1999, will develop contingency plans for any unplanned interruptions arising
from the date change as well as from the failure of any third party's
compliance.
11
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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES FROM MARKET RISK
On October 30, 1998, the Company entered into interest rate swap
agreements with its primary lender. The interest rate swap agreements hedge the
Company's exposure on certain floating rate obligations in the aggregate
principal amount of $5.5 million. The purpose of the interest rate swaps is to
convert the Company's floating rate interest obligations to obligations having
an average fixed rate of 4.75% per annum for an average period of 1.75 years.
The fixing of interest rates reduces in part the Company's exposure to the
uncertainty of floating interest rates. The differentials paid or received by
the Company on the interest rate swap agreements are recognized as adjustments
to interest expense in the period incurred. For the three months ended May 31,
1999, the Company reduced interest expense by approximately $7,000 as a result
of the interest rate swap agreements. The Company is exposed to credit loss in
the event of non-performance by any counterparty to the interest rate swap
agreements. The Company does not anticipate nonperformance by such lender, and
no material loss would be expected from the non-performance of the lender.
The Company averaged approximately $8,276,000 of debt not covered by
the interest rate swap agreements during the quarter ended May 31, 1999. If
interest rates would have increased by 10%, the effect on the Company would have
been an increase in interest expense of approximately $16,000.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is periodically involved in litigation from time to time
in the course of its business. In the opinion of management, no material legal
proceedings are pending to which the Company or any of its property is subject.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) LIST OF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1.1 Stock Purchase Agreement dated October 21, 1997 between the Company and
RCI Holdings, Inc.*
3.1 Certificate of Incorporation of the Company**
3.2 By-Laws of the Company***
4.1 Specimen Common Stock Certificate**
4.1.1 Form of Warrant issued by the Company to the representative of the
underwriters of the Company's initial public offering**
10.3.3b Second Agreement of Amendment to the Amended and Restated Loan
Agreement by and among Q.E.P. Co., Inc., Q.E.P.-O'Tool, Inc., Marion
Tool Corporation, Westpoint Foundry, Inc., Roberts Consolidated
Industries, Inc., Roberts Holding International, Inc., and Roberts
Company Canada Limited and Fleet National Bank dated as of October 21,
1997.+
27 Financial Data Schedule (SEC use only)
- -------------------
* Incorporated by reference to Exhibit 2.1 filed with the Company's
Report on Form 8-K filed on November 3, 1997.
** Incorporated by reference to Exhibit of the same number filed with the
Company's Registration Statement on Form S-1 (Reg. No. 333-07477).
*** Incorporated by reference to Exhibit of the same number filed with the
Company's Annual Report on Form 10-K filed on May 8, 1997.
+ Filed herewith.
- ----------
(b) REPORTS ON FORM 8-K
There were no Current Reports on Form 8-K filed by the Company
during its fiscal quarter ended May 31, 1999.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Q.E.P. CO., INC.
Dated: July 14, 1999 By: /s/ LEWIS GOULD
-------------------------------------
Chairman, Chief Executive Officer and
Director (Principal Executive Officer)
Dated: July 14, 1999 By: /s/ MARC APPLEBAUM
--------------------------------------
Senior Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------- --------
10.3.3b Second Agreement of Amendment to the Amended and Restated Loan
Agreement by and among Q.E.P. Co., Inc., Q.E.P.-O'Tool, Inc., Marion
Tool Corporation, Westpoint Foundry, Inc., Roberts Consolidated
Industries, Inc., Roberts Holding International, Inc., and Roberts
Company Canada Limited and Fleet National Bank dated as of October
21, 1997.
27 Financial Data Schedule *1
*1 Filed electronically pursuant to Item 401 of Regulation S-T.
15
EXHIBIT 10.3.3(b)
SECOND AGREEMENT OF AMENDMENT
SECOND AGREEMENT OF AMENDMENT, made and effective as of the 14th day of
June, 1999, by and among Q.E.P. CO., INC., a Delaware corporation with its chief
executive office and principal place of business at 1081 Holland Drive, Boca
Raton, Florida 33487, Q.E.P. - O'TOOL, INC., a California corporation with its
chief executive office and principal place of business at 20535 Belshaw Avenue,
Carson, California 90746, MARION TOOL CORPORATION, an Indiana corporation with
its chief executive office and principal place of business at 11th Street and
Miller Avenue, Marion, Indiana 46952, WESTPOINT FOUNDRY, INC., an Indiana
corporation with its chief executive office and principal place of business at
11th Street and Miller Avenue, Marion, Indiana 46952, ROBERTS CONSOLIDATED
INDUSTRIES, INC., a Delaware corporation with its chief executive office and
principal place of business at 600 North Baldwin Park Boulevard, City of
Industry, California 91749, ROBERTS HOLDING INTERNATIONAL, INC., a Delaware
corporation with its chief executive office and principal place of business at
600 North Baldwin Park Boulevard, City of Industry, California 91749, and
ROBERTS COMPANY CANADA LIMITED, an Ontario corporation with its chief executive
office and principal place of business at 2070 Steeles Avenue, Bramalea,
Ontario, Canada L6T1A7 Q.E.P. HOLDING B.V., a Dutch corporation with a principal
place of business at ___________________ and ROBERTS HOLLAND B.V., a Dutch
corporation with its chief executive office and principal place of business at
______________ (all of the foregoing hereinafter collectively called the
"BORROWER" unless otherwise specifically indicated) and FLEET NATIONAL BANK, a
national banking association with an office at One Landmark Square, Stamford,
Connecticut 06901 (hereinafter referred to as the "LENDER").
PREAMBLE
WHEREAS, pursuant to that certain Amended and Restated Loan Agreement dated
as of October 21, 1997 by and between Lender and Borrower (as amended and in
effect from time to time, the "LOAN AGREEMENT"), the Lender has extended certain
loans and other financial accommodations to Borrower consisting of: (a) a
discretionary commercial revolving loan in the principal amount of up to
$10,000,000, (the "REVOLVING LOAN"), pursuant to which Borrower may borrow,
repay and re-borrow Revolving Loan advances for Borrower's general working
capital purposes; and (b) a term loan in the original principal amount of
$8,000,000 (the "TERM LOAN");
WHEREAS, in addition to the Loan Agreement: (a) the Revolving Loan is
evidenced by that certain Second Amended and Restated Revolving Promissory Note
dated as of October 21, 1997 from Borrower to Lender (the "REVOLVING CREDIT
NOTE"); and (b) the Term Loan is evidenced by that certain Term Promissory Note
dated as of October 21, 1997 from Borrower to Lender (the "TERM LOAN NOTE");
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WHEREAS, Borrower has requested Lender to, among other things, add Q.E.P.
