<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
-------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transitional period from to
-------------------- ---------------------
Commission File Number: 0-22077
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ERGOBILT, INC.
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(Exact name of registrant as specified in its charter)
Texas 75-2600529
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
5000 Quorum Drive, Suite 147, Dallas, Texas 75240
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(Address of principal executive offices) (Zip Code)
(972) 233-8504
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Registrant's telephone number including area code
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: $.0001 par value, 6,056,000
shares as of August 11, 1997
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ERGOBILT, INC.
TABLE OF CONTENTS
FORM 10-Q
June 30, 1997
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Index to Financial Statements 2
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Index to exhibits 19
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Consolidated Balance Sheets as of December 31, 1996 and
June 30, 1997 (unaudited) 3
Consolidated Statements of Income for the six month periods ended
June 30, 1996 (unaudited) and 1997 (unaudited) and for
the quarter ended June 30, 1996 (unaudited) and 1997
(unaudited) 5
Consolidated Statements of Cash Flows for the six month
periods ended June 30, 1996 (unaudited) and
1997 (unaudited) 6
Notes to consolidated financial statements 8
</TABLE>
2
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ERGOBILT, INC.
Consolidated Balance Sheets
December 31, 1996 and June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
Assets 1996 1997
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 32,150 $ 1,790,593
Accounts receivable 28,198 4,496,929
Inventory -- 2,306,193
Prepaid expenses -- 257,498
Other current assets 90,328 93,573
----------- -----------
Total current assets 150,676 8,944,786
----------- -----------
Property and equipment:
Land -- 7,450
Building and improvements -- 1,394,945
Furniture and fixtures 12,513 232,376
Equipment 9,455 530,274
Vehicles -- 344,944
Computer equipment 32,623 627,585
----------- -----------
54,591 3,137,574
Less accumulated depreciation 10,387 120,663
----------- -----------
Property and equipment, net 44,204 3,016,911
Other assets:
Shareholder receivable 48,325 84,818
Offering and merger costs 661,453 --
Goodwill, net -- 10,033,460
Deferred tax assets 85,543 85,543
Other assets 212 820,541
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Total other assets 795,533 11,024,362
----------- -----------
$ 990,413 $22,986,059
=========== ===========
</TABLE>
(Continued)
3
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ERGOBILT, INC.
Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>
(unaudited)
December 31, June 30,
Liabilities and Shareholders' Equity 1996 1997
------------------------------------ ------------ -----------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ -- $ 809,224
Accounts payable 692,490 1,031,455
Accrued expenses 65,174 517,637
Income taxes -- 405,969
Commissions payable -- 222,898
Notes payable 500,000 --
------------ -----------
Total current liabilities 1,257,664 2,987,183
------------ -----------
Long-term debt:
Notes payable, less current portion -- 1,905,075
Shareholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized -- --
Common stock, $.0001 par value; 20,000,000 shares authorized;
2,770,285 and 6,056,000 shares issued and outstanding
at December 31, 1996 and June 30, 1997, respectively 277 606
Additional paid-in capital 823 17,257,051
Retained earnings (deficit) (268,351) 836,144
------------ -----------
Total shareholders' equity (267,251) 18,093,801
------------ -----------
$ 990,413 $22,986,059
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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ERGOBILT, INC.
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------------- ----------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 187,771 $ 9,695,358 $ 51,062 $ 5,964,091
Cost of sales 96,573 5,225,064 59,971 3,346,412
----------- ----------- ----------- -----------
Gross profit 91,198 4,470,294 (8,909) 2,617,679
Selling, general and administrative expenses 113,817 2,748,791 49,761 1,581,649
----------- ----------- ----------- -----------
Operating income (22,619) 1,721,503 (58,670) 1,036,030
Interest expense and other, net (10,125) (23,905) (10,125) (13,988)
----------- ----------- ----------- -----------
Income before income taxes (12,494) 1,745,408 (48,545) 1,050,018
Income tax expense (benefit) -- 640,912 12,076 385,779
=========== =========== =========== ===========
Net income $ (12,494) $ 1,104,496 $ (60,621) $ 664,239
=========== =========== =========== ===========
Net income per share $ (0.00) $ 0.20 $ (0.02) $ 0.11
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding 2,770,285 5,402,248 2,770,285 6,061,398
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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ERGOBILT, INC.
Consolidated Statements of Cash Flows
For the six month periods ended June 30, 1996 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1996 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $(12,494) $ 1,104,496
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,244 215,891
Changes in assets and liabilities:
Accounts receivable 14,759 (2,444,793)
Inventory -- (418,050)
Prepaid expenses -- (58,389)
Taxes payable -- 315,822
Other current assets -- (3,245)
Shareholder receivable -- 183,661
Other noncurrent assets (38,485) (780,437)
Accounts payable 1,946 (38,136)
Accrued expenses 51,637 392,820
Commissions payable -- 54,902
Other -- 53,666
-------- ------------
Net cash provided by (used in) operating activities 21,607 (1,421,792)
-------- ------------
Cash flows from investing activities
Purchase of property and equipment (20,279) (612,460)
Loan to shareholder (8,362) --
Acquisition of BodyBilt, net of cash acquired -- (5,131,484)
-------- ------------
Net cash used in investing activities (28,641) (5,743,944)
-------- ------------
Cash flows from financing activities:
Issuance of common stock, net of costs -- 10,493,469
Purchase of common stock -- (224,995)
Proceeds from borrowings -- 4,079,523
Repayment of borrowings -- (5,423,818)
Offering and merger costs -- --
-------- ------------
Net cash provided by (used in) financing activities -- 8,924,179
-------- ------------
Net increase in cash (7,034) 1,758,443
Cash and cash equivalents at beginning of period 14,150 32,150
======== ============
Cash and cash equivalents at end of period $ 7,116 $ 1,790,593
======== ============
</TABLE>
(Continued)
6
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ERGOBILT, INC.
Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1996 1997
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<S> <C> <C>
Supplemental disclosure of noncash financing activities:
Common stock issued in acquisition of BodyBilt $ -- $7,280,004
============= ==========
Common stock issued to repay note payable $ -- $ 249,994
============= ==========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ -- $ 11,386
============= ==========
Income taxes $ -- $ 502,601
============= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
7
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ERGOBILT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Financial Statements
The accompanying unaudited Consolidated Financial Statements include
the accounts of ErgoBilt, Inc. and its wholly owned subsidiary,
BodyBilt, Inc. (the "Company").
The statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the six months ended June 30,
1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997. For further information, refer
to the consolidated financial statements and footnotes included in the
Company's annual report on Form 10-K for the year ended December 31,
1996.
Note 2 - Cash and Cash Equivalents
The carrying amount for cash and cash equivalents in not materially
different than fair market value due to the short maturities of the
instruments and/or their respective interest rates.
Note 3 - Stock Split
The Company affected a 2,770-for-1 stock split in January 1997. The
effects of the stock split have been retroactively applied to the
financial statements.
Note 4 - Issuance of Common Stock and Warrants
On February 5, 1997 the Company closed its initial public offering for
the sale of 1,700,000 shares of common stock at a price of $7 per
share. On March 18, 1997, the underwriters exercised their
overallotment provision and issued an additional 100,000 shares of the
Company's common stock at a price of $7 per share. The Company received
approximately $9,900,000 in net proceeds as a result of this offering
and the underwriters exercise of their over-allotment. On February 5,
1997 the Company issued to the underwriters warrants to purchase
170,000 shares of common stock at a price of 120% of the price to the
public exercisable over a period of four years commencing one year from
February 3, 1997.
(Continued)
8
<PAGE> 10
ERGOBILT, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Business Acquisition
BodyBilt Seating, Inc. ("BodyBilt") was merged into a wholly owned
subsidiary of the Company on February 5, 1997. As consideration for the
merger, the shareholders of BodyBilt received $17.6 million payable in
a combination of cash ($7.2 million), 780,630 shares of common stock of
the Company valued at $3.8 million ($4.90 per share) and 705,085 shares
of Series A Preferred Stock of the Company valued at $3.5 million
($4.90 per share), which was immediately converted into 705,085 shares
of common stock. The valuation of the Company's stock stated above is
based upon an independent valuation obtained by the Company which
includes, the trading restrictions associated with these shares of
common stock pursuant to Rule 144, as promulgated by the Securities and
Exchange Commission. These shares were originally valued at the initial
public offering price of $7 per share. As a result of this change, the
amount of the purchase price attributable to goodwill has been adjusted
from its original amount of $13.3 million to $10.1 million. The Company
has recorded the related adjustments in the second quarter of 1997.
BodyBilt is a developer, manufacturer and marketer of customized,
high-end ergonomic products. The acquisition has been accounted for by
the purchase method of accounting and, accordingly, the results of
operations of BodyBilt have been included in the Company's consolidated
financial statements from February 1, 1997. The excess of the purchase
price over the fair value of the net identifiable assets acquired of
$10.1 million has been recorded as goodwill and is being amortized on a
straight-line basis over 40 years.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and BodyBilt as if the
acquisition had occurred as of the beginning of 1996 and 1997, after
giving effect to certain adjustments. The pro forma financial
information does not necessarily reflect the results of operations that
would have occurred had the acquisition occurred at the beginning of
the periods presented.
<TABLE>
<CAPTION>
(unaudited)
Six Months Ended
June 30,
1996 1997
---------- -----------
<S> <C> <C>
Net sales $7,431,996 $10,635,609
Net income (loss) 295,323 1,048,995
Net income (loss) per share .05 .17
</TABLE>
9
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ERGOBILT, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 - Stock Option Plan
The board of directors and shareholders of the Company have approved
the ErgoBilt 1996 Stock Option Plan (the Stock Option Plan). The Stock
Option Plan authorizes the Company to award 400,000 shares of common
stock to be used for incentive stock options and nonqualified stock
options or restricted stock grants. During the second quarter of 1997
the Company began granting options pursuant to the Stock Option Plan.
The Company granted 91,000 options on April 25, 1997 at an exercise
price of $5.25.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
On February 5, 1997 BodyBilt, Inc. ("BodyBilt") was merged into a
wholly owned subsidiary of the Company (the "Merger"). BodyBilt is a developer,
manufacturer and marketer of customized, high-end ergonomic products.
The financial statements for 1997 included in this Form 10-Q comprise
the operations of BodyBilt from February 1, 1997 through June 30, 1997 and the
operations of ErgoBilt, Inc. from January 1, 1997 to June 30, 1997. BodyBilt's
operations for 1996 are not included in the financial statements, as that
predates the acquisition. For selected financial data presented on a pro forma
basis as if the acquisition took place at the beginning of the periods
presented see financial statement footnote number 5.
The operations of ErgoBilt are discussed under the heading "ErgoBilt"
below. The remainder of Management's Discussion and Analysis of Financial
Condition and Results of Operations relates to the operations of BodyBilt.
Following the Merger, BodyBilt became the operating company, and ErgoBilt
became the parent company. The following discussion and analysis should be read
in conjunction with the consolidated financial statements of the Company and
the accompanying notes thereto included elsewhere in this Form 10-Q.
ERGOBILT
Since its incorporation in 1995 until February 1997, ErgoBilt's
operations have consisted primarily of providing advertising and marketing
services to BodyBilt, conducting activities necessary to complete the Merger
and the Company's initial public offering (the "Offering") and other activities
necessary to plan for the operations of ErgoBilt and BodyBilt. ErgoBilt's
operating income (loss) for the six months ended June 30, 1996 and 1997 was
($22,619) and $1,721,503, respectively. For the quarters ended June 30, 1996
and 1997, ErgoBilt had operating income (loss) of ($58,670) and $1,036,030,
respectively. These increases in operating income were due primarily to the
inclusion of BodyBilt's operations.
11
<PAGE> 13
BODYBILT
The following table sets forth certain unaudited financial information
for BodyBilt for the periods indicated. The table does not include the
amortization of goodwill subsequent to the acquisition. This comparative
information will be used for the accompanying "Management Discussion and
Analysis" as management believes this is the most relevant information for
comparing the ongoing operations of the Company.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------ ------------------
1996 1997 1996 1997
------ ------- ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Sales $7,432 $10,636 $3,850 $5,964
Cost of sales 3,985 5,830 1,995 3,346
------ ------- ------ ------
Gross profit 3,447 4,806 1,855 2,618
Selling, general and administrative expenses 2,755 2,571 1,219 1,311
------ ------- ------ ------
Operating income 692 2,235 636 1,307
Interest expense and other, net 76 56 38 21
------ ------- ------ ------
Income before income taxes $ 616 $ 2,179 $ 598 $1,286
====== ======= ====== ======
</TABLE>
GENERAL. BodyBilt generates revenue through sales of its products to
corporate customers, dealers and retailers. The majority of BodyBilt's sales
are generated by either BodyBilt's direct sales force or by independent sales
representatives, who are paid a commission for each unit sold. Typically,
BodyBilt's sales are directed through a network of over 550 dealers who acquire
the products at a discount from retail and then resell the products to the
ultimate customer. BodyBilt believes that its growth has been driven by
increasing market acceptance of ergonomics and its success in (i) providing
superior quality products and service; (ii) expanding its direct sales force;
(iii) upgrading the quality of its independent sales representative firms; and
(iv) educating consumers about the benefits of ergonomics and the solutions
provided by BodyBilt's products. BodyBilt did not increase the suggested retail
prices of its chairs during this period.
During the second quarter of 1997, BodyBilt enhanced its National
Accounts marketing focus via a classical "team" marketing strategy aimed at
providing a "Value-added" service approach to the larger customers. In
addition, a significant enhancement to the BodyBilt manager's chair was
successfully introduced in June 1997. The new back design featuring a more
pronounced ergonomically contoured backrest was unveiled at NeoCon '97
(Chicago) with over 2100 units sold the first month. As a part of BodyBilt's
continued commitment to architectural, design, safety and ergonomic
professionals, three major trade shows were utilized to further promote its
ergonomic seating products during the second quarter.
BodyBilt also entered into a license agreement with Computer
Translation Systems and Support, Inc., "C.T.S.S." during the first quarter of
1997. This license agreement continued to contribute significant sales, gross
profit and operating profit to BodyBilt's 1997 results. The C.T.S.S. product,
called the Fon'iks Writer, is a state-of-the-art proprietary computer and
keyboard
12
<PAGE> 14
system, designed to facilitate voice-to-text transcription and data capture
services by substantially reducing the number of keystrokes necessary for
operation. C.T.S.S. contributed 11.5% of BodyBilt's second quarter revenue and
13.3% of the second quarter gross profit. For the six months ended June 30,
1997, C.T.S.S. contributed 11.3% of BodyBilt's revenue and 12.8% of the gross
profit.
