<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE THIRD QUARTER ENDED JULY 29, 1995
Commission File Number 0-934
B. B. WALKER COMPANY
(Exact name of registrant as specified in its charter)
North Carolina 56-0581797
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
414 East Dixie Drive, Asheboro, NC 27203
---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 625-1380
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
On August 22, 1995, 1,726,535 shares of the Registrant's voting common stock
with a par value of $1.00 per share were outstanding.
<PAGE> 2
FINANCIAL STATEMENTS
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
July 29, October 29,
Assets 1995 1994
-------- ----------- -----------
<S> <C> <C>
Cash $ 51 $ 1
Accounts receivable, less allowance for doubtful
accounts of $854 in 1995 and $778 in 1994 11,494 13,736
Inventories 16,831 15,403
Prepaid expenses 135 240
Income tax recovery receivable 683 -
Deferred income tax benefit, current 898 884
----------- -----------
Total current assets 30,092 30,264
Property, plant and equipment, net of accumulated
depreciation and amortization of $5,594 in 1995
and $5,115 in 1994 3,117 3,593
Deferred income tax benefit, long-term 63 80
Other assets 199 79
----------- -----------
$ 33,471 $ 34,016
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Borrowings under finance agreement $ 13,283 $ 12,890
Current portion of long-term obligations 826 500
Accounts payable, trade 5,644 5,489
Accrued salaries, wages and bonuses 600 678
Other accounts payable and accrued liabilities 729 916
Income taxes payable - 37
----------- -----------
Total current liabilities 21,082 20,510
----------- -----------
Long-term obligations, net of current portion 3,751 2,996
Short-term debt to be refinanced - 696
Minority interests in consolidated subsidiary 34 34
Shareholders' equity:
7% cumulative preferred stock, $100 par value,
1,150 shares authorized, 828 shares issued
and outstanding in 1995 and 1994 83 83
Common stock, $1 par value, 6,000,000 shares
authorized, 1,726,535 shares in 1995 and
1,743,520 shares in 1994 issued and outstanding 1,727 1,744
Capital in excess of par value 2,724 2,842
Retained earnings 4,213 5,408
Shareholders' loans (143) (297)
----------- -----------
Total shareholders' equity 8,604 9,780
----------- -----------
$ 33,471 $ 34,016
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
1
<PAGE> 3
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
(Unaudited)
Third Quarter Ended
--------------------------
July 29, July 29,
1995 1994
----------- -----------
<S> <C> <C>
Net sales $ 10,073 $ 10,961
Interest and other income 14 20
----------- -----------
Total revenues 10,087 10,981
----------- -----------
Cost of products sold 7,640 8,654
Selling and administrative expenses 2,125 2,819
Depreciation and amortization 168 154
Interest expense 395 323
----------- -----------
Total costs and expenses 10,328 11,950
----------- -----------
Income (loss) before income taxes and
minority interest (241) (969)
Provision for (recovery of) income taxes (108) (363)
Minority interest 1 1
----------- -----------
Net income (loss) (134) (607)
Retained earnings at beginning of period 4,348 5,564
Dividends on common stock - -
Dividends on preferred stock (1) (1)
----------- -----------
Retained earnings at end of period $ 4,213 $ 4,956
=========== ===========
Net income (loss) per share:
Primary $ (.08) $ (.34)
=========== ===========
Fully diluted $ (.08) $ (.34)
=========== ===========
Weighted average common shares outstanding:
Primary 1,729 1,787
=========== ===========
Fully diluted 1,729 1,781
=========== ===========
</TABLE>
2
<PAGE> 4
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME, CONTINUED
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
--------------------------
July 29, July 30,
1995 1994
----------- -----------
<S> <C> <C>
Net sales $ 31,236 $ 36,785
Interest and other income 58 49
----------- -----------
Total revenues 31,294 36,834
----------- -----------
Cost of products sold 23,723 26,913
Selling and administrative expenses 7,816 8,664
Depreciation and amortization 501 422
Interest expense 1,160 801
----------- -----------
Total costs and expenses 33,200 36,800
----------- -----------
Income (loss) before income taxes and
minority interest (1,906) 34
Provision for (recovery of) income taxes (717) 12
Minority interest 2 2
----------- -----------
Net income (loss) (1,191) 20
Retained earnings at beginning of period 5,408 5,071
Dividends on common stock - (131)
Dividends on preferred stock (4) (4)
----------- -----------
Retained earnings at end of period $ 4,213 $ 4,956
=========== ===========
Net income (loss) per share:
Primary $ (.69) $ .01
=========== ===========
Fully diluted $ (.69) $ .01