HOLDING and BV as Borrowers, make a loan in the maximum principal amount of
$5,000,000 (the "BV LOAN") to Borrower, and to permit the acquisition by Q.E.P.
of certain Australian businesses; and
WHEREAS, Lender is willing to extend the requested accommodations subject
to and in reliance upon the representations, warranties, acknowledgments,
covenants and agreements of Borrower contained herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and acknowledging that Lender is relying upon the
representations, warranties, acknowledgments, covenants and agreements of
Borrower contained herein, Borrower and Lender agree as follows:
I. Acknowledgments and Affirmations.
A. Borrower and Lender acknowledge and agree that capitalized terms used
herein and without definition shall have the meanings assigned to them in the
Loan Agreement.
B. Borrower acknowledges and affirms that:
1. As of June 10, 1999, Borrower is legally and validly indebted
to Lender under the Loan Agreement in the principal amount (including the face
amount of outstanding Letters of Credit) of $8,205,000 with respect to the
Revolving Loan and $6,285,714.32 with respect to the Term Loan, plus interest,
fees and charges accrued and accruing thereon and thereunder, and there is no
defense, offset or counterclaim with respect to any such indebtedness or
independent claim or action against Lender.
2. All indebtedness of Borrower to Lender whenever and however
arising, is secured by a duly perfected, first priority security interest in the
Collateral (as defined in the Loan Agreement).
C. Borrower represents and warrants that:
1. The resolutions previously adopted by the Board of Directors of
each Borrower with respect to the Loan Agreement and provided to Lender have not
in any way been rescinded or modified and have been in full force and effect
since their adoption to and including the date hereof and are now in full force
and effect, except to the extent that they have been modified or supplemented to
authorize this Agreement and the documents and transactions describe herein.
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2. Each Borrower has the corporate power and authority to enter
into this Agreement and the transactions contemplated herein, and each Borrower
has taken all necessary corporate action to authorize this Agreement and the
transactions contemplated herein.
3. All representations, warranties and covenants contained in, and
schedules and exhibits attached to the Loan Agreement are true and correct on
and as of the date hereof, are incorporated herein by reference and are hereby
remade.
4. No Borrower is currently in default under the Loan Agreement,
and no condition exists or has occurred which would constitute a default
thereunder but for the giving of notice or passage of time, or both.
5. The consummation of the transactions contemplated herein (a) is
not prevented or limited by, nor does it conflict with or result in a breach of
the terms, conditions or provisions of, any Borrower's articles of incorporation
or bylaws, or any evidence of indebtedness, agreement or instrument of whatever
nature to which any Borrower is a party or by which any of them is bound, (b)
does not constitute a default under any of the foregoing, and (c) does not
violate any federal, state or local law, regulation or order or other of any
court or agency which is binding upon any Borrower.
II. Amendments to Loan Agreement.
A. Amendments to Article 1 of the Agreement.
1. The definitions of "Commitment," "Credit Availability,"
"LIBOR", "Loans" and "Maturity Date" are deleted in their entirety and replaced
with the following:
(a) "Commitment," means Lender's commitment to make (i)
Revolving Advances to Borrower pursuant to Section 2.1 of this
Agreement in an outstanding aggregate principal amount not to
exceed at any time $10,000,000 and (ii) BV Advances pursuant to
Section 2.1A of this Agreement in an outstanding aggregate
principal amount not to exceed at any time $5,000,000.
(b) "Credit Availability" means, at the relevant time of
reference, the dollar or dollar equivalent amount equal to (i) in
the case of the Revolving Loan, the lesser of (a) the Borrowing
Base (after giving effect to the calculation of the BV Borrowing
Base and (b) the Commitment, less, in each case, the sum of the
aggregate outstanding principal amount of all Revolving Advances
plus the Available Amount plus any unpaid Reimbursement
Obligations; and (ii) in the case of the BV Loan, the lesser of
(x) the BV Borrowing Base and (y) the Commitment
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less, in each case, the sum of the aggregate outstanding
principal amount of BV Advances.
(c) "LIBOR" means, as applicable to any LIBOR Rate Advance,
the rate per annum (rounded upward, if necessary, to the nearest
1/32 of one percent) as determined on the basis of the offered
rates for deposits in U.S. dollars (or the equivalent in an
Alternative Currency), for a period of time comparable to such
LIBOR Rate Advance which appears on the Telerate page 3750 as of
11:00 a.m. London time on the day that is two London Banking Days
preceding the first day of such LIBOR Rate Advance, provided,
however, if the rate described above does not appear on the
Telerate System on any applicable interest determination date, the
LIBOR rate shall be the rate (rounded upward as described above,
if necessary) for deposits in dollars (or the equivalent in an
Alternative Currency) for a period of substantially equal to the
interest period on the Reuters Page ("LIBO") (or such other page
as may replace the LIBO page on that service for the purpose of
displaying such rates), as of 11:00 a.m. (London Time), on the day
that is two (2) London Banking Days prior to the beginning of such
interest period. "Banking Day" shall mean in respect of any city,
any date on which commercial banks are open for business in that
city.
If both the Telerate and Reuters system are unavailable, then the
rate for that date will be determined on the basis of the offered
rates for deposits in U.S. dollars (or the equivalent in an
Alternative Currency) for a period of time comparable to such
LIBOR Rate Advance which are offered by four major banks in the
London interbank market at approximately 11:00 a.m. London time,
on the day that is two (2) London Banking Days preceding the first
day of such LIBOR Rate Advance as selected by the Lender. The
principal London office of each of the four major London banks
will be requested to provide a quotation of its U.S. dollar
deposit (or the equivalent in an Alternative Currency) offered
rate. If at least two such quotations are provided, the rate for
that date will be the arithmetic mean of the quotations. If fewer
than two quotations are provided as requested, the rate for that
date will be determined on the basis of the rate quoted for loans
in U.S. dollars (or the equivalent in an Alternative Currency) to
leading European banks for a period of time comparable to such
LIBOR Rate Advance offered by major banks in New York City at
approximately 11:00 a.m. New York City time, on the day this is
two London Banking Days preceding the first day of such LIBOR Rate
Advance. In the event Lender is unable to obtain any such
quotation as provided above, it will be deemed that LIBOR pursuant
to a LIBOR Rate Advance cannot be determined.
In the event that the Board of Governors of the Federal Reserve
System shall impose a Reserve percentage with respect to LIBOR
deposits of Lender then for any period during which such Reserve
Percentage shall apply, LIBOR shall be
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equal to the amount determined above divided by an amount equal to
1 minus the Reserve Percentage.