Sales of BodyBilt increased $3.2 million, or 43.1%, from $7.4 million
for the six month period ended June 30, 1996, to $10.6 million for the six
month period ended June 30, 1997. Units sold increased by 4,317, or 32.7%, from
13,198 for the six month period ended June 30, 1996, to 17,515 for six month
period ended June 30, 1997. Sales increased $2.1 million, or 54.9%, from $3.9
million for the quarter ended June 30, 1996, to $6.0 million for the quarter
ended June 30, 1997. Units sold increased by 2,973, or 43.2 %, from 6,879 for
the quarter ended June 30, 1996, to 9,852 for quarter ended June 30, 1997. This
sales increase was attributable to a more fully focused direct sales
organization comprised of 27 individuals selling to large national accounts,
increased acceptance of the Company's ergonomic products and solutions by
companies who are considering ergonomics as a standard as opposed to a purchase
primarily to employers requiring special needs, an increase in the number of
Company sales and sales support personnel, the contribution of the Company's
new national sales manager and the continuing increase in revenue due to the
C.T.S.S. license agreement.
Gross profit increased $1.4 million or 39.4%, from $3.4 million in six
month period ended June 30, 1996, to $4.8 million in the six month period ended
June 30, 1997. As a percentage of sales, gross profit decreased from 46.4% in
the six month period ended June 30, 1996 to 45.2% for the six month period
ended June 30, 1997. Gross profit increased $763,000 or 41.1%, from $1.9
million in the quarter ended June 30, 1996, to $2.6 million in the quarter
ended June 30, 1997. As a percentage of sales, gross profit decreased from
48.2% in the quarter ended June 30, 1996 to 43.9% for quarter ended June 30,
1997. This decrease in the percentage is a result of an increase in the parts
cost of several of the key components used in manufacturing of the Company's
chairs, sales of a large number of demonstration chairs in the quarter which
carried a lower margin, and substantial increase in the number of customer
orders for 50 or more chairs which carried a lower gross margin.
Selling, general and administrative expenses decreased by $184,000, or
6.7%, from $2.8 million for the six month period ended June 30, 1996, to $2.6
million in the six month period ended June 30, 1997. As a percentage of sales,
selling, general and administrative expense decreased from 37.1% in the six
month period ended June 30, 1996, to 24.3% for the six month period ended June
30, 1997. Selling, general and administrative expenses increased by $92,000, or
7.5%, from $1.2 million for the quarter ended June 30, 1996, to $1.3 million in
the quarter ended June 30, 1997. As a percentage of sales, selling, general and
administrative expense decreased from 31.7% in the quarter ended June 30, 1996,
to 22.0% for quarter ended June 30, 1997. The percentage decrease in the
selling, general and administrative expense was a result of the increase in the
Company's total sales. The dollar decrease was attributable to lower costs in
advertising, marketing and prototype expenses.
Operating income increased by $1.5 million, or 221.7%, from $692,000
for the six month period ended June 30, 1996, to $2.2 million for the six month
period ended June 30, 1997. Operating income increased by $671,000, or 105.5%,
from $636,000 for the quarter ended June 30, 1996, and to $1.3 million for the
quarter ended June 30, 1997.
13
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow. At June 30, 1997 the Company had cash and equivalents of
approximately $1,800,000. Since inception the Company has financed its
operations primarily through the issuance of debt and equity, and through cash
generated by operations.
The Company maintains a bank line of credit through BodyBilt.
Historically, BodyBilt has satisfied its cash requirements through profitable
operations and borrowings under its bank line of credit.
The Company's future cash requirements for the remainder of 1997, and
beyond, will depend primarily upon its level of sales, the timing of inventory
purchases, expenditures on new product development, implementation of marketing
programs, capital expenditures and possible strategic acquisitions.
Operating activities provided (used) cash totaling $21,607 and
$(1,421,792) for the six month periods ended June 30, 1996 and 1997,
respectively. The primary use of cash in operating activities has been to fund
increases in accounts receivable and inventories resulting from BodyBilt's
rapid growth.
Investing activities used cash totaling $28,641 and $5,743,944 for the
six-month period ended June 30, 1996 and 1997, respectively. Substantially all
of the cash used in the first six months of 1997 was used in the acquisition of
BodyBilt, the remainder used during these periods related to capital
expenditures. BodyBilt anticipates continuing to make capital expenditures in
connection with a building acquisition, plant machinery and equipment. The
Company is also installing new manufacturing and accounting software and
expects to continue to acquire additional computer equipment for this upgrade
Financing activities provided (used) cash totaling $0 and $8,924,179
for the six-month periods ended June 30, 1996 and 1997, respectively. The
Company's initial public offering, referred to in financial statement footnote
number 4, provided approximately $10,500,000 in cash proceeds net of costs in
the first six months of 1997. Additionally, proceeds from borrowings were
utilized primarily to provide working capital.
Asset Management. BodyBilt typically sells its products and services
on net 30-day terms and seeks to minimize its credit risk by performing credit
checks and conducting its own collection efforts. BodyBilt had trade accounts
receivable of $4.5 million at June 30, 1997. The number of days' sales
outstanding in trade accounts receivable were 72 days for the period ended June
30, 1997. For the period ended December 31, 1996 the days' sales outstanding
was 63 days. The additional days outstanding are attributable to the increase
in sales to larger customers. Bad debt expense as a percentage of total revenue
for this period was negligible. BodyBilt maintains no allowance for doubtful
accounts.
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<PAGE> 16
BodyBilt attempts to keep its raw materials inventory low to minimize
the risk of obsolescence. BodyBilt also attempts to maintain the minimum level
of such inventory necessary to meet its near term manufacturing requirements by
relying on just-in-time delivery of products from its principal suppliers.
BodyBilt's inventory turnover, at an annual rate, was 5.4 times for the quarter
ended June 30, 1997 and 5.9 times at December 31, 1996.
Credit Facilities. BodyBilt maintains a revolving line of credit
facility with The First National Bank of Bryan (the "Line of Credit").
Borrowings under the Line of Credit are utilized primarily for working capital
to finance inventory and receivables. Historically, the Line of Credit was also
used to finance distributions to the BodyBilt Shareholders. Borrowings under
the Line of Credit bear interest at a Bank's prime rate per annum. The Line of
Credit is secured by a first lien on the accounts receivable and inventory of
BodyBilt and the proceeds of a life insurance policy insuring the life of
BodyBilt's former President, Mark McMillan. The Line of Credit is personally
guaranteed by Mark McMillan. At June, 1997, the interest rate on the Line of
Credit was 8.50% and total borrowings under the Line of Credit were $2.0
million. At June 30, 1997, there was no remaining available credit under the
Company's Line of Credit.
In May 1994, BodyBilt purchased a building and land that was formerly
a large retail facility, in Navasota, Texas. During the summer of 1994,
BodyBilt moved it's manufacturing and administrative operations from leased
facilities to the Navasota facility. Since June 1994, this facility has
undergone significant renovations, improvements and equipment additions. The
merger and improvement of this facility was financed through an amortizing bank
loan from The First National Bank of Bryan in the principal amount of $571,000,
currently bearing interest at the bank's prime rate plus 0.75% per annum and
maturing in the year 2000. At June 30, 1997, the interest rate on this loan was
9.75% and the outstanding principal balance was $422,000. The loan is secured
by a lien on the facility and by a life insurance policy insuring the life of
Mark McMillan. This loan is personally guaranteed by Mark McMillan.
At June 30, 1997, BodyBilt also had other term note obligations to the
First National Bank of Bryan aggregating approximately $292,000 the proceeds of
which were used to fund working capital and equipment and vehicle purchases.
On September 6, 1996, ErgoBilt obtained a $500,000 loan from Summit
Partners Management Co. ("Summit") to fund the Merger and expenses relating to
the Company's initial public offering (the "Offering"). The convertible note
evidencing this loan (the "Convertible Note") was repaid in part from the
proceeds of the Company's Offering and by conversion into shares of Common
Stock at the initial offering price per share (one-half of the principal
balance of the loan). The interest rate on this loan was 8.0% per annum and was
scheduled to mature on September 6, 1997. The Convertible Note was secured by a
pledge of certain assets of Gerald McMillan. In connection with the issuance of
the Convertible Note, Dr. McMillan sold 34,000 shares of Common Stock to
Summit, and the Company agreed to issue to Summit at the closing of the
Offering a warrant to acquire up to 51,000 shares of Common Stock at a price of
120% of the price to public exercisable over a period of four years commencing
one year after issuance. The shares of Common Stock sold to Summit and the
Common Stock issuable upon exercise of the lender's warrant are subject to
certain registration rights.
15
<PAGE> 17
Subsequent to the end of the Company's second quarter a new credit
facility was established at Comerica Bank - Texas. This $ 7.8 million facility
is comprised of the following:
- - $5.0 million revolving line of credit at LIBOR plus 2.85% secured by a
borrowing base of the company's receivables and inventory;
- - $2.3 million for a mortgage loan on the manufacturing and headquarters
facility at prime plus 1.5%;
- - $500,000 term loan at prime plus 1.5% secured by the company's machinery
and equipment.
INFLATION. The cost of raw materials and component parts, salaries and
manufacturing wages have increased modestly. The increases have not had a
significant effect on BodyBilt's results of operations because of substantially
increasing sales volumes and relatively stable product prices.
NEW ACCOUNTING PRONOUNCEMENTS. Effective December 1997, the Company
will be required to adopt Statement of Financial Accounting Standard ("SFAS")
No. 128, "Earnings Per Share." SFAS No. 128 introduces the concept of basic
earnings per share, which represents net income divided by the weighted average
common shares outstanding without the dilutive effects of common stock
equivalents (options, warrants, etc.). Diluted earnings per share will continue
to be reported when SFAS No. 128 is adopted.
16
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The seat design used in certain BodyBilt chairs, which accounted for
sales of approximately $1.2 million and $1.8 million for the years ended
December 31, 1995 and 1996, respectively, is derived from a design patented by
Dr. Jerome Congleton (the "Congleton Patent"). Dr. Congleton granted a license
to manufacture seats using the Congleton Patent to both BodyBilt and Ergonomics
Chairs, Inc., predecessor in interest to Neutral Posture Ergonomics, Inc.
("NPE"). Under the terms of this license agreement and related agreements, if
more than 50% of the outstanding capital stock of BodyBilt is transferred, its
license to manufacture chairs under the Congleton Patent will terminate.
Accordingly, as a result of the Merger, BodyBilt no longer holds a license of
the Congleton Patent. However, an agreement executed in connection with a 1991
settlement of litigation between BodyBilt, NPE and Dr. Congleton provides that
a successor to BodyBilt has the right to manufacture, market, distribute and
sell commercial, industrial and laboratory chairs using the Congleton Patent,
although such successor may not advertise its use of the Congleton Patent. The
Company believes that the restriction on advertising this patent will have no
material impact on its business.
BodyBilt is involved in a legal dispute with NPE in two forums. A
portion of this dispute is presently being arbitrated under a binding
arbitration agreement. The specific issue involved is whether BodyBilt needs a
license from NPE to manufacture and sell its chairs. NPE is claiming it is
entitled to a royalty payment. BodyBilt contends that it does not need a
license because the chairs do not come under the Congleton patent.
Additionally, BodyBilt contends that under a 1991 Settlement Agreement it is
entitled to produce its chair without a license.
Additionally, the Company has filed an action styled "BodyBilt, Inc.
v. Jerome J. Congleton," in the U.S. District Court for the Southern District
of Texas, Houston, Texas. This suit relates to the assignment of the Congleton
Patent from the inventor, Dr. Congleton, to his affiliated company, NPE that is
bringing the above arbitration matter. BodyBilt contends that the manner in
which Dr. Congleton assigned the Congleton patent to NPE breached the 1991
Settlement Agreement and is demanding Dr. Congleton indemnify and hold BodyBilt
harmless in the above arbitration.
The Company believes the above actions between BodyBilt, Inc., NPE and
Jerome J. Congleton are not likely to have a material adverse effect on the
Company.
The Company is also involved from time to time in various legal
proceedings and claims incident to the normal conduct of its business. The
Company believes that such legal proceedings and claims, individually and in
the aggregate, are not likely to have a material adverse effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See Exhibit Index beginning on page 18 of this Form 10-Q.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ErgoBilt, Inc.
- -----------------------------------------
(Registrant)
/s/ Gerard Smith Date August 13, 1997
- ----------------------------------------- ---------------
Gerard Smith, President, Chief
Executive Officer and Director
/s/ P. Michael Sullivan Date August 13, 1997
- ----------------------------------------- ---------------
P. Michael Sullivan, Senior Vice
President and Chief Financial
Officer
(Principal Financial and Accounting Officer)
18
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.1 Comerica Bank - Texas Loan Agreement
11.0 Statement regarding computation of per share earnings - 13 weeks
11.1 Statement regarding computation of per share earnings - 26 weeks
27.1 Financial Data Schedule (for EDGAR filing purposes only)
</TABLE>
19
<PAGE> 1
EXHIBIT 10.1
REVOLVING CREDIT LOAN AGREEMENT
BY AND AMONG
ERGOBILT, INC.,
BODYBILT, INC.
AND
COMERICA BANK-TEXAS
AS OF
JULY 24, 1997
<PAGE> 2
REVOLVING CREDIT LOAN AGREEMENT
This REVOLVING CREDIT LOAN AGREEMENT (this "AGREEMENT"), dated as of
July , 1997, is among ERGOBILT, INC., a Texas corporation, BODYBILT, INC., a
Texas corporation (each individually, a "BORROWER" and collectively, the
"BORROWERS"), and COMERICA BANK-TEXAS, a Texas banking association ("LENDER").
RECITALS:
The Borrowers have requested that the Lender extend credit to the
Borrowers in the form of revolving credit advances in an aggregate principal
amount not to exceed $5,000,000.00.
The Lender has agreed, upon the terms and conditions hereinafter set forth,
to extend such credit to the Borrowers, to be secured by, among other things, a
Security Agreement covering the Collateral (as such terms are hereinafter
defined).
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the Borrowers and the Lender hereby agree as
follows:
1. DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms
shall have the respective meanings indicated below:
"ACCOUNTS" shall have the meaning given such term in the UCC.
"ADVANCE" shall mean a Loan or an advance of funds by the
Lender to the Borrowers pursuant to this Agreement.
"ADVANCE REQUEST FORM" shall mean a certificate, in
substantially the form approved by the Lender, properly completed and
signed by the Borrowers requesting an Advance.