=========== ===========
Weighted average common shares outstanding:
Primary 1,736 1,783
=========== ===========
Fully diluted 1,736 1,774
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
3
<PAGE> 5
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
--------------------------
July 29, July 30,
1995 1994
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ (1,191) $ 20
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 501 422
Gain on sale of fixed assets (1) -
Deferred income taxes 3 25
(Increase) decrease in:
Accounts receivable, net 2,242 2,823
Inventories (1,428) (2,975)
Prepaid expenses 105 (395)
Other assets (120) (144)
Increase (decrease) in:
Accounts payable, trade 155 213
Accrued salaries, wages and bonuses (78) (148)
Other accounts payable and accrued liabilities (187) (658)
Income taxes payable (720) (625)
----------- -----------
Net cash used for operating activities (719) (1,442)
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures (25) (1,514)
Proceeds from disposal of property, plant
and equipment 1 -
----------- -----------
Net cash used for investing activities (24) (1,514)
----------- -----------
Cash Flows From Financing Activities:
Net borrowing under finance agreement 393 2,786
Proceeds from issuance of long-term obligations 1,284 695
Payment on long-term obligations (899) (514)
Purchase of stock from minority interest - (1)
Repurchase of common stock (135) (4)
Proceeds from issuance of common stock - 75
Loans to shareholders, net of repayments 154 54
Dividends paid on common stock - (131)
Dividends paid on 7% cumulative preferred stock (4) (4)
----------- -----------
Net cash provided by financing activities 793 2,956
----------- -----------
Net change in cash 50 -
Cash at beginning of year 1 1
----------- -----------
Cash at end of second quarter $ 51 $ 1
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
4
<PAGE> 6
B.B. WALKER COMPANY AND SUBSIDIARY
Notes To Consolidated Financial Statements
NOTE 1
------
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary for a fair presentation
of the financial results of B.B. Walker Company and Subsidiary (the "Company")
for the interim periods included. All such adjustments are of a normal
recurring nature. The results of operations for the interim periods shown in
this report are not necessarily indicative of the results to be expected for
the fiscal year.
NOTE 2
------
Earnings per common share is computed by deducting preferred dividends from
net income to determine net income attributable to common shareholders. This
amount is divided by the weighted average number of common shares outstanding
during the quarter plus the common stock equivalents arising from stock
options. For primary earnings per share, the common stock equivalents are
calculated using the average of the high and low asked price for the period.
For fully diluted earnings per share, the common stock equivalents are
calculated using the asked price at the end of the period if greater than the
average asked price for the period.
NOTE 3
------
Long-term obligations consist of the following amounts (in thousands):
<TABLE>
<CAPTION>
(Unaudited)
July 29, October 29,
1995 1994
----------- -----------
<S> <C> <C>
Mortgage notes payable $ 2,297 2,118
Mortgage notes payable to governmental entity 713 -
Note payable to a bank 70 -
Promissory notes payable to shareholders 1,216 965
Capital lease obligations 281 413
----------- -----------
4,577 3,496
Less portion payable within one year 826 500
----------- -----------
$ 3,751 2,996
=========== ===========
</TABLE>
NOTE 4
------
In July 1994, the Company purchased a larger manufacturing facility in
Somerset, Pennsylvania to replace the existing facility also located in
Somerset. As discussed below, the Company had obtained commitments for
permanent financing on a portion of the purchase cost of the facility. During
the period between the closing date of the purchase and the date the permanent
financing was finalized, the Company temporarily borrowed $696,000 from a bank
on a short term note to provide the funds for closing. The Company refinanced
the note on March 7, 1995 with long-term financing from two sources. The
first source of financing was from the Pennsylvania Industrial Development
Authority ("PIDA"), a program offered by the Department of Commerce of the
Commonwealth of Pennsylvania. The loan was for $480,000 and bears interest at
2% annually. Monthly installments of $3,089, which includes principal and
interest, will be paid over 15 years. The second source of financing came
from a bank note for $240,000. This loan bears interest at .75% above the
bank's prime rate (9.5% at July 29, 1995) and will be repaid in monthly
installments of principal and interest, currently $2,055, for 15 years.