(d) "Maturity Date" means (i) in the case of the Revolving
Credit Loan, July 25, 2003, (ii) in the case of the Term Loan,
October 1, 2004, and (iii) in the case of the BV Loan, June 14,
2001, or earlier as set forth in this Agreement.
2. The following new definitions are hereby incorporated in
Section 1.1 in the appropriate alphabetical locations:
(a) "Advances" means, collectively, Revolving Advances and
BV Advances and individually, as applicable, Revolving Advances or
BV Advances.
(b) "Alternative Currency" means Dutch Gilders, Euros or
any lawful currency other than dollars mutually agreed to by the
Lender and the Borrower which is freely transferable and
convertible into dollars.
(c) "BV" means Roberts Holland B.V., a Dutch corporation.
(d) "BV Borrowing Base" means, at the relevant time of
reference, the amount which is equal to (i) 90% of the amount for
which Eligible BV Accounts Receivable are insured in accordance
with the definition of Eligible BV Accounts Receivable net of all
deductibles, expenses, policy limits, reserves and the like (by
way or example, if $1,000,000 of Eligible BV Accounts Receivable
were insured at 90% of face value with a $100,000 deductible, the
BV Borrowing Base would be $710,000 i.e., (90% x $900,000) minus
$100,000), plus (ii) the Excess Borrowing Base.
(e) "Excess Borrowing Base" means, at the relevant time of
reference, the amount which is equal to (i) the excess of the
Borrowing Base over the Commitment with respect to the Revolving
Loan plus (ii) such additional portion of the Borrowing Base as
Q.E.P., by written notice to Lender, allocates to BV, which
portion shall be subtracted on a dollar-for-dollar basis in
calculating the Borrowing Base. By way of example, if the
Borrowing Base is $12,000,000, the Commitment with respect to the
Revolving Loan is $10,000,000, and Q.E.P. allocates an additional
$1,000.000 of the Borrowing Base to BV, the Excess Borrowing Base
would be $3,000,000 (i.e. (i) $12,000,000 minus $10,000,000 plus
(ii) $1,000,000) and the Borrowing Base would be $9,000.000.
(f) "BV Advance" or "BV Advances" means that term as
defined in Section 2.1A(a).
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(g) "BV Loan" means the BV Advance or BV Advances made
pursuant to Section 2.1A(a).
(h) "BV Note" means that term as defined in Section
2.1A(c).
(i) "Eligible BV Accounts Receivable" means Eligible
Accounts Receivable owed to BV which are insured in form,
substance and amount and by an insurer satisfactory to Lender with
Lender named as loss payee.
(j) "QEP Holding" means Q.E.P. Holding, B.V., a Dutch
corporation.
(k) "Second Amendment" means the Second Agreement of
Amendment by and among Borrower and Lender dated as of June 14,
1999.
(l) "Second Amendment Effective Date" means the date on
which all conditions to the effectiveness of the Second Amendment
between Borrower and Lender have been satisfied or waived by
Lender.
3. The following new Section 1.3 is hereby added to the Agreement
following Section 1.2 as follows:
SECTION 1.3. CURRENCY EQUIVALENTS GENERALLY. For all
purposes of this Agreement other than Article 2, the equivalent in
any Alternative Currency of an amount in dollars shall be
determined at the rate of exchange quoted by Lender in Boston,
Massachusetts, at 9:00 A.M. (Boston time) on the date of
determination, to prime banks in New York City for the spot
purchase in the New York foreign exchange market of such amount of
dollars with such Alternative Currency.
B. Amendments to Article 2 of the Loan Agreement.
1. The following new subsection 2.1(f) is hereby added to the Loan
Agreement following subsection 2.1(e) as follows:
(f) With respect to the Revolving Loan, Borrower shall pay
to the Lender a fee on the first day of each month commencing on
November 1, 1997, and on the Maturity Date, in an amount equal to
one quarter of one percent (.25%) per annum of the difference
between the Commitment and the average daily outstanding principal
amount of the Revolving Loan for the prior one month period.
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2. The following new Section 2.1A is hereby added to the
Loan Agreement following Section 2.1 as follows:
SECTION 2.1A. BV LOAN.
(a) In Lender's sole discretion and subject to the terms
and conditions set forth in this Agreement, Lender agrees to make
advances (each a "BV Advance" and collectively "BV Advances") to
Borrower from time to time during the period from the date of this
Agreement up to, but not including, the Maturity Date; PROVIDED,
HOWEVER, that at no time shall the aggregate outstanding principal
balance of all BV Advances exceed the Credit Availability. Subject
to the limits of this Agreement, Borrower may borrow, pay, prepay
(pursuant to Section 2.1A(d) below), and re-borrow under this
Section 2.1.A. Nothing herein shall be construed to require Lender
to make BV Advances, it being agreed that such BV Advances and any
formulas or advance rates contained within or comprising the
Borrowing Base shall be at Lender's sole discretion, may be
increased or decreased at any time and from time to time by Lender
in its sole discretion and shall not establish a pattern or custom
binding upon Lender (pursuant to Section 3.A.5). For purposes of
this Section 2.1A(a) and all other provisions of this Article 2,
the equivalent in dollars of any Alternative Currency or the
equivalent in any Alternative Currency of dollars or of any other
Alternative Currency shall be determined in accordance with
Section 2.15A.
(b) Notwithstanding the provisions of Section 2.1A(a),
Lender may, in its sole discretion and subject to the terms and
conditions set forth in this Agreement or any other conditions
which Lender may impose in its sole discretion, including without
limitation the payment of fees, an increased interest rate, or
posting of additional collateral, make temporary advances in
excess of the BV Borrowing Base from time to time (each such
temporary BV Advance is referred to herein as an "Overadvance"),
provided that in no event shall the aggregate principal amount of
outstanding Overadvances, when combined with the outstanding
principal amount of all other BV Advances exceed the Commitment.
To the extent that the Borrowing Base increases at any time during
which an Overadvance is outstanding, the portion of the
Overadvance which, as a result of such increase, would be
available for borrowing under Section 2.1A(a) shall be deemed to
be prepaid as of the date of such increase and reborrowed as a BV
Advance under Section 2.1A(a) as of such date. To the extent that
the BV Borrowing Base decreases at any time, the portion of the
outstanding BV Revolving Advances which exceeds the BV Borrowing
Base as a result of such decrease shall be deemed, subject to the
provisions of this Agreement, to be prepaid as of the date of such
decrease and reborrowed as an Overadvance under this Section
2.1A(b) as of such date. Nothing contained in this Section 2.1A(b)
or elsewhere in this
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Agreement shall constitute or be deemed to constitute a commitment
or agreement by Lender to make any Overadvances, nor shall the
making of an Overadvance at any time or from time to time
constitute or be deemed to constitute a course of dealing by
Lender with respect to Overadvances.