"AGREEMENT" shall mean this Revolving Credit Loan Agreement.
"AUTHORIZED OFFICER" shall mean each officer of a Borrower who
has been authorized by such Borrower to request Loans hereunder and
who has been furnished by such Borrower with the Security Code. The
Borrowers shall provide the Lender with a list of Authorized Officers.
"BANKRUPTCY CODE" shall mean Title 11 of the United States
Code, as amended, or any successor act or code.
REVOLVING CREDIT LOAN AGREEMENT - Page 1
<PAGE> 3
"BORROWERS" is defined in the preamble to this Agreement.
"BORROWING BASE" shall mean, at any particular time and as
determined on the basis of information furnished in the most recent
Borrowing Base Certificate, an amount equal to the sum of (a) eighty-
five percent (85%) of the aggregate principal balance of the
Borrowers' Eligible Accounts, plus (b) forty percent (40%) of the
Borrowers' Eligible Inventory. Notwithstanding the foregoing,
Advances made by Lender based on the Value of the Borrowers' Eligible
Inventory shall not at any time exceed fifty percent (50%) of the
aggregate principal balance of all outstanding Advances.
"BORROWING BASE CERTIFICATE" shall mean a certificate in a
form reasonably acceptable to the Lender, completed in all material
respects and executed by an authorized officer or other designee of
the Borrowers and setting forth Borrowers' computation of the
Borrowing Base as of the date of such certificate and such other
information as may reasonably be requested by the Lender from time to
time.
"BUSINESS DAY" shall mean each day on which the Lender is open
to carry on its normal commercial lending business.
"CAPITAL EXPENDITURES" shall mean moneys expended for assets
which, according to GAAP, have a useful life of more than one year.
"COLLATERAL" shall mean all of Borrowers' Accounts, Chattel
Paper, Documents, Equipment, General Intangibles, Goods, Instruments
and Inventory (including all spare parts and all attachments and
accessions related to any Inventory or Goods), wherever located and
whether now owned or hereafter acquired, together with all
replacements thereof, substitutions therefor and all proceeds and
products thereof, and any securities pledged under any pledge
agreement.
"COMPLIANCE CERTIFICATE" shall mean a certificate in the form
approved by the Lender, completed and signed by the chairman,
president or a senior financial officer of the Borrowers or other
officer designated by Borrowers.
"CTSS" means Computer Translation Systems and Support, a Texas
corporation.
"DEBT" shall mean (i) all indebtedness for borrowed money or
for the deferred purchase price of property or services (including
without limitation, reimbursement and all other obligations with
respect to surety bonds, letters of credit and bankers' acceptances,
whether or not matured), (ii) all obligations evidenced by notes,
bonds, debentures or similar instruments, (iii) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to property acquired, (iv) all capitalized
leases and (v) the Indebtedness.
REVOLVING CREDIT LOAN AGREEMENT - Page 2
<PAGE> 4
"DEBT SERVICE COVERAGE RATIO" means, for any period, the
ratio of Net Operating Income of the Borrowers for such period divided
by Debt Service Requirements with respect to the same period.
"DEBT SERVICE REQUIREMENTS" means, for any period, any and all
principal and interest payments scheduled with respect to the Loan or
with respect to any other financing incurred by Borrowers, to the
extent that such are to be due and owing during such period (and
irrespective of whether or not those payments were timely made).
"DEED OF TRUST" means that certain Deed of Trust and
Assignment of Leases executed or to be executed by Borrowers to a
trustee for the benefit of Lender, covering the Mortgaged Property, as
the same may be amended, modified or supplemented from time to time.
"DEFAULT" shall mean a condition or event which, with the
giving of notice or the passage of time, or both, would result in an
Event of Default.
"DEFAULT RATE" shall mean the Maximum Legal Rate.
"ELIGIBLE ACCOUNTS" shall mean those Accounts of the Borrowers
for which each of the warranties of the Borrowers set forth in Section
7-17 of this Agreement shall be true (as of any applicable date of
determination) and which has been represented to be an "ELIGIBLE
ACCOUNT" on a Borrowing Base Certificate.
"ELIGIBLE INVENTORY" shall mean that Inventory of the
Borrowers for which each of the warranties set forth in Section 7.15
of this Agreement shall be true (as of any applicable date of
determination) and which has been represented by the Borrowers to be
an item of "ELIGIBLE INVENTORY" on a Borrowing Base Certificate.
"ENVIRONMENTAL LAWS" shall mean any and all federal, state,
and local laws, regulations, and requirements pertaining to the
environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42
U.S. C. 9601 et seq. ("CERCLA"), the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. 6901 et seq. ("RCRA"), the
Occupational Safety and Health Act, as amended, 29 U.S.C. 651 et seq.,
the Clean Air Act, 42 U.S.C. 7401 et seq., the Clean Water Act as
amended, 33 U. S.C. 1251 et seq., the Toxic Substances Control Act as
amended, 15 U.S.C. et seq., and all similar laws, regulations, and
requirements of any governmental authority or agency having
jurisdiction over any Borrower or any of its properties or assets, as
such laws, regulations, and requirements may be amended or
supplemented from time to time.
"EQUIPMENT" shall mean all of the Borrowers' now owned and
hereafter acquired machinery, equipment, furniture, furnishings, and
other tangible personal property (except fixtures and Inventory),
including, without limitation, data processing hardware and software,
motor vehicles, aircraft, dies, tools, jigs, and office equipment, as
well as all of such types of
REVOLVING CREDIT LOAN AGREEMENT - Page 3
<PAGE> 5
property leased by the Borrowers and all of the Borrowers' rights and
interests with respect thereto under such leases to the extent that
any such lease does not prohibit or require a consent to the creation
of a Lien in favor of the Lender (including, without limitation,
options to purchase); together with all present and future additions
and accessions thereto, replacements therefor, component and auxiliary
parts and supplies used or to be used in connection therewith, and all
substitutes for any of the foregoing, and all manuals, drawings,
instructions, warranties and rights with respect thereto wherever any
of the foregoing is located.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, or any successor act or code.
"EVENT OF DEFAULT" shall mean any of those conditions or
events listed in Section 10.1 of this Agreement.
"FINANCIAL STATEMENTS" shall mean all those balance sheets,
earnings statements and other financial data which have been furnished
or will be furnished to the Lender for the purpose of, or in
connection with, this Agreement and the transactions contemplated
hereby.
"FINANCING STATEMENTS" shall mean UCC financing statements
describing the Lender as secured party and each Borrower as debtor,
covering the Collateral and otherwise in such form, for filing in such
jurisdictions and with such filing offices as the Lender shall
reasonably deem necessary in order to perfect its security interest.
"GAAP" shall mean, as of any applicable date of determination,
generally accepted accounting principles consistently applied, as in
effect on the date hereof except as otherwise agreed by the Borrowers
and the Lender.
"HAZARDOUS SUBSTANCE" shall mean any substance, product,
waste, pollutant, material, chemical, contaminant, constituent, or
other material which is or becomes regulated under any Environmental
Law, including, without limitation, asbestos, petroleum, and
polychlorinated biphenyls.
"INDEBTEDNESS" shall mean any and all indebtedness and
liability whatsoever of the Borrowers to Lender, whether direct or
indirect, absolute or contingent, due or to become due, now existing
or hereafter arising and howsoever evidenced, including without
limitation obligations of the Borrowers arising under this Agreement,
the Revolving Credit Note, the Real Estate Loan Agreement and the
other Loan Documents.
"INTEREST RATE" shall have the meaning set forth in Section
4.1 of this Agreement.
"INTEREST RATE AGREEMENT" means that certain Interest Rate
Option Agreement of even date herewith executed by the Borrowers and
the Lender.
REVOLVING CREDIT LOAN AGREEMENT - Page 4
<PAGE> 6
"INVENTORY" shall mean all of the Borrowers' now owned and
hereafter acquired inventory, goods, and merchandise, wherever
located, to be furnished under any contract of service or held for
sale or lease, all raw materials, work-in-process, finished goods,
returned and repossessed goods, and materials, and supplies of a
nature or description which are or might be used or consumed in the
Borrowers' business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such
inventory, goods, merchandise and such other personal property, and
all documents of title or other documents representing them, and all
proceeds thereof (including, but not limited to, all proceeds of
insurance with respect thereto, including the proceeds of any casualty
insurance); and any lists, information and records prepared or kept in
relation to the foregoing. Without limitation, the term "INVENTORY"
shall include all spare parts and all attachments and accessions
relating to any property or goods which comprises "INVENTORY" under
this definition.
"LENDER" shall mean Comerica Bank-Texas, a Texas banking
association.
"LOAN" shall mean a loan or Advance of funds by the Lender
pursuant to this Agreement.
"LOAN DOCUMENTS" shall mean this Agreement, the Interest Rate
Agreement, the Revolving Credit Note, the Real Estate Loan Agreement,
Deed of Trust and all promissory notes, security agreements, deeds of
trust, assignments, letters of credit, guaranties and other
instruments, documents, and agreements executed in connection with
this Agreement, as such instruments, documents and agreements may be
amended, modified, renewed, extended or supplemented from time to
time. "LOAN DOCUMENT" shall mean any one of the Loan Documents.
"MAXIMUM LEGAL RATE" shall have the meaning specified in
Section 4.5 of this Agreement.
"MORTGAGED PROPERTY" is defined in the Deed of Trust.
"NET OPERATING INCOME" means, for any period, net aggregate
income of the Borrowers after provisions for taxes for such period, as
determined in accordance with GAAP.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any Person succeeding to the present powers and functions of the
Pension Benefit Guaranty Corporation.
REVOLVING CREDIT LOAN AGREEMENT - Page 5
<PAGE> 7
"PERMITTED LIENS" shall mean:
(a) Liens and encumbrances in favor of the
Lender;
(b) Liens for taxes, assessments or other
governmental charges incurred in the ordinary course of
business and not yet past due or being contested in good faith
by appropriate proceedings and for which adequate reserves
have been established as reflected by the balance sheet of the
Borrower at the time thereof,
(c) Liens of mechanics, materialmen, carriers,
warehousemen or other like statutory or common law liens
securing obligations incurred in good faith in the ordinary
course of business that are not yet due and payable;
(d) Encumbrances consisting of zoning
restrictions, rights-of-way, easements or other restrictions
on the use of real property, none of which materially impairs
the use of such property by the Borrowers or any Subsidiary in
the operation of the business for which it is used and none of
which is violated in any material respect by any existing or
proposed structure or land use; and
(e) Existing Liens described as a part of Schedule
7.6 attached hereto.
"PERSON" shall mean any individual, corporation, partnership,
joint venture, association, trust, unincorporated association, joint
stock company, government, municipality, political subdivision or
agency or other entity.
"PRIME RATE" shall mean that annual rate of interest
reasonably designated by the Lender as its prime rate and which is
changed by the Lender from time to time. The Prime Rate may not
necessarily be the lowest rate charged by the Lender.
"REAL ESTATE LOAN AGREEMENT" means that certain Construction
Loan Agreement executed or to be executed by the Borrowers and the
Lender with respect to financing for the Mortgaged Property, in form
and substance satisfactory to the Lender, in its sole discretion, as
the same may be amended, modified or supplemented from time to time.
"REGULATION D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as the same may be amended or
supplemented from time to time.
"REGULATORY CHANGE" shall mean, with respect to the Lender,
any change after the date of this Agreement in United States federal
or state, or foreign laws or regulations (including Regulation D) or
the adoption or making after such date of any interpretations,
directives, or requests applying to a class of banks including the
Lender of or under any United States federal or state, or any foreign,
laws or regulations (whether or not having the force of
REVOLVING CREDIT LOAN AGREEMENT - Page 6
<PAGE> 8
law) by any court or governmental or monetary authority charged with
the interpretation or administration thereof
"REVOLVING CREDIT COMMITMENT" shall mean the obligation of the
Lender to make Revolving Credit Loans to the Borrowers in an aggregate
principal amount at any time outstanding up to but not to exceed the
lesser of (a) Five Million Dollars ($5,000,000), or (b) the
Borrowing Base.
"REVOLVING CREDIT LOAN" shall mean any Advance of funds made
by the Lender to the Borrowers pursuant to Section 2 hereof.
"REVOLVING CREDIT NOTE" shall mean the promissory note of the
Borrowers payable to the order of the Lender, in substantially the
form of Exhibit "A" hereto, and all extensions, renewals and
modifications thereof and substitutions therefor.
"SECURITY AGREEMENT" shall mean collectively, security
agreements executed in favor of the Lender pursuant to which each
Borrower grants to the Lender a security interest in all of such
Borrower's rights in the Collateral, wherever located and whether now
owned or hereafter acquired, together with all replacements thereof,
substitutions therefor and all proceeds and products thereof.
"SECURITY CODE" shall mean a code furnished by the Lender to
the Borrowers, pursuant to Section 4.2 hereof, which an Authorized
Officer of a Borrower must deliver to the Lender upon making a
telephonic Loan request.
"SUBORDINATED DEBT" shall mean all Debt, the payment of which
(and the security for) has been subordinated to the Lender in writing
in a manner satisfactory to the Lender.
"SUBSIDIARIES" shall mean any entity of which more than fifty
percent (50%) of the outstanding voting securities shall, as of any
applicable date of determination, be owned directly, or indirectly
through one or more intermediaries, by any Borrower.
"TANGIBLE NET WORTH" shall mean, as of any applicable date of
determination, the excess of (i) the value of all assets of the
Borrowers and their Subsidiaries (other than patents, patent rights,
trademarks, trade names, franchises, copyrights, goodwill, and similar
intangible assets) after all appropriate deductions (including,
without limitation, reserves for doubtful receivables, obsolescence,
depreciation and amortization), all as determined on a consolidated
basis in accordance with GAAP, less (ii) all Debt plus (iii) all
Subordinated Debt of the Borrowers and their Subsidiaries which, in
accordance with GAAP, would be required to be presented on their
consolidated balance sheet at such date.
"TERMINATION DATE" shall mean July 24, 1998.
REVOLVING CREDIT LOAN AGREEMENT - Page 7
<PAGE> 9
"UCC" shall mean the Uniform Commercial Code as in effect in
the State of Texas and as amended from time to time.
"UNUSED FACILITY FEE" shall mean on an annualized basis, a fee
equal to one-quarter of one percent (0.25%) of the difference, if any,
between $5,000,000 and the average daily outstanding principal balance
of the Revolving Credit Note for each calendar quarter. Such fee
shall be payable within ten (10) Business Days after presentment of
each such computation thereof by the Lender.