(c) All BV Advances shall be evidenced by, and repaid with
interest in accordance with a single promissory note of Borrower
in the form of EXHIBIT A hereto, duly completed, executed, and
delivered to Lender, in the principal amount of up to U.S.
$5,000,000 (or the equivalent thereof in any Alternative
Currency), dated the date of this Agreement, payable to Lender on
demand or, if not sooner demanded, on the Maturity Date (such
promissory note is referred to herein as the "BV Note"). Borrower
hereby authorizes Lender to record on the BV Note or in its
internal computerized records the amount of each BV Advance and of
each payment of principal received by Lender on account of the BV
Loan, which recordation shall, in the absence of manifest error,
be conclusive as to the outstanding principal balance of the BV
Loan and shall be considered correct and binding on Borrower
PROVIDED, HOWEVER, that the failure to make such recordation with
respect to any BV Advance or payment shall not limit or otherwise
affect the obligations of BV under this Agreement or the BV Note.
(d) Borrower may prepay the BV Loan, in whole or in part,
together with accrued interest to the date of prepayment on the
amount prepaid on the last Business Day of the Interest Period
applicable to the portion being prepaid, without Make-Whole
Premium.
(e) Until Lender exercises its rights to collect the
Receivables as provided for in this Agreement, BV may continue its
present policies for returned merchandise and adjustments, but
shall promptly notify Lender of any credits, adjustments or
disputes arising about the goods or services represented by
Receivables. In any event, BV will immediately pay Lender from its
own funds (and not from the proceeds of Receivables), for
application to the BV Loans, an amount equal to any credit or
adjustment made to any Eligible BV Receivables; provided, however,
that so long as BV is not in default hereunder, such payment need
not be made if BV shall have, after making such credit or
adjustment, sufficient Eligible BV Receivables to maintain the
aggregate outstanding balance of the BV Loans under the BV
Borrowing Base.
(f) With respect to the BV Loan, Borrower shall pay to the
Lender a fee on the first day of each month commencing on July 1,
1999, and on the Maturity Date, in an amount equal to one-quarter
of one percent (.25%) per annum of the difference between the
Commitment and the average daily outstanding principal balance of
the BV Loan for the prior one month period. For purposes of
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determining the unused portion of the Commitment, the equivalent
dollars of each BV Advance made by Lender in an Alternative
Currency as determined on the date of the making of such BV
Advance shall be the amount of the Commitment used in connection
with such BV Advance, and no further adjustments shall be made
with respect to the unused portion of the Commitment based upon
fluctuations thereafter in the value of the Alternative Currency
of such BV Advance.
(g) Borrower shall pay to Lender an Upfront Fee equal to
$18,750 with respect to the BV Loan, payable in full on or prior
to the Second Amendment Effective Date.
3. The last sentence of Section 2.3(a) of the Loan Agreement is
hereby deleted and replaced with the following:
"Each LIBOR Rate Advance shall be in a principal amount of
$500,000 (or the equivalent in an Alternative Currency) or
in $50,000 (or the equivalent in an Alternative Currency)
increments in excess thereof.
4. Section 2.4(a) of the Loan Agreement is hereby deleted and
replaced with the following:
Borrower shall give Lender irrevocable notice by telecopy
or otherwise in writing of its request that Lender make a
Revolving Advance or, as applicable, a BV Advance (each a
"BORROWING REQUEST") not later than 11:00 a.m. Connecticut
time (i) in the case of Prime Rate Advances, on the
proposed Drawdown Date thereof, (ii) in the case of LIBOR
Rate Advances, two (2) Business Days prior to the proposed
Drawdown Date thereof, and (iii) in the case of Advances in
an Alternative Currency, three (3) Business Days prior to
the proposed Drawdown Date thereof. A Borrowing Request for
an Advance in an Alternative Currency shall be made on or
be accompanied by Lender's then current Foreign Currency
Request Form, duly completed by Borrower. Notice received
by Lender after 11:00 a.m. Connecticut time shall be loaned
against by Lender on the next Business Day after the
proposed Drawdown Date. Each such notice shall, in the case
of a LIBOR Rate Advance, specify the duration of the
Interest Period therefor. If no election is made in a
Borrowing Request as to the Type applicable to any Advance,
then the requested Advance shall be a Prime Rate Advance.
If no election is made in a Borrowing Request as to the
Interest Period applicable to any requested LIBOR Rate
Advance, then the Interest Period applicable to such
requested LIBOR Rate Advance shall (subject to the
provisions contained in the definition of "Interest Period"
in Section 1.1) be one month in duration. Subject to the
fulfillment
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of the applicable conditions set forth in Article 3 hereof,
Lender will make the Advance in immediately available funds
by crediting the amount thereof to Borrower's account with
Lender. In the case of a proposed borrowing comprised of
Advances in an Alternative Currency, the obligation of
Lender to make its Advance in the requested Alternative
Currency as part of such borrowing is subject to the
confirmation by Lender not later than the second Business
Day before the requested date of such borrowing that Lender
agrees to make its Advance in the requested Alternative
Currency. If Lender shall not have so provided to Borrower
such confirmation, the Borrower may, by notice to the
Lender not later than the second Business Day before the
requested date of such borrowing, withdraw the Notice of
borrowing relating to such requested borrowing. If the
Borrower does so withdraw such Notice of Borrowing, the
borrowing shall not occur. If the Borrower does not so
withdraw such Notice of Borrowing, such Notice of Borrowing
shall be deemed to be a Notice of Borrowing which requests
a borrowing comprised of Advances in an aggregate amount in
dollars equivalent , determined in accordance with Section
2.15A, to the amount of the originally requested borrowing
in an Alternative Currency; and in such notice the Lender
shall state such aggregate equivalent amount of such
borrowing in dollars.
Lender shall before 11:00 a.m. (New York City time) on the
date of such borrowing, make available the amount of such
borrowing in such Alternative Currency."
5. Section 2.5 of the Loan Agreement is hereby deleted and
replaced with the following:
"Section 2.5 EXCESS ADVANCES. Except to the extent that any
excess constitutes an Overadvance permitted by Section 2.1(b) or
2.1A(b), as applicable, if at any time the aggregate outstanding
principal amount of the applicable Loan plus, in the case of the
Revolving Loan, the Available Amount plus any unpaid Reimbursement
Obligations, exceeds the Credit Availability, Borrower shall
immediately pay the amount of such excess to Lender for
application to the applicable Loan."