1.2 Accounting Terms. All accounting terms not specifically
defined in this Agreement shall be construed in accordance with GAAP. All
accounting terms and calculations herein with respect to the Borrowers and
their Subsidiaries shall be made after elimination of all inter-company
accounts and transactions among them.
1.3 Singular and Plural. Where the context herein requires, the
singular number shall be deemed to include the plural, and vice versa.
2. REVOLVING CREDIT LOANS
2.1 Revolving Credit Commitment. Subject to the terms and
conditions of this Agreement, the Lender hereby agrees to make one or more
Revolving Credit Loans to the Borrowers from time to time from the date hereof
to and including the Termination Date in an aggregate principal amount at any
time outstanding up to but not exceeding the amount of the Revolving Credit
Commitment as then in effect; provided, however that the Lender shall not be
obligated to make any Revolving Credit Loan which would cause the principal
balance of all outstanding Revolving Credit Loans to exceed the amount which is
the lesser of (i) the Borrowing Base, or (ii) the Revolving Credit Commitment.
Subject to the limitations and the other terms and provisions of this
Agreement, the Borrowers may from time to time borrow, repay and reborrow
hereunder the amount of the Revolving Credit Commitment by means of Advances;
provided that the Lender shall not have an obligation to make any Revolving
Credit Loan on a day which is not a Business Day.
2.2 Revolving Credit Note. The obligation of the Borrowers to
repay the Revolving Credit Loans and interest thereon shall be evidenced by the
Revolving Credit Note executed by the Borrowers, payable to the order of the
Lender in the principal amount of the Revolving Credit Commitment as originally
in effect and dated of even date herewith. The Revolving Credit Note shall in
any event, subject to prior acceleration, be payable in full on the Termination
Date.
2.3 Repayment of Revolving Credit Loans. The Borrowers shall
repay the unpaid principal amount of all Revolving Credit Loans on the
Termination Date. Interest on the Revolving Credit Loans shall be payable in
accordance with Section 4.1.
REVOLVING CREDIT LOAN AGREEMENT - Page 8
<PAGE> 10
3. USE OF PROCEEDS
3. Use of Proceeds. Proceeds of the Loans shall be used by the
Borrowers for (a) acquisition of a portion of the Mortgaged Property, (b)
future acquisitions permitted by Section 9.8(c) working capital and (d)
general corporate purposes.
4. GENERAL - ALL LOANS
4.1 Interest. The unpaid principal amount of the Advances shall
bear interest prior to maturity at a varying rate per annum equal from day to
day to the lesser of (a) the Maximum Legal Rate, or (b) the Applicable Rate (as
defined in the Interest Rate Agreement) (the "INTEREST RATE"). If at any time
the Interest Rate for any Advance shall exceed the Maximum Legal Rate, thereby
causing the interest accruing on such Advance to be limited to the Maximum
Legal Rate, then any subsequent reduction in the Interest Rate for such Advance
shall not reduce the rate of interest on such Advance below the Maximum Legal
Rate until the aggregate amount of interest accrued on such Advance equals the
aggregate amount of interest which would have accrued on such Advance if the
Interest Rate had at all times been in effect. Accrued and unpaid interest on
the Advances shall be due and payable as follows: on the first day of each
month commencing September 1, 1997 and continuing on the same day of each
successive month thereafter, up to and including the Termination Date.
Notwithstanding the foregoing, any outstanding principal of any Advance and (to
the fullest extent permitted by law) any other amount payable by any Borrower
under this Agreement or any other Loan Document that is not paid in full when
due (whether at stated maturity, by acceleration, or otherwise) shall bear
interest at the Default Rate for the period from and including the due date
thereof to but excluding the date the same is paid in full. Interest payable
at the Default Rate shall be payable from time to time on demand.
4.2 Borrowing Procedure. The Borrowers shall give the Lender
notice by means of an Advance Request Form of each requested Advance no later
than the date required by the Interest Rate Agreement, in each case specifying:
(a) the requested date of such Advance (which shall be a Business Day), (b) the
Interest Rate applicable to such Advance and (c) the amount of such Advance.
The Lender at its option may accept telephonic Advance requests by an
Authorized Officer. A telephonic request for an Advance by the Borrowers shall
be promptly confirmed in writing if so requested by the Lender. Subject to the
terms and conditions of this Agreement, each Advance shall be made available to
the Borrowers by depositing the same, in immediately available funds, in an
account of the Borrowers maintained with the Lender at the principal office
designated by the Borrowers. All notices under this Section shall be
irrevocable and shall be given not later than 2:00 P.M. Dallas, Texas time on
the day which is not less than the number of Business Days specified in the
Interest Rate Agreement for such notice.
4.3 Payment. All payments of principal, interest and other
amounts to be paid by the Borrowers under this Agreement or any other Loan
Document shall be paid to the Lender at the address set forth herein for the
delivery of notices to the Lender, in immediately available funds, without
setoff or counterclaims, at or before 2:00 P.M. Dallas, Texas time on the date
on which such payment shall become due (each such payment made after such time
on such due date to be deemed to
REVOLVING CREDIT LOAN AGREEMENT - Page 9
<PAGE> 11
have been made on the next succeeding Business Day). The Borrowers shall, at
the time of making each such payment, specify to the Lender the sums payable by
the Borrowers under this Agreement and the other Loan Documents to which such
payment is to be applied (and in the event the Borrowers fail to so specify, or
if an Event of Default has occurred and is continuing, the Lender may apply
such payment to the Indebtedness in such order and manner as it may elect in
its sole discretion). Whenever any payment under this Agreement or any other
Loan Document shall be stated to be due on a day that is not a Business Day,
such payment shall be deemed due on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of the
payment of interest.
4.4 Maximum Legal Rate, The following provisions shall control
this Agreement and the Revolving Credit Note:
(a) No agreements, conditions, provision or stipulations
contained in this Agreement or in any other Loan Document or the
occurrence of an Event of Default, or the exercise by the Lender of
the right to accelerate the payment or the maturity of principal and
interest on the Revolving Credit Note, or to exercise any option
whatsoever contained in this Agreement, the Interest Rate Agreement,
or any other Loan Document, or the arising of any contingency
whatsoever, shall entitle the Lender to collect, in any event,
interest exceeding the maximum rate of nonusurious interest allowed
from time to time by applicable state or federal laws as now or as may
hereinafter be in effect (the "MAXIMUM LEGAL RATE") and in no event
shall any Borrower be obligated to pay interest exceeding such Maximum
Legal Rate, and all agreements, conditions or stipulations, if any,
which may in any event or contingency whatsoever operate to bind,
obligate or compel the Borrowers to pay a rate of interest exceeding
the Maximum Legal Rate shall be without binding force or effect, at
law or in equity, to the extent only of the excess of interest over
such Maximum Legal Rate. In the event any interest is charged in
excess of the Maximum Legal Rate (the "EXCESS"), each Borrower
acknowledges and stipulates that any such charge shall be the result
of an accidental and bona fide error, and such Excess shall be, first,
applied to reduce the principal of any obligations due, and, second,
returned to the Borrowers, it being the intention of the parties
hereto not to enter at any time into an usurious or otherwise illegal
relationship. The parties hereto recognize that with fluctuations in
the Interest Rate from time to time announced by the Lender such an
unintentional result could inadvertently occur. By the execution of
this Agreement, each Borrower covenants that (a) the credit or return
of any Excess shall constitute the acceptance by such Borrower of such
Excess, and (b) neither Borrower shall seek or pursue any other
remedy, legal or equitable, against the Lender based, in whole or in
part, upon the charging or receiving of any interest in excess of the
Maximum Legal Rate. For the purpose of determining whether or not any
Excess has been contracted for, charged or received by the Lender, all
interest at any time contracted for, charged or received by the Lender
in connection with the Borrowers' obligations shall be amortized,
prorated, allocated and spread during the entire term of this
Agreement. If at any time the rate of interest payable hereunder
shall be computed on the basis of the Maximum Legal Rate, any
subsequent reduction in the Interest Rate shall not reduce such
interest thereafter payable hereunder below the amount computed on the
basis of the Maximum Legal Rate until the aggregate amount of such
interest accrued and payable under this Agreement equals the total
amount of interest which would have accrued if such interest had been
at all times computed solely on the basis of the Interest Rate.
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<PAGE> 12
(b) Unless preempted by federal law, the rate of interest
from time to time in effect hereunder shall not exceed the "indicated
rate ceiling" from time to time in effect under Chapter 1 of the Texas
Credit Code (Vernon's Texas Civil Statutes), Section (a)(1), Article
5069-1.04, as amended.
(c) The provisions of this Section shall be deemed to be
incorporated into every document or communication relating to the
Indebtedness which sets forth or prescribes any account, right or
claims or alleged account, right or claim of the Lender with respect
to the Borrowers (or any other obligor in respect of the
Indebtedness), whether or not any provision of this Section is
referred to therein. All such documents and communications and all
figures set forth therein shall, for the sole purpose of computing the
extent of the obligations asserted by the Lender thereunder, be
automatically recomputed by the Borrowers or any other obligor, and by
any court considering the same, to give effect to the adjustments or
credits required by this Section.
(d) If the applicable state or federal law is amended in
the future to allow a greater rate of interest to be charged under
this Agreement than is presently allowed by applicable state or
federal law, then the limitation of interest hereunder shall be
increased to the maximum rate of interest allowed by applicable state
or federal law, as amended, which increase shall be effective
hereunder on the effective date of such amendment, and all interest
charges owing to the Lender by reason thereof shall be payable upon
demand.
(e) The provisions of Chapter 15 of the Texas Credit Code
(Vernon's Texas Civil Statutes), Article 5069-15, as amended, are
specifically declared by the parties hereto not to be applicable to
this Agreement or any other Loan Document or to the transactions
contemplated hereby or thereby.
4.5 Basis of Computation. Subject to Section 4.4 hereof, the
amount of all interest payable hereunder shall be computed for the actual
number of days elapsed on the basis of a year consisting of 360 days.
4.6 Prepayments.
4.6.1 Mandatory Prepayments. The Borrowers shall, within
one (1) day after notice thereof from the Lender, pay to the Lender as
a payment on the Revolving Credit Note the amount, if any, by which
the principal balance of the Revolving Credit Note outstanding from
time to time exceeds the Borrowing Base, together with all interest
accrued and unpaid on the amount of such excess.
4.6.2 Optional Prepayments. The Borrowers may, at any
time, prepay the Advances in whole at any time or from time to time in
part without premium or penalty but with accrued interest to the date
of prepayment on the amount so prepaid; provided, however, if the
Borrowers desire to prepay the Advances in whole and terminate the
Revolving Credit Commitment within the first year after the execution
of this Agreement, such prepayment must
REVOLVING CREDIT LOAN AGREEMENT - Page 11
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be accompanied by a prepayment premium in the amount of $10,000, which
fee shall be deemed fully earned and nonrefundable as of the date of
such prepayment.
5. SECURITY
5.1 Collateral. To secure the full and timely performance of the
Borrowers' covenants set out in this Agreement and the other Loan Documents and
to secure the repayment of the Revolving Credit Note and all other Indebtedness
whatsoever of the Borrowers to the Lender, including without limitation,
Indebtedness of the Borrowers under the Real Estate Loan Agreement, each
Borrower agrees to grant and assign a lien upon and security interest in the
Collateral pursuant to the Security Agreement, the Financing Statements, the
Deed of Trust, and other instruments and agreements required by and
satisfactory to the Lender.
5.2 Setoff. If an Event of Default shall have occurred and be
continuing, the Lender shall have the right to set off and apply against any
Indebtedness then due in such manner as the Lender may determine, at any time
and without notice to the Borrowers, any and all deposits (general or special,
time or demand, provisional or final) or other sums at any time credited by or
owing from the Lender to the Borrowers. As further security for the
Indebtedness, each Borrower hereby grants to the Lender a security interest in
all money, instruments, and other property of such Borrower now or hereafter
held by the Lender, including, without limitation, property held in
safekeeping. In addition to the Lender's right of setoff and as further
security for the Indebtedness, each Borrower hereby grants to the Lender a
security interest in all deposits (general or special, time or demand,
provisional or final) and other accounts of such Borrower now or hereafter on
deposit with or held by the Lender and all other sums at any time credited by
or owing from the Lender to such Borrower. The rights and remedies of the
Lender hereunder are in addition to other rights and remedies (including,
without limitation, other rights or setoff) which the Lender may have.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF LENDER
6.1 Conditions to First Loan. The obligations of the Lender under
this Agreement are subject to the occurrence, prior to or on the date of the
initial Loan hereunder, of each of the following conditions, any or all of
which may be waived in whole or in part by the Lender in writing:
6.1.1 Documents Executed and Filed. The Borrowers
shall have executed (or caused to be executed) and delivered
to the Lender and, as appropriate, there shall have been
signed for filing with such filing offices as the Lender shall
deem appropriate, the following:
(a) The Revolving Credit Note;
(b) The Security Agreement;
(c) The Deed of Trust; and
(d) All other Loan Documents.
6.1.2. Certified Resolutions. Each Borrower shall
have furnished to the Lender a corporate certificate of such
Borrower and a copy of the resolutions of the officers of such
Borrower authorizing the execution, delivery and performance
of this Agreement, the
REVOLVING CREDIT LOAN AGREEMENT - Page 12
<PAGE> 14
borrowings hereunder, the Revolving Credit Note, the Security
Agreement and all other Loan Documents, each of which shall
have been certified by the Secretary of such Borrower as of
the date hereof.
6.1.3. Certificates of Good Standing and Existence.
Each Borrower shall have furnished to the Lender certificates
of existence and good standing, each of which shall have been
certified by the state agency issuing the same as of a date
reasonably near the date hereof.
6.1.4. Certificate of Incumbency. Each Borrower
shall have furnished to the Lender a certificate of the
Secretary of such Borrower, certified as of the date hereof,
as to the incumbency and signatures of such officers signing
this Agreement, the Revolving Credit Note, the Security
Agreement and the other Loan Documents.
6.1.5. Payment of Fees. Evidence that all costs and
expenses (including reasonable attorneys' fees) incurred by
the Lender and known to date in connection with the
preparation of this Agreement and the other Loan Documents
shall have been paid in full by the Borrowers.
6.1.6. Approval of Lender Counsel. All actions,
proceedings, instruments and documents required to carry out
the transactions contemplated by this Agreement or incidental
thereto and all other related legal matters shall have been
satisfactory to and approved by legal counsel for the Lender,
and said counsel shall have been furnished with such certified
copies of actions and proceedings and such other instruments
and documents as they shall have reasonably requested.
6.1.7. Release of Liens. The Lender shall have
received satisfactory evidence of the release of all liens
and/or security interests against the Collateral except
Permitted Liens.
6.1.8. Other Information and Documentation. The
Lender shall have received such other information,
certificates and executed documents as it shall have
reasonably requested.
6.2. Conditions to All Loans. The obligation of the Lender to make
any Loan (including any initial Advance) is subject to the occurrence, prior to
or on the requested date of each such Loan, of each of the following
conditions, any or all of which may be waived in whole or in part by the Lender
in writing:
6.2.1. Loan Request. The Lender shall have received
a written Advance Request Form, executed by the appropriate
officer of each Borrower and timely delivered as required by
this Agreement.
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<PAGE> 15
6.2.2. No Default. As of such date:
(a) No Default or Event of Default shall
have then occurred and be continuing; and
(b) Each warranty or representation
referenced in Section 7.16 of this Agreement shall be
true and correct.
7. WARRANTIES AND REPRESENTATIONS
Each Borrower represents and warrants to the Lender:
7.1 Corporate Existence and Power. Each Borrower (i) is duly
organized, validly existing and in good standing under the laws of its state of
organization, (ii) has the power and authority to own its properties and assets
and to carry out its business as now being conducted and is qualified to do
business and in good standing in every jurisdiction wherein such qualification
is necessary except where the failure to be so qualified would not result in a
material adverse effect on the business or financial condition of any Borrower
and (iii) has the power and authority to execute and perform this Agreement, to
borrow money in accordance with its terms, to execute and deliver the Revolving
Credit Note, the Security Agreement and the other Loan Documents to be executed
by it and to grant to the Lender liens and security interest in the Collateral
as hereby contemplated and to do any and all other things required of it
hereunder.
7.2 Authorization and Approvals. As to each Borrower, the
execution, delivery and performance of this Agreement, the Revolving Credit
Note, the Security Agreement, the borrowing hereunder and the execution and
delivery of each of the other Loan Documents contemplated hereby (a) have been
duly authorized by all requisite corporate action, (b) do not require
registration with or consent or approval of, or other action by, any federal,
state or other governmental authority or regulatory body, or, if such
registration, consent or approval is required, the same has been obtained and
disclosed in writing to the Lender, (c) will not violate any provision of law,
any order of any court or other agency of government, the organizational
documents of such Borrower, any provision of any indenture, agreement or other
instrument to which such Borrower is a party, or by which it or any of its
properties or assets are bound except where such violation would not result in
a material adverse effect on the business or financial condition of such
Borrower, (d) will not be in conflict with, result in a breach of or constitute
(with or without notice or passage of time) a default under any indenture,
agreement or other instrument except where such conflict, breach or default
would not result in a material adverse effect on the business or financial
condition of such Borrower, and (e) will not result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of its properties or assets other than Permitted Liens.
7.3 Valid and Binding Agreement. This Agreement is, and each of
the other Loan Documents will be, when delivered, valid and binding obligations
of each Borrower, in each case enforceable in accordance with their respective
terms except as limited by insolvency, bankruptcy or similar laws and equitable
principles affecting the enforcement of creditors' rights generally.
REVOLVING CREDIT LOAN AGREEMENT - Page 14
<PAGE> 16
7.4 Actions, Suits or Proceedings. Except as disclosed on
Schedule 7.4 or otherwise disclosed in writing to the Lender, there are no
actions, suits or proceedings, at law or in equity, and no proceedings before
any arbitrator or by or before any governmental commission, board, bureau or
other administrative agency, pending, or, to the best knowledge of the
Borrowers, threatened against or affecting any Borrower, or any properties or
rights of any Borrower, which, if adversely determined, would materially impair
the right of such Borrower to carry on business substantially as now conducted
or could have a material adverse effect upon the financial condition of such
Borrower.
7.5 No Liens, Pledges, Mortgages or Security Interests. Except for
Permitted Liens, none of the Borrowers' assets and properties, including the
Collateral, is subject to any mortgage, pledge, lien, security interest or
other encumbrance of any kind or character.
7.6 Accounting Principles. The Financial Statements have been
prepared on a consolidated basis in accordance with GAAP and fairly present the
financial condition of each Borrower as of the dates, and the results of its
operations for the periods, for which the same are furnished to the Lender. To
the best of Borrowers' knowledge and belief, neither Borrower has any material
contingent obligations, liabilities for taxes, long-term leases or unusual
forward or long-term commitments not disclosed by, or reserved against in, the
Financial Statements or otherwise disclosed in writing to the Lender.
7.7 No Adverse Changes. There has been no material adverse change
in the business, properties or condition (financial or otherwise) of any
Borrower since the date of the latest of the Financial Statements or otherwise
disclosed in writing to the Lender.
7.8 Conditions Precedent. As of the date of each Loan hereunder,
all appropriate conditions precedent referred to in this Agreement shall have
been satisfied (or waived in writing by the Lender).
7.9 Taxes. Each Borrower has filed (or in the case of any
consolidated, unitary or combined return, the Borrower has been included in a
return filed) by the extended due date therefor all federal, state and local
tax returns and other reports required by law to be filed and which are
material to the conduct of its business, has paid or caused to be paid all
material taxes, assessments and other governmental charges that are shown to be
due and payable by such Borrower under such returns, and has made adequate
provision for the payment of such taxes, assessments or other governmental
charges which have accrued but are not yet payable. Neither Borrower has any
knowledge of any asserted deficiency or assessment in a material amount in
connection with any taxes, assessments or other governmental charges not
adequately disclosed in the Financial Statements or otherwise disclosed in
writing to the Lender.
7.10 Compliance with Laws. Each Borrower has complied with all
applicable laws, to the extent that failure to comply would materially
interfere with the conduct of its respective business.
REVOLVING CREDIT LOAN AGREEMENT - Page 15
<PAGE> 17
7.11 Indebtedness; Material Agreements.
(a) Except as disclosed on Schedule 7.11, neither
Borrower has any Debt.
(b) To the best knowledge of the Borrowers, it has
complied with the provisions of all material contracts or commitments;
and to the best knowledge of Borrowers, no party to such agreements is
in default thereunder, nor has there occurred any event which with
notice or the passage of time, or both, would constitute such a
default.
7.12 Margin Stock. Neither Borrower is engaged principally, or as
one of its important activities, in the business of extending credit 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, and no
part of the proceeds of any Loan hereunder will be used, directly or
indirectly, to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock or for any other
purpose which might violate the provisions of Regulation G, T, U or X of the
said Board of Governors. Neither Borrower owns any margin stock.
7.13 Pension Funding. Neither Borrower has incurred any material
accumulated funding deficiency within the meaning of ERISA or any material
liability to the PBGC in connection with any employee benefit plan established
or maintained by such Borrower and no presently existing reportable event or
presently existing prohibited transaction, as defined in ERISA, has occurred
with respect to such plans which would result in a material adverse effect on
the business or financial condition of such Borrower.
7.14 Misrepresentation. To the best knowledge of the officer
signing the same, after reasonable inquiry, no warranty or representation by
any Borrower contained herein or in any certificate or other document furnished
by any Borrower contemporaneously herewith contains any untrue statement of
material fact or omits to state a material fact necessary to make such warranty
or representation not misleading in light of the circumstances under which it
was made.
7.15 Eligible Inventory. As to each item of Inventory represented
by the Borrowers to be "ELIGIBLE INVENTORY" on a Borrowing Base Certificate, as
of the date of each such Borrowing Base Certificate:
(a) Such item of Inventory is of good and merchantable
quality and is usable or salable by a Borrower in the ordinary course
of its business, and is not obsolete, and is not work in process.
(b) Borrowers have granted to the Lender a perfected
security interest in such item of Inventory (as an item of the
Collateral) prior in right to all other Persons (other than Permitted
Liens), and such item of Inventory has not been sold, transferred or
otherwise assigned by either Borrower, to any Person, other than the
Lender and other than sales in the ordinary course of business
occurring after the date of such Borrowing Base Certificate.
REVOLVING CREDIT LOAN AGREEMENT - Page 16
<PAGE> 18
(c) Such item of Inventory is located at one of the locations
identified in the Security Agreement.
7.16 Loans and Representations. As of the date of each Advance
Request, each Borrower, unless otherwise disclosed to the Lender in writing,
shall be deemed to represent and warrant to the Lender, as an inducement to
having the Lender make the requested Loan, that as of the date of such Loan
request (a) the representations and warranties contained in Sections 7.1, 7.4,
7.7, 7.15 and 7.17 of this Agreement are true and correct in all material
respects, (b) the requirements of Section 6.2.2 have been complied with and (c)
the Lender will have a first priority security interest and lien on the
Collateral covered by the invoice or bill of sale (or similar document), if
any, to which the Loan request relates.
7.17 Eligible Accounts. As to each Account represented by the
Borrowers to be an "ELIGIBLE ACCOUNT" on a Borrowing Base Certificate, as of
the date of each such Borrowing Base Certificate:
(a) Such Account arose in the ordinary course of the
business of a Borrower out of either (i) a bona fide sale of Inventory
by a Borrower, and in such case such Inventory has in fact been
shipped to, and accepted and retained by, the appropriate account
debtor or the sale has otherwise been consummated in accordance with
such order, or (ii) services performed by a Borrower under an
enforceable contract, and in such case such services have in fact been
performed for the appropriate account debtor in accordance with such
contract.
(b) Such Account represents a legally valid and
enforceable claim which is due and owing to a Borrower by such account
debtor in at least such amount as is represented by the Borrowers to
the Bank on such Borrowing Base Certificate, such Account is due and
payable not more than thirty (30) days from the delivery of the
related Inventory, or the performance of the related services, giving
rise to such Account and, unless the Bank otherwise allows, such
Account has not been due for more than ninety (90) days (from the date
of invoice). If more than 25% of the total billings to any Account
remains unpaid more than 90 days from invoice date, then the entire
balance of the Account shall be ineligible for Advances. In addition,
that portion of the Accounts of any account debtor which exceeds
thirty percent (30%) of the dollar amount of the total of all Accounts
for all account debtors shall be ineligible for Advances.
(e) To the best of the Borrowers' knowledge, the unpaid
balance of such Account as represented by the Borrowers to the Lender
on such Borrowing Base Certificate is not subject to any defense,
counterclaim, set-off, credit, allowance or adjustment by the account
debtor because of returned, inferior or damaged Inventory or services,
or for any other valid reason, except for customary discounts allowed
by any Borrower in the ordinary course of business for prompt payment
or as otherwise indicated by credit memos disclosed in such Borrowing
Base Certificate, and there is no agreement between any Borrower, the
related account debtor and any other person for any rebate, discount,
concession or release of liability, in whole or in part. If such
Account does not satisfy the above representations, then such
REVOLVING CREDIT LOAN AGREEMENT - Page 17
<PAGE> 19
Account shall be ineligible for Advances to the extent that such
Account is subject to a defense, counterclaim, set-off, credit,
allowance or adjustment.
(d) To the best of the Borrowers' knowledge, the
transactions leading to the creation of such Account comply with all
applicable state and federal laws and regulations.
(e) The Borrowers have granted to the Bank a perfected
security interest in such Account (as an item of the Collateral) prior
in right to all other persons (other than Permitted Liens), and such
Account has not been sold, transferred or otherwise assigned by any
Borrower to any Person, other than the Bank.
(f) Such Account is not represented by any note, trade
acceptance, draft or other negotiable instrument or by any chattel
paper, except any such as constitute an item of Collateral on or prior
to such Account's inclusion on such Borrowing Base Certificate.
(g) Neither Borrower has received, with respect to such
Account, any actual notice of the death of the related account debtor,
nor of the dissolution, liquidation, termination of existence,
insolvency, business failure, appointment of a receiver for any part
of the property of, assignment for the benefit of creditors by, or the
filing of a petition in bankruptcy or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against, such
account debtor.
(h) The account debtor on such Account is not:
(i) an affiliate of either Borrower,
(ii) the United States of America or any
department, agency or instrumentality thereof unless the grant
of a security interest therein has been made to the Lender in
compliance with applicable federal assignment of claims laws
and regulations,
(iii) a citizen or resident of any jurisdiction
other than one of the United States (unless covered by
satisfactory letter of credit, foreign receivable insurance,
or otherwise acceptable to the Lender, but only to the extent
of such letter of credit or insurance), or
(iv) an account debtor whom the Bank has, in the
reasonable exercise of such Bank's sole reasonable discretion,
determined to be (based on such factors relating to such
account debtor as the Bank deems appropriate) an ineligible
account debtor and as to which the Bank has notified the
Borrowers, provided, however, that any such notice shall not
apply retroactively as to any particular Account if such
Account was included on a prior Borrowing Base Certificate by
the Borrowers prior to the giving of such notice by the Bank
and which otherwise complied with each and every other
requirement under this Agreement for the denomination of such
Account as an "ELIGIBLE ACCOUNT."
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<PAGE> 20
8. AFFIRMATIVE COVENANTS
From the date hereof until the Indebtedness is paid in full, each
Borrower covenants and agrees that it will:
8.1 Financial and Other Information.
8.1.1 Annual Financial Reports. Furnish to the Lender in
form satisfactory to the Lender not later than ninety (90) days after
the close of each fiscal year of Borrowers, beginning with the fiscal
year ending December 31, 1997, on a consolidated basis, a balance
sheet as at the close of each such fiscal year, statements of income
and statements of cash flow for each such fiscal year of Borrowers and
their Subsidiaries, and such other comments and financial details as
are usually included in similar reports. Such consolidated reports
shall be audited in accordance with GAAP by independent certified
public accountants of recognized standing selected by Borrower and
reasonably acceptable to the Lender and shall contain unqualified
opinions as to the fairness of the statements therein contained.
8.1.2 Quarterly Financial Reports Furnish to Lender not
later than forty-five (45) days after the end of each fiscal quarter,
of the Borrowers, beginning with the fiscal quarter ending June 30,
1997, on a consolidated basis, a balance sheet as at the close of such
fiscal quarter, statements of income and statements of cash flow for
each such fiscal quarter of Borrowers and their Subsidiaries, and such
other comments and financial details as are usually included in
similar reports. These statements shall be prepared in substantially
the same manner as the statements required in Section 8.1.1 of this
Agreement and shall be in such detail as the Lender may reasonably
require, and the accuracy of the statements (subject to year-end
adjustments) shall be certified by the chief executive or financial
officer of each Borrower.
8.1.3 Monthly Financial Statements. Furnish to the Lender
not later than thirty (30) days after the close of each month,
beginning with reports for the month ending July 31, 1997, financial
statements containing the consolidated balance sheet of Borrowers as
of the end of each month and statements of income of Borrowers up to
the end of each month. These statements shall be prepared in
substantially the same manner as the statements required in Section
8.1.1 of this Agreement and shall be in such detail as the Lender may
reasonably require, and the accuracy of the statements (subject to
year-end adjustments) shall be certified by the chief executive or
financial officer of each Borrower.