6. The fifth sentence of Section 2.7 of the Loan Agreement is
hereby deleted and replaced with the following:
"Lender will on the Business Day on which any payment is received
into the Lockbox Account, and on a provisional basis until the
final receipt of good funds, credit such payments to the principal
amount of the outstanding
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Revolving Advances as a prepayment of such Revolving Advances or,
as applicable, BV Advances as a prepayment of such BV Advances."
7. Section 2.8 of the Loan Agreement is hereby deleted and
replaced with the following:
"Section 2.8 TAXES. (a) All payments by Borrower under the
Loan Documents to or for the account of Lender shall be made
without setoff or counterclaim and free and clear of, and without
any deduction or withholding for or on account of, any and all
present or future income, stamp or other taxes, levies, imposts,
duties, fees, assessments, deductions, withholdings, or other
charges of whatever nature, now or hereafter imposed, levied,
collected, withheld, or assessed by any jurisdiction, or by any
department, agency, state or other political subdivision thereof
or therein (collectively, "TAXES"), excluding as to (i) a Tax on
the Income imposed on Lender, and (ii) any interest, fees,
additions to tax or penalties for late payment thereof (each such
non-excluded Tax, an "INDEMNIFIED TAX"). For purposes hereof, "Tax
on the Income" shall mean, as to any Person, a Tax imposed by one
of the following jurisdictions or by any political subdivision or
taxing authority thereof: (i) the United States, (ii) the
jurisdiction in which such Person is organized, or (iii) the
jurisdiction in which such Person's principal office is located,
which Tax is an income tax or franchise tax imposed on al or part
of the net income or net profits of such Person or which Tax
represents interest, fees, or penalties for late payment of such
an income tax or franchise tax. If any such obligation is imposed
upon Borrower with respect to any amount payable by it hereunder
or under an of the other Loan Documents, Borrower will pay to
Lender on the date on which such amount is due and payable
hereunder or under such other Loan Document, such additional
amount in dollars as shall be necessary to enable Lender to
receive the same net amount which Lender would have received on
such due date had no such obligation been imposed upon Borrower.
Borrower will deliver promptly to Lender certificates or other
valid vouchers for all taxes or other charges deducted from or
paid with respect to payments made by Borrower hereunder or under
such other Loan Document.
(b) If Borrower or Lender or any other Person is required
by any law, rule, regulation, order, directive, treaty or
guideline to make any deduction or withholding (which deduction or
withholding would constitute an Indemnified Tax) from any amount
required to be paid by any Borrower to or on behalf of Lender
under any Loan Document, (i) such Borrower shall pay such
Indemnified Tax before the date on which penalties attach
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thereto, such payment to be made for its own account (if the
liability to pay is imposed on such Borrower) or on behalf of and
in the name of Lender (if the liability is imposed on Lender, and
(ii) the sum payable to Lender shall be increased as may be
necessary so that after making all required deductions and
withholdings (including deductions and withholdings applicable to
additional sums payable under this Section) Lender receives an
amount equal to the sum it would have received had no such
deductions or withholdings been made.
(c) Each Borrower agrees to pay any current or future stamp
or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made
hereunder or from the execution, delivery or registration of, or
any amendment, supplement or modification of, or any waiver or
consent under or in respect of, the Loan Documents or otherwise
with respect to, the Loan Documents (collectively, the "OTHER
TAXES").
(d) Within 30 days after the request therefor by the Lender
in connection with any payment of Indemnified Taxes or Other
Taxes, each Borrower will furnish to Lender the original or
certified copy of an official receipt from the jurisdiction to
which payment is made evidencing payment thereof or, in
unavailable, a certificate from its chief financial officer or
president that states that such payment has been made and that
sets forth the date and amount of such payment.
(e) Lender agrees to use reasonable efforts (consistent
with its internal policy and legal and regulatory restrictions) to
change the jurisdiction of its applicable lending office if the
making of such a change would avoid the need for, or reduce the
amount of, any such additional amounts that may thereafter accrue
and would not, in is reasonable judgement, be otherwise
disadvantageous to Lender.
(f) Without prejudice to the survival of any other
agreement of Borrower hereunder, the agreements and obligations of
Borrower contained in this Section 2.8 shall survive the payment
in full of principal and interest hereunder."
8. Section 2.15 of the Loan Agreement is hereby deleted and
replaced with the following:
Section 2.15 INVALIDITY; ENFORCEABILITY. Notwithstanding
any other provision of this Agreement, if, after the date of this
Agreement, any
12
<PAGE>
applicable law, treaty, regulation or directive, or any change
therein or in the interpretation or application thereof, shall
make it unlawful for Lender to make or maintain any LIBOR Rate
Advance in dollars or in an Alternative Currency, the obligation
of Lender hereunder to make or maintain such LIBOR Rate Advance
shall forthwith be suspended for the duration of such illegality
and the Borrower shall, if any such Advance is outstanding
promptly, upon request from Lender, convert such advance to
another Type of Advance. If any such payment is made on a day that
is not the last Business Day of the then current Interest Period
applicable to such Advance, the Borrower shall pay Lender, upon
Lender's request, such amount or amounts as may be necessary to
compensate Lender for any loss or expense sustained or incurred by
Lender in respect of such advance as a result of any such payment,
in accordance with Section 2.18."
9. The following new Sections 2.15A, 2.15B, 2.15C and 2.15D are
hereby inserted following Section 2.15:
Section 2.15A CURRENCY EQUIVALENTS. For purposes of the
provisions of this Article 2, (i) the equivalent in dollars of any
Alternative Currency shall be determined by using the quoted spot
rate at which Lender's Head Office offers to exchange dollars for
such Alternative Currency in London at 11:00 a.m. (London time)
two Business Days prior to the date on which such equivalent is to
be determined, (ii) the equivalent in any Alternative Currency of
any other Alternative Currency shall be determined by using the
quoted spot rate at which Lender's Head Office offers to exchange
such Alternative Currency for the equivalent in dollars of such
other Alternative Currency in London at 11:00 a.m. (London time)
two Business Days prior to the date on which such equivalent is to
be determined, and (iii) the equivalent in any Alternative
Currency of dollars shall be determined by using the quoted spot
rate at which Lender's Head Office offers to exchange such
Alternative Currency for dollars in London at 11:00 a.m. (London
time) two Business Days prior to the date on which such equivalent
is to be determined."