8.1.4 Monthly Borrowing Base Certificate and Other Monthly
Reports. Furnish to the Lender monthly by the 10th day of each month,
(i) a Borrowing Base Certificate for the last day of the prior month,
on behalf of the Borrowers, confirming that the outstanding principal
balance of the Revolving Credit Note does not exceed the lesser of the
Revolving Credit Commitment or the Borrowing Base, as then in effect
(or, if such is not the case, accompanied by a mandatory prepayment in
accordance with this Agreement), (ii) a detailed listing of the
Borrowers' Inventory (in such detail as the Lender may require) for the
REVOLVING CREDIT LOAN AGREEMENT - Page 19
<PAGE> 21
immediately preceding month and (iii) a detailed accounts receivable
aging, and an accounts payable aging (each in such detail as the
Lender may require) for the prior month.
8.1.5 Monthly Compliance Certificate. Furnish to the Lender
not later than thirty (30) days after the close of each month
(beginning with the month ending August 31, 1997) a Compliance
Certificate dated as of the end of the month immediately prior to the
due date for such Compliance Certificate.
8.1.6 Adverse Events. Promptly inform the Lender of the
occurrence of any Event of Default or Default, or of any occurrence
which has or would reasonably be expected to have a materially adverse
effect upon either Borrower's business, properties, financial
condition or ability to comply with their respective obligations
hereunder.
8.1.7 Public Filings. Furnish to the Lender, promptly,
upon filing the same, all securities agency filings, both state and
federal.
8.1.8 Other Information as Requested. Promptly furnish to
the Lender such other information regarding the operations, business
affairs and financial condition of the Borrowers as the Lender may
reasonably request from time to time and permit the Lender, its
employees, attorneys and agents, to inspect all of the books, records
and properties of the Borrowers at any reasonable time.
8.2 Insurance. Keep its insurable properties (including,
but not limited to, the Collateral) adequately insured and maintain
(a) insurance against fire and other risks customarily insured against
by companies engaged in the same or a similar business to that of the
Borrowers, (b) necessary worker's compensation insurance (or foreign
equivalent thereof, (c) public liability and product liability
insurance, and (d) such other insurance as may be required by law or
as may be reasonably required in writing by the Lender, all of which
insurance shall be in such amounts, containing such terms, in such
form, for such purposes and written by such companies as may be
satisfactory to the Lender in the reasonable exercise of its judgment.
All such policies shall contain a provision whereby they may not be
canceled except upon thirty days' prior written notice to the Lender.
The Borrowers will deliver to the Lender, at the Lender's request,
evidence satisfactory to the Lender that such insurance has been so
procured and, with respect. to casualty insurance covering the
Collateral, names the Lender as "mortgagee". If the Borrowers fail to
maintain satisfactory insurance as herein provided, the Lender shall
have the option to do so, and the Borrowers agree to repay the Lender,
with interest at four percent (4%) per annum plus the Prime Rate, all
amounts so expended by the Lender.
8.3 Taxes. Pay within the time that they can be paid
without interest or penalty all taxes, assessments and similar imposts
and charges of every kind and nature lawfully levied, assessed or
imposed upon it and its property, except to the extent being contested
in good faith and for which adequate reserves have been established on
the balance sheet of the Borrowers. If the Borrowers shall fail to
pay or contest such taxes and assessments by their due date, the
Lender shall have the option to do so, and the Borrowers agree to
repay the Lender, with interest at four percent (4%) per annum plus
the Prime Rate, all amounts so expended by the Lender.
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<PAGE> 22
8.4 Maintain Legal Existence and Business. Do or cause
to be done all things necessary to preserve and keep in full force and
effect their legal existence, rights and franchise and comply, in all
material respects, with all applicable laws; continue to conduct and
operate its business substantially as conducted and operated during
the present and preceding calendar year.
8.5 Minimum Tangible Net Worth. Maintain at all times,
tested quarterly, a Tangible Net Worth of not less than (a)
$6,000,000 from the date hereof through December 31, 1997 and (b)
$6,750,000 thereafter, calculated on a rolling 4-quarter basis, for
the immediately preceding fiscal quarter.
8.6 Debt/Tangible Net Worth Ratio. Maintain at all
times, tested quarterly, a ratio of Debt to Tangible Net Worth of not
more than 1.0:1.0.
8.7 Debt Service Coverage Ratio. Maintain at all times,
tested quarterly, a Debt Service Coverage Ratio of not less than
1.5:1.0.
8.8 Minimum Net Income. Maintain at all times, tested
annually, a minimum Net Operating Income of at least $1,000,000,
calculated on a rolling 12-month basis.
8.9 ERISA. (a) Subject to the exceptions set forth in
Section 11.1.7, at all times meet the minimum funding requirements
of ERISA with respect to the Borrowers' employee benefit plans subject
to such minimum funding requirements; (b) promptly after the Borrowers
know or have reason to know (i) of the occurrence of any event, which
would constitute a reportable event or prohibited transaction under
ERISA that would result in a material adverse effect on the business
or financial condition of the Borrowers, or (ii) that the PBGC or any
Borrower has instituted or will institute proceedings to terminate an
employee pension plan, deliver to the Lender a certificate of the
chief financial officer of such Borrower setting forth details as to
such event or proceedings and the action which the Borrower proposes
to take with respect thereto, together with a copy of any notice of
such event which may be required to be filed with the PBGC; and (c) a
copy of the annual return (including all schedules and attachments)
for each plan covered by ERISA, and filed with the Internal Revenue
Service by such Borrower, not later than ten (10) days after receipt
of a written request from the Lender for such report.
8.10 Use of Loan Proceeds. Use the proceeds of the Loans
hereunder for the purposes set forth herein.
8.11 Unused Facility Fee. Pay the Unused Facility Fee when
due.
8.12 Real Estate Loan. Effect a closing of the transactions
contemplated by the Real Estate Loan Agreement within sixty (60) days
after the date hereof (upon which date, the Lender shall return the
$10,000 retainer fee paid by the Borrowers), or, if such transaction
does not close within sixty (60) days, forfeit the $10,000 retainer fee
paid by Borrowers to the Lender.
REVOLVING CREDIT LOAN AGREEMENT - Page 21
<PAGE> 23
9. NEGATIVE COVENANTS
From the date hereof until the Indebtedness is paid in full, each
Borrower covenants and agrees it will not:
9.1 Dividends. Declare or pay any dividend on, (other than
dividends payable solely in shares of its capital stock) or make any other
distribution with respect to (whether by reduction of capital or otherwise),
any capital stock.
9.2 Stock Acquisition. Purchase, redeem, retire or otherwise
acquire any of its capital stock, or make any commitment to do so.
9.3 Liens and Encumbrances. Create, incur, assume or suffer to
exist any mortgage, pledge, encumbrance, security interest, lien or charge of
any kind (including any charge upon property purchased or acquired under a
conditional sales or other title-retaining agreement or lease required to be
capitalized under GAAP) upon any of its property or assets, whether now owned
or hereafter acquired, other than Permitted Liens.
9.4 Indebtedness. Incur, create, assume or permit to exist any
Indebtedness, except for (a) the Indebtedness, (b) indebtedness subordinated to
the prior payment in full of the Indebtedness upon terms and conditions
approved in writing by the Lender, including without limitation, indebtedness
under the Investment Agreement, (c) existing indebtedness to the extent set
forth on schedules to this Agreement, and (d) indebtedness secured by Permitted
Liens.
9.5 Extension of Credit. Make loans, advances or extensions of
credit to any Person other than (a) loans and advances to employees which in
the aggregate do not exceed $25,000 at any time and (b) loans to potential
target companies for acquisitions up to an aggregate amount of $1,000,000, not
to exceed $500,000 to any individual company.
9.6 Guarantee Obligations. Except for the guaranty by ErgoBilt,
Inc. of indebtedness of CTSS to BodyBilt, Inc. in the principal amount of
$250,000, guarantee or otherwise, directly or indirectly, in any way be or
become responsible for obligations of any other Person, whether by agreement to
purchase the indebtedness of any other Person, agreement for the furnishing of
funds to any other Person through the furnishing of goods, supplies or
services, by way of stock purchase, capital contribution, advance or loan, for
the purpose of paying or discharging (or causing the payment or discharge of)
the indebtedness of any other Person, or otherwise, except for the endorsement
of negotiable instruments by such Borrower in the ordinary course of business
for deposit or collection.
9.7 Subordinate Indebtedness. Subordinate any indebtedness due to
it from a Person to indebtedness of other creditors of such Person.
9.8 Property Transfer, Merger or Lease-Back. (a) Sell, lease,
transfer or otherwise dispose of all or, except as to the sale of Inventory or
unneeded Equipment in the ordinary course of business, any material part of its
properties and assets (whether in one transaction or in a series of
REVOLVING CREDIT LOAN AGREEMENT - Page 22
<PAGE> 24
transactions), (b) change its name, consolidate with or merge into any other
corporation, permit another corporation to merge into it, acquire all or
substantially all the properties or assets of any other Person, enter into any
reorganization or recapitalization or reclassify its capital stock, or (c)
enter into any sale-leaseback transaction, provided that Borrowers and their
Subsidiaries may make transfers of assets among themselves so long as the liens
and security interests of the Lender in the Collateral at all times remain
perfected and in full force and effect; provided, however, the Borrowers may
acquire all of the properties or assets of any other Person up to an aggregate
amount of $1,000,000 without prior approval of the Lender if any such
acquisition would not result in a Default or Event of Default.
9.9 Acquire Securities. Purchase or hold beneficially any stock
or other securities of, or make any investment or acquire any interest
whatsoever in, any other Person except for investments:
(a) in commercial paper, maturing within 270 days after
acquisition thereof, which has the highest or second highest credit
rating given by either Standard & Poor's Corporation or Moody's
Investors Service, Inc.;
(b) in obligations, maturing within 12 months after
acquisition thereof, issued or unconditionally guaranteed by the
United States of America or an instrumentality or agency thereof and
entitled to the full faith and credit of the United States of America;
(c) in demand deposits, and time deposits (including
certificates of deposit) maturing within 12 months from the date of
deposit thereof, with any office of the Lender, any of the Lender's
affiliates, or any national or state bank or trust company which is
organized under the laws of the United States of America or any state
therein and which has capital, surplus and undivided profits of at
least $100,000,000; and
(d) in repurchase obligations of any bank or trust
company described in the above subsection (c) which relate to the
repurchase of obligations described in the above subsection (b).
(e) in Money Market Funds whose assets have a weighted
average maturity of less than 180 days and are invested in U.S.
government securities or securities specified by the U.S. Government.
9.10 Pension Plans. (a) Allow any fact, condition or event to occur
or exist with respect to an employee pension plan which would constitute
grounds for termination by the PBGC of any such plan or for the appointment by
a United States District Court of a trustee to administer any such plan, or (b)
permit any such plan to be the subject of termination proceedings (whether
voluntary or involuntary) from which termination proceedings there results a
liability of the Borrower to the PBGC which will have a materially adverse
effect upon the operations, business, property, assets, financial condition or
credit of any Borrower.
9.11 Margin Stock. Apply any of the proceeds of the Revolving
Credit Note to the purchase or carrying of any "margin stock" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System, or any regulations, interpretations or rulings thereunder.
REVOLVING CREDIT LOAN AGREEMENT - Page 23
<PAGE> 25
9.12 Compliance with Environmental Laws. Neither Borrower will (i)
use (and will use commercially reasonable efforts to prevent any tenant from
using) any of its real property for the handling processing, storage,
transportation, or disposal of any Hazardous Substance except in all respects
in compliance with Environmental Laws, (ii) generate (as such term is defined
in RCRA) any Hazardous Substance except in all respects in compliance with
Environmental Laws, (iii) conduct any activity which causes a release (as such
term is defined in CERCLA) of any Hazardous Substance in violation of
Environmental Law, or (iv) otherwise conduct any activity or use any of its
real property or assets in any manner that violates any Environmental Law
except that, in each of cases (i)-(iv) above, in such a manner as would not
result in a material adverse effect on the business or financial condition of
the Borrower.
10. EVENTS OF DEFAULT - ENFORCEMENT - APPLICATION OF PROCEEDS
10.1 Events of Default. The occurrence of any of the following
events shall constitute an Event of Default hereunder:
10.1.1 Failure to Pay Monies Due. If any principal of or
interest on any of the Indebtedness shall not be paid within one
Business Day after becoming due.
10.1.2 Misrepresentation. If any warranty or representation
of any Borrower in connection with or contained in this Agreement, or
if any financial data or other information now or hereafter furnished
to the Lender by or on behalf of such Borrower, shall prove to be
false or misleading in any material respect.
10.1.3 Noncompliance with Lender Agreement. If any Borrower
shall fail to perform any of its obligations and covenants under, or
shall fail to comply with any of the provisions of, this Agreement or
any other Loan Document or any other agreement with the Lender to
which it may be a party, and such failure is not remedied within ten
(10) days after the Lender gives written notice thereof to the
Borrowers.
10.1.4 Other Defaults.
(a) If any Borrower shall default in the due payment of
any of its Indebtedness (other than under the Loan Documents) or in
the observance or performance of any term, covenant or condition in
any agreement or instrument evidencing, securing or relating to such
Indebtedness, and such default shall be continued for a period
sufficient to permit acceleration thereof,
(b) If any Borrower shall default in the due payment of
any of its Debt (other than the Indebtedness) or in the observance or
performance of any term, covenant or condition in any agreement or
instrument evidencing, securing or relating to such Debt and such
default shall be continued for a period sufficient to permit
acceleration of the indebtedness; or
(c) If any Borrower should default under the Real Estate
Loan Agreement.
REVOLVING CREDIT LOAN AGREEMENT - Page 24
<PAGE> 26
10.1.5 Judgments. If there shall be rendered against any
Borrower, one or more judgments or decrees involving an aggregate
liability of $50,000 or more, which has or have become final and
nonappealable and shall remain undischarged, unsatisfied by insurance
and unstayed for more than 30 days; or of a writ of attachment or
garnishment against the property of any Borrower shall be issued and
levied in an action claiming $50,000 or more, and within the time
allowed under applicable law is neither released nor stayed nor
appealed and bonded in a manner satisfactory to the Lender.
10.1.6 Business Suspension, Bankruptcy, Etc. If any
Borrower shall voluntarily suspend transaction of its business for a
period in excess of five (5) Business Days (unless covered by business
interruption insurance); or if any Borrower generally shall not pay
its debts as they become due, subject to applicable grace periods, or
shall make a general assignment for the benefit of creditors; or
proceedings in bankruptcy, or for reorganization or liquidation of any
Borrower, under the Bankruptcy Code or under any other state or
federal law for the relief of debtors shall be commenced by any
Borrower or shall be commenced against any Borrower and shall not be
discharged within sixty (60) days of commencement; or a receiver,
trustee or custodian shall be appointed for any Borrower or for any
substantial portion of its respective properties or assets.
10.1.7 Inadequate Funding or Termination of
Employee/Benefit Plan(s). If any Borrower shall fail by $20,000 or
more to meets its minimum funding requirements under ERISA (after
giving effect to any valid waiver of such requirements) with respect
to any employee benefit plan established or maintained by such
Borrower, or if any such plan shall be the subject of termination
proceedings (whether voluntary or involuntary) and there shall result
from such termination proceedings a liability of any Borrower (or any
subsidiary) to the PBGC of $20,000 or more.
10.1.8 Occurrence of Certain Reportable Events. If there
shall occur, with respect to any pension plan maintained by any
Borrower, any reportable event (within the meaning of section 4043(b)
of ERISA) which the Lender shall determine in good faith constitutes a
ground for the termination by the PBGC of any such plans, and if such
event continues for 60 days after the Lender gives written notice to
any Borrower, provided that termination of such plan or appointment of
such trustee would, in the opinion of the Lender, have a materially
adverse effect upon the operations, business, property, assets,
financial condition or credit of any Borrower.
10.1.9 Real Estate Loan. If the transactions contemplated
by the Construction Loan Agreement are not closed and consummated
within sixty (60) days from the date of this Agreement.
10.2 Acceleration of Indebtedness. Upon the occurrence of any of
the Events of Default described in Section 10.1., all Indebtedness shall be due
and payable in full forthwith at the option of the Bank without presentation,
demand, protest, notice of dishonor or other notice of any kind, all of which
are hereby expressly waived. Unless all of the Indebtedness is then fully
paid, the Bank shall have
REVOLVING CREDIT LOAN AGREEMENT - Page 25
<PAGE> 27
and may exercise any one or more of the rights and remedies for which provision
is made for a secured party under UCC, under the Security Agreement or under
any other document contemplated hereby, including, without limitation, the
right to take possession and sell, lease or otherwise dispose of any or all of
the Collateral and to setoff against the Indebtedness any amount owing by the
Bank to the Borrowers. Each Borrower agrees, upon request of the Bank, to
assemble the Collateral and make it available to the Bank at any place
designated by the Bank which is reasonably convenient to the Bank and the
Borrowers.
10.3 Application of Proceeds. The proceeds of any sale or other
disposition of the Collateral authorized by this Agreement shall be applied by
the Lender, first upon all expenses authorized by the UCC and all reasonable
attorneys' fees and legal expenses incurred by the Lender; the balance of the
proceeds of such sale or other disposition shall be applied in the payment of
the Indebtedness, first to interest, then to principal; and the surplus, if
any, shall be paid over to the Borrowers or to such other Person or Persons as
may be entitled thereto under applicable law. The Borrowers shall remain
liable for any deficiency, which the Borrowers shall pay to the Lender
immediately upon demand.
10.4 Cumulative Remedies. The remedies provided for herein are
cumulative to the remedies for collection of the Indebtedness as provided by
law or by any mortgage, security agreement or other document contemplated
hereby. Nothing herein contained is intended, nor should it be construed, to
preclude the Lender from pursuing any other remedy for the recovery of any
other sum to which the Lender may be or become entitled for the breach of this
Agreement by the Borrowers.
11. MISCELLANEOUS
11.1 "Borrower" or "Borrowers". All references to "Borrower" or
"Borrowers" herein shall refer to and include each of ErgoBilt, Inc. and
BodyBilt, Inc. separately and all representations contained herein shall be
deemed to be separately made by each of them, and each of the covenants,
agreements and obligations set forth herein shall be deemed to be the joint and
several covenants, agreements and obligations of them. Any notice, request,
consent, report or other information or agreement delivered to the Lender by
any Borrower shall be deemed to be ratified by, consented to and also delivered
by the other Borrower. Each Borrower recognizes and agrees that each covenant
and agreement of "Borrower" or "Borrowers" under this Agreement and the other
Loan Documents shall create a joint and several obligations of the Borrowers,
which may be enforced against Borrowers, jointly, or against each Borrower
separately.
11.2 Independent Rights. No single or partial exercise of any
right, power or privilege hereunder, or any delay in the exercise thereof, shall
preclude other or further exercise of the rights of the parties to this
Agreement.
11.3 Covenant Independence. Each covenant in this Agreement shall
be deemed to be independent of any other covenant, and an exception in one
covenant shall not create an exception in another covenant.
REVOLVING CREDIT LOAN AGREEMENT - Page 26
<PAGE> 28
11.4 Waivers and Amendments. No forbearance on the part of the
Lender in enforcing any of its rights under this Agreement, nor any renewal,
extension or rearrangement of any payment or covenant to be made or performed
by any Borrower hereunder, shall constitute a waiver of any of the terms of
this Agreement or of any such right. No Default or Event of Default shall be
waived by the Lender except in writing signed and delivered by an officer of
the Lender, and no waiver of any Default or Event of Default shall operate as a
waiver of any other Default or Event of Default or of the same Default or Event
of Default on a future occasion. No other amendment, modification or waiver
of, or consent with respect to, any provision of this Agreement or the
Revolving Credit Note or other documents contemplated hereby shall be effective
unless the same shall be in writing and signed and delivered by an officer of
the Lender.
11.5 GOVERNING LAW. THIS AGREEMENT, AND EACH AND EVERY TERM AND
PROVISION HEREOF, SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW OF
THE STATE OF TEXAS AND UNITED STATES OF AMERICA. IF ANY PROVISIONS OF THIS
AGREEMENT SHALL FOR ANY REASON BE HELD INVALID OR UNENFORCEABLE, SUCH
INVALIDITY OR UNENFORCEABILITY SHALL NOT AFFECT ANY OTHER PROVISION HEREOF, BUT
THIS AGREEMENT SHALL BE CONSTRUED AS IF SUCH INVALID OR UNENFORCEABLE PROVISION
HAD NEVER BEEN CONTAINED HEREIN.
11.6 Survival of Warranties, Etc. All of the Borrowers' covenants,
agreements, representations and warranties made in connection with this
Agreement and any document contemplated hereby shall survive the making of
Advances and the delivery of the Revolving Credit Note hereunder and shall be
deemed to have been relied upon by the Lender, notwithstanding any
investigation heretofore or hereafter made by the Lender. All statements
contained in any certificate or other document delivered to the Lender at any
time by or on behalf of the Borrowers pursuant hereto or in connection with the
transactions contemplated hereby shall constitute representations and
warranties by the Borrowers in connection with this Agreement.
11.7 Expenses. The Borrowers hereby jointly and severally agree to
pay on demand: (a) all reasonable costs and expenses of the Lender in
connection with the preparation, negotiation, execution, and delivery of this
Agreement and the other Loan Documents and any and all amendments,
modifications, renewals, extensions, and supplements thereof and thereto,
including, without limitation, the reasonable fees and expenses of legal
counsel for the Lender, (b) all costs and expenses of the Lender in connection
with any Event of Default and the enforcement of this Agreement or any other
Loan Document, including, without limitation, the reasonable fees and expenses
of legal counsel for the Lender, (c) all transfer, stamp, documentary, or other
similar taxes, assessments, or charges levied by any governmental authority in
respect of this Agreement or any of the other Loan Documents, (d) all costs,
expenses, assessments, and other charges incurred in connection with any
filing, registration, recording, or perfection of any security interest or
lien contemplated by this Agreement or any other Loan Document, and (e) all
other reasonable costs and expenses incurred by the Lender in connection with
this Agreement or any other Loan Document, including, without limitation, all
reasonable costs, expenses, and other charges incurred in connection with
obtaining any audit or appraisal in respect of the Collateral.
REVOLVING CREDIT LOAN AGREEMENT - Page 27
<PAGE> 29
11.8 Payments on Saturdays, Etc, Whenever any payment to be made
hereunder or under the Revolving Credit Note shall be stated to be due on a
Saturday, Sunday or any other day which is not a Business Day, such payment
shall be due on the next succeeding Business Day, and such extension, if any,
shall be included in computing interest in connection with such payment.
11.9 Binding Effect. This Agreement shall inure to the benefit of
and shall be binding upon the parties hereto and their respective successors
and assigns; provided, however, neither Borrower may assign or transfer any
rights or obligations hereunder without the prior written consent of the
Lender.
11.10 Maintenance of Records. Each Borrower will keep all of its
respective records concerning the Collateral and the Equipment at its principal
place of business. Each Borrower will give the Lender prompt written notice of
any change in its respective principal place of business, or in the location of
said records.
11.11 Notices. AU notices and communications provided for herein or
in any document contemplated hereby or required by law to be given shall be
effective when received or, upon sending by registered or certified mail,
postage prepaid, addressed as follows: (a) If to the Borrowers, to: 9244
Markville Drive, Dallas, Texas 75243, and (b) If to the Lender, to: P. 0. Box
650282, Dallas, Texas 75265-0282, Attention: Brian Foley, or to such other
address as a party shall have designated to the other in writing.
11.12 Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures were upon the same
instrument.
11.13 Headings. Article and section headings in this Agreement are
included for the convenience of reference only and shall not constitute a part
of this Agreement for any purpose.
11.14 INDEMNIFICATION. EACH BORROWER HEREBY COVENANTS AND AGREES TO
INDEMNIFY, DEFEND AND HOLD HARMLESS THE LENDER AND ITS OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS ("INDEMNIFIED PERSONS") FROM AND AGAINST ANY AND ALL
CLAIMS, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION,
THE FEES AND OUT-OF-POCKET EXPENSES OF COUNSEL) WHICH MAY BE INCURRED BY OR
ASSERTED AGAINST THE LENDER OR ANY SUCH OTHER INDIVIDUAL OR ENTITY IN
CONNECTION WITH:
(a) ANY INVESTIGATION, ACTION OR PROCEEDING ARISING OUT
OF OR IN ANY WAY RELATING TO THIS AGREEMENT, THE REVOLVING CREDIT
NOTE, OR ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS OR
ANY COLLATERAL, OR ANY ACT OR OMISSION RELATING TO ANY OF THE
FOREGOING;
REVOLVING CREDIT LOAN AGREEMENT - Page 28
<PAGE> 30
(b) ANY TAXES (OTHER THAN FEDERAL OR STATE INCOME TAXES),
LIABILITIES, CLAIMS OR DAMAGES RELATING TO THE COLLATERAL OR THE
LENDER'S LIENS THEREON; OR
(c) THE CORRECTNESS, VALIDITY OR GENUINENESS OF ANY
INSTRUMENTS OR DOCUMENTS THAT MAY BE RELEASED OR ENDORSED TO BORROWER
BY THE LENDER (WHICH SHALL AUTOMATICALLY BE DEEMED TO BE WITHOUT
RECOURSE TO THE LENDER IN ANY EVENT), OR THE EXISTENCE, CHARACTER,
QUANTITY, QUALITY, CONDITION, VALUE OR DELIVERY OF ANY GOODS
PURPORTING TO BE REPRESENTED BY ANY SUCH DOCUMENTS.
NOTWITHSTANDING THE FOREGOING, THE BORROWER SHALL NOT BE REQUIRED TO INDEMNIFY
ANY SUCH INDEMNIFIED PERSON FROM OR AGAINST ANY PORTION OF SUCH CLAIMS,
DAMAGES, LIABILITIES OR EXPENSES ARISING OUT OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF SUCH INDEMNIFIED PERSON.
11.15 NO ORAL AGREEMENTS. THIS AGREEMENT, TOGETHER WITH THE OTHER.
LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS AMONG THE LENDER AND
THE BORROWERS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE LENDER AND TIRE BORROWERS.
11.16 Gender. Throughout this Agreement, the masculine shall
include the feminine and vice versa and the singular shall include the plural
and vice versa, unless the context of this Agreement indicates otherwise.
11.17 Cross Collateral. Each Borrower hereby agrees that the
Collateral under this Agreement secures the obligations now or hereafter
outstanding under all other agreements among Borrowers and the Lender or any of
their affiliates and the collateral pledged under any other agreement with the
Lender or any of its affiliates secures the obligations under this Agreement.
11.18 Severability of Provisions. Any provision of this Agreement,
the Revolving Credit Note or any other documents relating thereto that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, such Revolving Credit
Note or such other documents or affecting the validity or enforceability of
such provision in any other jurisdiction.
11.19 Assignment. The Lender shall have the absolute and
unrestricted right to sell, assign, transfer, or grant participation in, all or
any portion of the Loans and any Collateral, guaranties or other security
relating thereto without the consent of the Borrowers to any federal or state
agency, or to any bank affiliate of the Bank, or, with the Borrowers' consent
(which shall not be unreasonably withheld and shall not be required during the
existence of an Event of Default), to any commercial bank or to
REVOLVING CREDIT LOAN AGREEMENT - Page 29
<PAGE> 31
any other financial institution Or holding company of any of the foregoing;
provided, however, no such action on the part of the Lender shall have the
effect of changing any of the Borrowers' obligations hereunder without the
respective written consent or the Borrowers.
11.20 WAIVER OF JURY TRIAL. EACH BORROWER AND THE LENDER HEREBY
IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY AND ALL
ACTIONS OR PROCEEDINGS AT ANY TIME IN WHICH BORROWERS AND LENDER ARE PARTIES
ARISING OUT OF THIS AGREEMENT.
11.21 Survival of Agreement. Notwithstanding anything to the
contrary contained in this Agreement, the provisions of this Agreement shall
remain in full force and effect until such time as all indebtedness is paid in
full.
[Balance of this page intentionally left blank.]
REVOLVING CREDIT LOAN AGREEMENT - Page 30
<PAGE> 32
IN WITNESS WHEREOF, the Borrowers and the Lender have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first written above.
BORROWERS:
BORROWERS:
ERGOBILT, INC.
By: /s/ GERARD SMITH
------------------------
Name: Gerard Smith
-------------------
Title: President & CEO
-------------------
BODYBILT, INC.