Section 2.15B. CONTINUITY OF CONTRACT. On the date (the
"Conversion Date") of the implementation of a single currency
under European Monetary Union resulting in (i) the introduction of
the "Euro" as the lawful currency of the Netherlands and (ii) the
cessation of the Gilder as the lawful currency of the Netherlands,
all references to Gilders shall be substituted in this Loan by the
Euro for all purposes. From and after the Conversion Date, any
amount payable hereunder by the Lender to the Borrower or by the
Borrower to the Lender, shall be paid in the Euro and
13
<PAGE>
not in Gilders. For the purposes of this Section 2.15B, the
exchange rate for Gilders shall be based on the official exchange
rate for such currency as recognized by the European Central Bank
on the Conversion Date. Neither the introduction of the Euro, nor
the substitution of the national currencies of the member states
participating in the European Monetary Union nor the fixing of the
official conversion rate, nor any economic consequences that arise
in connection the European Monetary Union or from any of the
aforementioned events shall cause this Loan Agreement to terminate
or give rise to any right to terminate prematurely, contest,
cancel, rescind, modify or otherwise negotiate or alter this Loan
Agreement or any of its provisions, or to raise any other
objections and/or exceptions or to assert any claims for
compensation under or in connection with this Loan Agreement.
Section 2.15C. EURO AMENDMENTS. Upon the implementation of
a single currency under European Monetary Union resulting in a
change in any currency in which the Borrower is permitted to
request loans under this Loan Agreement, this Loan Agreement,
including without limitation, the definition of LIBOR contained
herein, will be amended to the extent determined by the Lender,
acting reasonably and in consultation with the Borrower, to be
necessary to reflect the change in currency and to put the Lender
and the Borrower in the same position, so far as possible, that
they would have been in if no change in currency had occurred. The
Borrower hereby agrees to execute and deliver to the Lender such
amendments to this Loan Agreement as the Lender may reasonably
request in order to carry out the intent of this Section 2.15C.
Section 2.15D. EURO INDEMNITY. The Borrower agrees, at the
request of the Lender, to compensate the Lender for any reasonable
loss, cost, expense or reduction in return that shall be incurred
or sustained by the Lender as a result of the implementation of a
single currency under the European Monetary Union, that would not
have been incurred or sustained but for the transactions provided
for herein and that, to the extent that such loss, cost, expense
or reduction is of a type generally applicable to extensions of
credit similar to the extensions of credit hereunder, is generally
being requested from borrowers subject to similar provisions. A
certificate of Lender (x) setting forth the amount or amounts
necessary to compensate Lender, (y) describing the nature of the
loss or expense sustained or incurred by Lender as a consequence
thereof and (z) setting forth a reasonably detailed explanation of
the calculation thereof shall be delivered to the Borrower an
shall be conclusive absent manifest error. The
14
<PAGE>
Borrower shall pay to Lender the amount shown as due on any such
certificate within 10 days after receipt thereof.
10. Section 2.16 of the Loan Agreement is hereby deleted and
replaced with the following:
Section 2.16. USE OF PROCEEDS. The proceeds of the
Revolving Loan made hereunder shall be used by Borrower for Borrower's short
term working capital requirements. The proceeds of the Term Loan made hereunder
shall be used to pay a portion of the purchase price for the Acquisition. The
proceeds of the BV Loan made hereunder shall be used to refinance existing
indebtedness of BV and for the short term working capital requirements of BV and
Q.E.P. Borrower will not, directly or indirectly, use any part of the proceeds
of any of the Loans for the purpose of purchasing or carrying any margin stock
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System or to extend credit to any Person for the purpose of purchasing
or carrying any such margin stock.
11. Section 2.19 of the Loan Agreement is hereby deleted and
replaced with the following:
Section 2.19 CROSS-TERMINATION. In the event that Borrower
prepays any of the Loans in full prior to its respective Maturity
Date and, in the case of the Revolving Loan and/or the BV Loan,
terminates the Commitment with respect thereto, Borrower shall (i)
simultaneously prepay all of the Loans in full together with all
accrued but unpaid interest thereon to the date of such
prepayment, together with any applicable Make-Whole Premium and
other amounts including, without limitation, unpaid Reimbursement
Obligations, due hereunder or under the Notes, and (ii) if on the
date of such payment any Letter of Credit is outstanding, Borrower
shall pay an amount to Lender equal to the Available Amount under
such Letter of Credit on such date as cash collateral for such
Letter of Credit."
12. Section 2.20(c) of the Loan Agreement is hereby deleted and
replaced with the following:
"(c) FORM. Each Letter of Credit shall, among other things,
(1) be on Lender's then customary form, (2) provide for the
payment of sight drafts for honor thereunder when presented in
accordance with the terms thereof and when accompanied by the
documents described therein, and (3) be subject to, in the case of
commercial Letters of Credit, the Uniform
15
<PAGE>
Customs and Practice for Documentary Credits (ICC Publication No.
500) and, in the case of Standby Letters of Credit, the
International Standby Practices (ISP 98-ICC Publication No. 590)
and, in each case, to the extent not inconsistent therewith, the
laws of the State of Connecticut."
13. Section 2.20(e) of the Loan Agreement is hereby deleted and
replaced with the following:
"(e) LETTER OF CREDIT FEES. In the event that the Lender
issues, extends or renews any Letters of Credit for the account of
the Borrower (whether collectively or individually), the Borrower
shall pay to the Lender on the date of such issuance, extension of
renewal and on each anniversary date thereof, a fee of one and
one-quarter percent (1.25%) per annum on the face amount of such
letter of credit. The Borrower shall also pay the Lender's usual
and customary administration and negotiation fees with respect to
such letter of credit."
14. A new subsection 2.20(j) is added to the Loan Agreement as
follows:
"(j) Notwithstanding anything in this Agreement to the
contrary, no Letters of Credit shall be issued, extended or
renewed for the account of BV."
15. Section 3.2 of the Loan Agreement is hereby deleted and
replaced with the following:
Section 3.2. CONDITIONS PRECEDENT TO ALL ADVANCES, ETC. The
obligation of the Lender to make each Advance (including the initial Advance)
and to issue, extend or renew any Letter of Credit, shall be at Lender's
discretion and, in addition, shall be subject to the prior satisfaction of each
of the following additional conditions:
(a) On the Drawdown Date of each Advance or the date on which a
Letter of Credit is issued, extended or renewed, the following statements
shall be true, and each request by Borrower for an Advance, and each
Letter of Credit Application shall be deemed to be a representation and
warranty by Borrower that:
(1) The representations and warranties contained in Article
4 of this Agreement and contained in each of the other Loan
Documents containing representations and warranties are correct on
and as of the date of each Advance or such issuance, extension or
renewal as though made on and as of such date; and
16
<PAGE>
(2) No default or Event of Default has occurred and is
continuing, or would result from or after giving effect to such
Advance or such issuance, extension or renewal; and
(b) At the time of each Advance or such issuance, extension or
renewal, the sum of (i) in the case of Revolving Advances (1) the
aggregate outstanding principal amount of all Revolving Advances plus (2)
the Available Amount plus (3) all unpaid Reimbursement Obligations and
(ii) in the case of BV Advances, the aggregate outstanding principal
amount of all BV Advances, in each case, does not exceed the Credit
Availability.