By: /s/ GERARD SMITH
------------------------
Name: Gerard Smith
-------------------
Title: President
-------------------
LENDER:
COMERICA BANK-TEXAS
By: /s/ BRIAN D. FOLEY
------------------------
Name: Brian Foley
-------------------
Title: AVP
-------------------
REVOLVING CREDIT LOAN AGREEMENT - Page 31
<PAGE> 33
SCHEDULE OF EXHIBITS
Exhibit A Revolving Credit Note
LIST OF SCHEDULES
Schedule 7.4 Actions, Suits or Proceedings
Schedule 7.11 Debt
<PAGE> 34
Exhibit "A"
to
Credit Agreement
Revolving Credit Note
<PAGE> 35
REVOLVING CREDIT NOTE
$5,000,000.00 Dallas, Texas July 24, 1997
FOR VALUE RECEIVED, ERGOBILT, INC., a Texas corporation, and BODYBILT,
INC., a Texas corporation (each individually, a "MAKER" and collectively, the
"MAKERS"), jointly and severally promise to pay to the order of COMERICA BANK-
TEXAS (the "BANK") at 1601 Elm Street, Dallas, Texas 75201, on July 24, 1998
(unless sooner due under the terms of the Loan Agreement, as that term is
defined below), an aggregate principal sum of Five Million and No/100 Dollars
($5,000,000.00) or, if less, the aggregate unpaid principal sum shown on the
schedule which, at the sole option of the Bank, may be attached hereto and made
a part hereof.
The unpaid principal amount of this Revolving Credit Note (this
"NOTE") shall bear interest and be payable as provided in that certain
Revolving Credit Loan Agreement, dated of even date herewith, among the Makers
and the Bank (as amended, restated, or supplemented from time to time, the
"LOAN AGREEMENT"), and this Note is the Revolving Credit Note referred to in
the Loan Agreement. Interest shall be payable as provided in the Loan
Agreement until maturity (whether by acceleration or otherwise) and, from and
after such maturity, on demand. Reference is hereby made to the Loan Agreement
for a statement of its terms and conditions, including those conditions under
which this Note may be accelerated. Unless otherwise defined herein,
capitalized terms herein shall have the meanings given such terms in the Loan
Agreement.
If an Event of Default (as defined in the Loan Agreement) occurs and
is not cured within the time, if any, provided for by the Loan Agreement and is
continuing, the Bank may exercise any one or more of the rights (including the
right to accelerate this Note and any other Indebtedness, as defined in the
Loan Agreement) and remedies granted by the Loan Agreement, or given to a
secured party under applicable law.
The Bank is hereby granted a security interest in all property of the
Makers at any time in the possession of the Bank and in all balances of deposit
accounts of the Makers from time to time with the Bank. If an Event of Default
occurs and is not cured within the time, if any, provided for by the Loan
Agreement, then the Bank, upon the occurrence and continuance of any such Event
of Default, or after the expiration of any time provided for cure, may at its
option and without prior notice to the Makers declare the principal of and
interest on this Note to be immediately due and payable and may set off
against the principal of and interest on this Note (i) any amount owing by the
Bank to any Maker (ii) any property of any Maker in the possession of the Bank
and (iii) any amount in any deposit account of such Maker with the Bank.
No agreements, conditions, provisions or stipulations contained in
this Note or in any other agreement among the Makers and the Bank, or the
occurrence of an Event of Default, or the exercise by the Bank of the right to
accelerate the payment of the maturity of principal and interest, or to
exercise any option whatsoever contained in this Note or any other agreement
among the Makers and the Bank, or the arising of any contingency whatsoever,
shall entitle the Bank to collect, in any event, interest exceeding the maximum
rate of nonusurious interest allowed from time to time by applicable
<PAGE> 36
state or federal laws as now or as may hereinafter be in effect (the "MAXIMUM
LEGAL RATE") and in no event shall the Makers be obligated to pay interest
exceeding such Maximum Legal Rate, and all agreements, conditions or
stipulations, if any, which may in any event or contingency whatsoever operate
to bind, obligate or compel the Makers to pay a rate of interest exceeding the
Maximum Legal Rate shall be without binding force or effect, at law or in
equity, to the extent only of the excess of interest over such Maximum Legal
Rate. In the event any interest is charged in excess of the Maximum Legal Rate
(the "EXCESS"), the Makers acknowledge and stipulate that any such charge shall
be the result of an accidental and bona fide error, and such Excess shall be,
first, applied to reduce the principal of any obligations due, and, second,
returned to the Makers, it being the intention of the parties hereto not to
enter at any time into an usurious or otherwise illegal relationship. The
parties hereto recognize that with fluctuations in the prime commercial
interest rate from time to time announced by the Bank such an unintentional
result could inadvertently occur. By the execution of this Note, each Maker
covenants that (a) the credit or return of any Excess shall constitute the
acceptance by the Makers of such Excess, and (b) the Makers shall not seek or
pursue any other remedy, legal or equitable, against the Bank based, in whole
or in part, upon the charging or receiving of any interest in excess of the
Maximum Legal Rate. For the purpose of determining whether or not any Excess
has been contracted for, charged or received by the Bank, all interest at any
time contracted for, charged or received by the Bank in connection with the
Makers' obligations shall be amortized, prorated, allocated and spread in equal
parts during the entire term of this Note. If at any time the rate of interest
payable hereunder shall be computed on the basis of the Maximum Legal Rate, any
subsequent reduction in the Contract Rate shall not reduce such interest
thereafter payable hereunder below the amount computed on the basis of the
Maximum Legal Rate until the aggregate amount of such interest accrued and
payable under this Note equals the total amount of interest which would have
accrued if such interest had been at all times computed solely on the basis of
the Contract Rate.
Unless preempted by federal law, the rate of interest from time to
time in effect hereunder shall not exceed the "INDICATED RATE CEILING" from
time to time in effect under Chapter 1 of the Texas Credit Code (Vernon's Texas
Civil Statutes), Section (a)(1), Article 5069-1.04, as amended.
The provisions of this Note governing interest shall be deemed to be
incorporated into every document or communication relating to the obligations
which sets forth or prescribes any account, right or claims or alleged account,
right or claim of the Bank with respect to the Makers (or any other obligor in
respect of the obligations), whether or not any provisions of this Note is
referred to therein. All such documents and communications and all figures set
forth therein shall, for the sole purpose of computing the extent of the
obligations asserted by the Bank thereunder, be automatically recomputed by the
Makers or any other obligor, and by any court considering the same, to give
effect to the adjustments or credits required by this Note.
If the applicable state or federal law is amended in the future to
allow a greater rate of interest to be charged under this Note than is
presently allowed by applicable state or federal law, then the limitation of
interest hereunder shall be increased to the maximum rate of interest allowed
by applicable state or federal law, as amended, which increase shall be
effective hereunder on the effective date of such amendment, and all interest
charges owing to the Bank by reason thereof shall be payable upon demand.
-2-
<PAGE> 37
The provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas
Civil Statutes), Article 5069-15, as amended, are specifically declared by the
parties hereto not to be applicable to this Note or any of the other agreements
executed in connection herewith or therewith or to the transactions
contemplated hereby or thereby.
Except as provided for in the Loan Agreement, the Makers and all
guarantors and endorsers (i) waive presentment, demand, protest and notice of
dishonor, (ii) agree that no extension or indulgence to the Makers or release
or nonenforcement of any security, whether with or without notice, shall affect
the obligations of any guarantor or endorser, and (iii) agree to reimburse the
holder of this Note for any and all costs and expenses (including, but not
limited to, reasonable attorney fees) incurred in collecting or attempting to
collect any and all principal of and interest on this Note.
[Balance of page intentionally left blank.]
-3-
<PAGE> 38
IN WITNESS WHEREOF, the Makers have executed this Note the 24th day of
July, 1997.
ERGOBILT, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
BODYBILT, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
-4-
<PAGE> 39
Schedule 7.4
Actions, Suits, Proceedings
<PAGE> 40
Item 1. Legal Proceedings.
The seat design used in certain BodyBilt chairs, which accounted for
sales of approximately $1.2 million and $1.8 million for the years ended
December 31, 1995 and 1996, respectively, is derived from a design patented by
Dr. Jerome Congleton (the "Congleton Patent"). Dr. Congleton granted a license
to manufacture seats using the Congleton Patent to both BodyBilt and Ergonomics
Chairs, Inc., predecessor in interest to Neutral Posture Ergonomics, Inc.
("NPE"). Under the terms of this license agreement and related agreements, if
more than 50% of the outstanding capital stock of BodyBilt is transferred, its
license to manufacture chairs under the Congleton Patent will terminate.
Accordingly, as a result of the Merger, BodyBilt no longer holds a license of
the Congleton Patent. However, an agreement executed in connection with a 1991
settlement of litigation between BodyBilt, NPE and Dr. Congleton provides that
a successor to BodyBilt has the right to manufacture, market, distribute and
sell commercial, industrial and laboratory chairs using the Congleton Patent,
although such successor may not advertise its use of the Congleton Patent. The
Company believes that the restriction on advertising this patent will have no
material impact on its business.
Recently, BodyBilt and its counsel received correspondence from NPE and
Dr. Congleton asserting that a license is required for BodyBilt to continue to
manufacture seats using the Congleton Patent. NPE has also notified BodyBilt
that Dr. Congleton assigned his patent to NPE. However, based upon the advise
of counsel, BodyBilt believes that under the 1991 settlement, and for other
reasons, no such license is necessary. BodyBilt has filed a declaratory
judgement action against Dr. Congleton in the Southern District of Texas,
Houston Division alleging that his assignment of the patent to NPE was a breach
of the 1991 settlement agreement. In this law suit, BodyBilt seeks a
declaration that the assignment to NPE be null and void, seeks damages for Dr.
Congleton's breach of the 1991 Settlement Agreement and makes demand for Dr.
Congleton to defend and indemnify BodyBilt. The case is in its inception and
no discovery has been conducted.
The Company is involved from time to time in various legal proceedings
and claims incident to the normal conduct of its business. The Company
believes that such legal proceedings and claims, individually and in the
aggregate, are not likely to have a material adverse effect on the Company's
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
A written Consent of Shareholders in Lieu of Meeting dated February
1997 to increase the number of directors of the Company to eight and to elect
as directors Drew Congleton, Robert E. Faust, William Brown Glenn, Jr., Mark A.
McMillan, W. Barton Munro and William Weed to be effective upon the
consummation of the BodyBilt Seating, Inc. merger, to serve for a one year term
or until their respective successors are elected and qualified.
<PAGE> 41
Schedule 7.11
Debt
<PAGE> 42
c. Loan guarantees. Subject to Section 3.1 c (ii) below, EB shall
serve as guarantor on the notes and obligations listed in Exhibit "A" under the
same terms and conditions as expressed in said debt instruments, or make some
other arrangements to accomplish the same results, i.e., line of credit,
separate finance company, etc., adequate to allow students to qualify for
financial aid which includes financing for purchase of the Product which is
currently $4,495 (subject to price change) plus tax. The shareholders have the
responsibility to find and secure the relationship with the financial
institutions and manage the substitution of EB as the guarantor on existing
loans.
(i) EB's obligation to guarantee future loans (1) shall be limited
to a maximum of 40% recourse liability and (2) and in the event
losses are being incurred on this recourse liability, EB shall
not be required to continue this obligation beyond what a
reasonable and prudent businessman would do.
(ii) If ErgoBilt determines to discontinue loan guarantees under
subpart (i) above, that decision shall not be construed as a
breech of this Agreement, nor an extension of the allocation
periods under Section 3.1d except as provided for in this
Subsection (ii) nor a modification of the net income after tax
contingency purchase price computations under Section 3.1d.
In the event that ErgoBilt causes EB to cease acting as
guarantor (a) CTSS and/or the shareholder, in their individual
capacities, have the option to act as guarantors or secure a
third party entity to act in such capacity so long as neither
ErgoBilt nor EB is exposed to any liability on said obligation
and (b) all of the threshold dates set out in paragraphs
Section 3.1d (ii) and(iii), as well as the examples in Section
3.1d (iv), shall be extended by additional 90-day time period.
(iii) For the purpose of determining the net income after tax in
Section 3.1d below, all losses and/or costs which EB incurs
guarantor shall be included by EB as operational expenses.
<PAGE> 1
EXHIBIT 11.0
ErgoBilt, Inc.
Earnings per Share Calculation
Second Quarter Ended 6/30/97
<TABLE>
<CAPTION>
1997 1996
13 WEEKS 13 WEEKS
---------- -----------
<S> <C> <C>
WEIGHTED AVERAGE SHARES AND EQUIVALENT
SHARES OUTSTANDING
COMMON STOCK OUTSTANDING 6,056,000 2,770,285
COMMON STOCK EQUIVALENTS 12,885 --
---------- -----------
SHARES OUTSTANDING 6,068,885 2,770,285
========== ===========
NET PROFIT (LOSS) $ 664,239 $ (60,621)
NET PROFIT (LOSS) PER SHARE $ 0.11 $ (0.02)
</TABLE>
<PAGE> 1
EXHIBIT 11.1
ErgoBilt, Inc.
Earnings per Share Calculation
Six Months Ended 6/30/97
<TABLE>
<CAPTION>
1997 1996
26 WEEKS 26 WEEKS
---------- -----------
<S> <C> <C>
WEIGHTED AVERAGE SHARES AND EQUIVALENT
SHARES OUTSTANDING
COMMON STOCK OUTSTANDING 5,397,988 2,770,285
COMMON STOCK EQUIVALENTS 12,885 --
---------- -----------
SHARES OUTSTANDING 5,410,873 2,770,285
========== ===========
NET PROFIT (LOSS) $1,104,496 $ (12,494)
NET PROFIT (LOSS) PER SHARE $ 0.20 $ (0.00)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 COMPANY FINANCIAL STATEMENTS OF ERGOBILT, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,790,593
<SECURITIES> 0
<RECEIVABLES> 4,496,929
<ALLOWANCES> 0
<INVENTORY> 2,306,193
<CURRENT-ASSETS> 8,944,786
<PP&E> 3,137,574
<DEPRECIATION> 120,663
<TOTAL-ASSETS> 22,986,059
<CURRENT-LIABILITIES> 2,987,183
<BONDS> 0
0
0
<COMMON> 606
<OTHER-SE> 18,093,195
<TOTAL-LIABILITY-AND-EQUITY> 22,986,059
<SALES> 9,695,358
<TOTAL-REVENUES> 9,695,358
<CGS> 5,225,064
<TOTAL-COSTS> 5,225,064
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,896
<INCOME-PRETAX> 1,745,408
<INCOME-TAX> 640,912
<INCOME-CONTINUING> 1,104,496
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,104,496
<EPS-PRIMARY> .20
<EPS-DILUTED> 0
</TABLE>