16. The following new Section 4.25 is hereby added to the Loan
Agreement following Section 4.24 as follows:
Section 4.25. YEAR 2000 COMPLIANCE. Borrower has implemented a
comprehensive program to address the "year 2000 problem" (that is, the risk that
computer applications may not be able to properly perform date-sensitive
functions after December 31, 1999) and expects to resolve on a timely basis any
material year 2000 problem. Borrower has also made inquiry of each supplier,
vendor and customer of Borrower that is of material importance to the financial
well-being of Borrower with respect to the "year 2000 problem." On the basis of
the inquiry, Borrower believes that each such supplier, vendor and customer of
Borrower will resolve any material year 2000 problem on a timely basis.
17. The following new Section 5.14 is hereby added to the Loan
Agreement following Section 5.13 as follows:
Section 5.14. YEAR 2000. Maintain and implement a comprehensive
"Year 2000 compliance" program, continue to make inquiry of material vendors,
suppliers and customers with respect to their "Year 2000 compliance" and
promptly notify Lender if it becomes aware of any delay in successfully
implementing its own "Year 2000 compliance" program or any circumstance
involving the "Year 2000 compliance" of any such vendor, supplier or customer
which could have a Material Adverse Effect.
18. Section 6.11 of the Loan Agreement is hereby deleted and
replaced with the following:
Section 6.11. SUBSIDIARIES. Create or otherwise acquire an
interest in any Subsidiary other than BV and any subsidiary created in
connection with the acquisitions permitted by Section III of the Second
Amendment, or permit any non-domestic Subsidiary (excluding Roberts Company
Canada Limited and BV) to have a net worth of greater than $50,000.
17
<PAGE>
19. Section 10.2(a) of the Loan Agreement is hereby amended by
deleting "Anthony McKiernan, Vice President" and "203/358-6211" and inserting in
place thereof "Richard M. Bochicchio, Senior Vice President" and "203/358-6210".
20. The following sentence is added to Section 10.4 of the Loan
Agreement following the last sentence thereof:
"Lender may at any time pledge all or any portion of its rights
under the Loan Documents including any portion of the Notes to any
of the twelve (12) Federal Reserve Banks organized under Section 4
of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge
or enforcement thereof shall release Lender from its obligations
under any of the Loan Documents."
21. The following sentence is added to Section 10.6 of the Loan
Agreement following the last sentence thereof:
"ANY AND ALL RIGHTS TO REQUIRE LENDER TO EXERCISE ITS RIGHTS OR
REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE
LOANS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO
SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE HEREBY
KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED."
22. The following new Sections 10.22 and 10.23 are added to the
Loan Agreement following Section 10.21:
"Section 10.22 JUDGMENT. (a) If for the purposes of
obtaining judgment in any court it is necessary to convert a sum
due hereunder or under the Notes in any currency (the "ORIGINAL
CURRENCY") into another currency (the "OTHER CURRENCY") the
parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be that at
which is in accordance with normal banking procedures the Lender
could purchase the Original Currency with the Other Currency on
the first Business Day preceding that on which final judgment is
given.
(b) The obligation of the Borrower in respect of any sum
due in the Original Currency from it to Lender hereunder or under
the Notes shall, notwithstanding any judgment in any Other
Currency, be discharged only to the extent that on the Business
Day following receipt by Lender of any sum adjudged to be so due
in such Other Currency may in accordance with
18
<PAGE>
normal banking procedures purchase dollars with such Other
Currency; if the amount of the Original Currency so purchased is
less than the sum originally due to Lender in the Original
Currency, the Borrower agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify Lender against
such loss, and if the amount of the Original Currency so purchased
exceeds the sum originally due to Lender in the Original Currency,
Lender agrees to remit to Borrower such excess.
Section 10.23 MAXIMUM RATE OF INTEREST. All agreements
between Borrower and Lender are hereby expressly limited so that
in no contingency or event whatsoever, whether by reason of
acceleration or maturity of the indebtedness evidenced hereby or
otherwise, shall the amount paid or agreed to be paid to Lender
for the use or the forbearance of the indebtedness evidenced
hereby exceed the maximum permissible under applicable law. As
used herein, the term "applicable law" shall mean the law in
effect as of the date hereof provided, however that in the event
there is a change in the law which results in a higher permissible
rate of interest, then this Agreement and the Notes shall be
governed by such new law as of its effective date. In this regard,
it is expressly agreed that it is the intent of the Borrower and
Lender in the execution, delivery and acceptance of this Agreement
and the Notes to contract in strict compliance with the laws of
the State of Connecticut from time to time in effect. If, under or
from any circumstances whatsoever, fulfillment of any provision
hereof or of any of the Loan Documents at the time of performance
of such provision shall be due, shall involve transcending the
limit of such validity prescribed by applicable law, then the
obligation to be fulfilled shall automatically be reduced to the
limits of such validity, and if under or from circumstances
whatsoever Lender should ever receive as interest an amount which
would exceed the highest lawful rate, such amount which would be
excessive interest shall be applied to the reduction of the
principal balance evidenced hereby and not to the payment of
interest. This provision shall control every other provision of
all agreements between Borrower and Lender.
II. CERTAIN WAIVERS. The provisions of Sections 2.16, 6.1, 6.2, 6.3, 6.8 and
6.11 are hereby waived by Lender solely for the purpose of permitting (i) the
acquisitions by Q.E.P of certain assets of (1) Accessories Marketing (Australia)
Pty Ltd. for a purchase price of approximately $2,000,000 plus assumption of
approximately $300,000 of debt and (2) Neon for a purchase price of
approximately $615,000, in each case pursuant to acquisition agreements and
otherwise on terms and conditions satisfactory to Lender and (ii) in connection
with the Accessories Marketing acquisition either the incurrence of up to
$750,000 in debt to an Australian bank on terms and conditions satisfactory to
Lender or the use of up to $750,000
19
<PAGE>
of the proceeds of the Revolving Loan to fund certain working capital needs of
the acquired entity.
III. AMENDMENT TO OTHER LOAN DOCUMENTS.
A. The Hazardous Substances Indemnity Agreement is hereby amended to add BV
as an Indemnitor thereto.
B. The Revolving Credit Note and the Term Note are each hereby amended to
add QEP Holland and BV as makers thereof.
IV. CONDITIONS PRECEDENT.
A. The effectiveness of this Agreement and the obligations of the Lender to
make the initial BV Loan shall be subject to the prior satisfaction of each of
the following conditions:
1. Lender shall have received each of the following, in form and
substance satisfactory to Lender and its counsel:
(a) This Agreement and the BV Note, duly executed and delivered by
Borrower;
(b) A Security Agreement duly executed and delivered by BV and QEP
Holland securing the payment and performance of all Obligations together
with: (1) all filings or recordations necessary or, in the opinion of the
Lender, desirable to perfect the security interest created by the
Security Agreement; and (2) copies of all of the UCC-1 financing
statements (and, where applicable, related Form UCC-3s) on file with
respect to Borrower, as of dates acceptable to Lender, in all
jurisdictions in which Collateral is or may be located, indicating that
no Person other than the Lender has a Lien on any of the Collateral, or
with respect to any Liens other than those of Lender, Form UCC-3s in form
and substance satisfactory to Lender, duly executed by the holders of
such Liens, terminating all such Liens;
(c) Copies of all corporate action taken by each Borrower,
including resolutions of its Board of Directors, authorizing the
execution, delivery, and performance of the Second Amendment and, in the
case of BV and QEP Holland, Loan Documents to which it is a party and
each other document to be delivered pursuant to this Agreement, certified
as of the date of this Agreement by the Secretary of such Borrower;
20
<PAGE>
(d) A certificate, dated as of the date of this Agreement, of the
Secretary of each Borrower certifying the names and true signatures of
the officers of such Borrower authorized to sign this Second Amendment
and, in the case of BV, the Loan Documents to which it is a party and the
other documents to be delivered by it under this Agreement;
(e) A favorable opinion of independent counsel for Borrower,
satisfactory to Lender, dated the date of this Agreement;
(f) Such agreements and instruments as Lender may deem necessary
in connection with the grant by BV and QEP Holland to Lender of a Lien
on, and the collateral assignment of, the respective deposit accounts of
BV and QEP Holland pursuant to the Security Agreement;
(g) Certificates of insurance and copies of insurance policies
evidencing compliance with the insurance requirements of the Loan
Agreement;
(h) The certificate of incorporation (certified by the applicable
official of QEP Holland's and BV's respective jurisdictions of
organization) and bylaws of QEP Holland and BV;
(i) A Certificate of Good Standing issued by the applicable
official of BV's and QEP Holland's respective jurisdictions of
organization and each state or country in which they are qualified to do
business evidencing that each of QEP Holland and BV is a domestic or, as
applicable, foreign corporation in good standing in such jurisdiction;
(j) A Borrowing Base Certificate of Borrower dated the date of
this Agreement;
(k) Satisfactory completion of Lender's customary due diligence,
including but not limited to an independent audit of Eligible BV Accounts
Receivable;
(l) An accounts receivable letter from BV and from QEP Holland,
each in form and substance satisfactory to Lender;
(m) A solvency certificate from QEP Holland and from BV, each in
form and substance satisfactory to Lender; and
(n) All other documents, instruments and agreements that Lender
shall reasonably require in connection with this Agreement.
21
<PAGE>
2. All representations and warranties contained in this Agreement
shall be true and correct in all material respects.
V. MISCELLANEOUS.
A. Each Borrower acknowledges, agrees and affirms that Lender's first
priority security interest in its personal property and assets shall continue to
secure Borrower's respective indebtedness to Lender arising under Loans.
B. This Agreement shall be governed by and construed in accordance with the
laws of the State of Connecticut (except its conflicts of laws provisions).
C. Upon the execution of this Agreement, the Loan Agreement is amended to
the extent this Agreement amends the Loan Agreement. Except as specifically
amended by the terms of this Agreement, all terms and conditions set forth in
the Loan Agreement shall remain in full force and effect.
22
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first above written.
WITNESSES AS TO ALL BORROWER:
BORROWERS Q.E.P. CO., INC.
_____________________________ By
--------------------------------
Marc Applebaum
Its
_____________________________ Duly Authorized
Q.E.P. O'TOOL, INC.
By
--------------------------------
Marc Applebaum
Its
Duly Authorized
MARION TOOL CORPORATION
By
--------------------------------
Marc Applebaum
Its
Duly Authorized
WESTPOINT FOUNDRY, INC.
By
--------------------------------
Marc Applebaum
Its
Duly Authorized
[Signatures Continued On Next Page]
23
<PAGE>
ROBERTS CONSOLIDATED
INDUSTRIES, INC.
By
--------------------------------
Marc Applebaum
Its
Duly Authorized
ROBERTS HOLDING INTERNATIONAL, INC.
By
--------------------------------
Marc Applebaum
Its
Duly Authorized
ROBERTS COMPANY CANADA LIMITED
By
--------------------------------
Marc Applebaum
Its
Duly Authorized
ROBERTS HOLLAND B.V.
By
--------------------------------
Marc Applebaum
Its
Duly Authorized
[Signatures Continued On Next Page]
24
<PAGE>
Q.E.P. HOLDING B.V.
By
--------------------------------
Marc Applebaum
Its
Duly Authorized
WITNESSES AS TO LENDER: LENDER:
FLEET NATIONAL BANK
_____________________________ By
--------------------------------
Richard M. Bochicchio
Its Senior Vice President
_____________________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 308,096
<SECURITIES> 0
<RECEIVABLES> 15,533,664
<ALLOWANCES> (410,000)
<INVENTORY> 16,530,606
<CURRENT-ASSETS> 34,667,301
<PP&E> 11,376,655
<DEPRECIATION> (7,905,715)
<TOTAL-ASSETS> 50,364,850
<CURRENT-LIABILITIES> 18,828,336
<BONDS> 0
0
336,660
<COMMON> 2,665
<OTHER-SE> 18,354,571
<TOTAL-LIABILITY-AND-EQUITY> 50,364,850
<SALES> 27,167,061
<TOTAL-REVENUES> 27,167,061
<CGS> 18,722,427
<TOTAL-COSTS> 6,800,024
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (405,503)
<INCOME-PRETAX> 1,239,107
<INCOME-TAX> (466,276)
<INCOME-CONTINUING> 772,831
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 772,831
<EPS-BASIC> .29
<EPS-DILUTED> .29
</TABLE>