5
<PAGE> 7
B.B. WALKER COMPANY AND SUBSIDIARY
Notes To Consolidated Financial Statements, Continued
NOTE 4, Continued
-----------------
On July 27, 1995, the Company finalized the long-term financing for this
project with a loan from a program offered by the Department of Commerce of
the Commonwealth of Pennsylvania. This financing was provided under the
Economic Development Partnership Program for $240,000. This note bears
interest at 2% annually with monthly payments of principal and interest
amounting to $1,544 for 15 years.
All notes are secured by the manufacturing facility. Capitalized in fixed
assets at July 29, 1995 are land and buildings with a cost of approximately
$1,052,000 related to the facility. The remainder of the expenditures made
for the facility were paid for with borrowings under the revolving finance
agreement.
NOTE 5
------
On August 15, 1995, the Company entered into a new financing agreement with a
bank which replaces the existing revolving finance agreement. The new
financing provides daily requirements for working capital and refinanced the
existing mortgage note payable on the Asheboro facility. The new agreement
has two primary components, a revolving credit commitment and a term loan.
The revolving credit commitment permits borrowings up to certain percentages
of eligible accounts receivable and inventories, not to exceed $20,000,000 in
aggregate ($11,000,000 for accounts receivable and $6,500,000 to $9,000,000
for inventory depending on the season). Interest at the bank's prime rate
plus one-half percent (9.25% at date of closing) is charged on all
outstanding amounts.
The second portion of the agreement provides a term loan of $3,000,000 at an
interest rate of the bank's prime rate plus one-half percent. The term loan
note calls for 84 monthly installments of principal plus accrued interest of
approximately $49,000.
All borrowings under the agreement are secured by all accounts receivable,
inventories, machinery and equipment of the Company. In addition, the bank
has a first lien on the Asheboro land and facilities. The Company currently
is in the process of granting the bank a security interest in the Somerset
facility contingent upon the approval of the other lenders on the Somerset
facility. This security interest will be subordinated to the other lenders.
The agreement contains various restrictive covenants which include, among
other things, maintenance of certain financial ratios, limits on capital
expenditures and minimum net worth requirements and net income requirements.
NOTE 6
------
Inventories are composed of the following amounts (in thousands):
<TABLE>
<CAPTION>
(Unaudited)
July 29, October 29,
1995 1994
----------- -----------
<S> <C> <C>
Finished goods $ 10,411 8,688
Work in process 854 738
Raw materials and supplies 5,566 5,977
----------- -----------
$ 16,831 15,403
=========== ===========
</TABLE>
6
<PAGE> 8
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
The following summarizes the results of operations for the Company for the
third quarters and nine months ended July 29, 1995 and July 30, 1994:
<TABLE>
<CAPTION>
Third Nine
Quarter Ended Months Ended
------------------- -------------------
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 75.8% 79.0% 75.9% 73.2%
------ ------ ------ ------
Gross margin 24.2% 21.0% 24.1% 26.8%
Selling and administrative
expenses 21.1% 25.7% 25.0% 23.5%
Depreciation and amortization 1.7% 1.4% 1.6% 1.1%
Interest expense 3.9% 2.9% 3.7% 2.2%
Interest and other income (.1%) (.2%) (.2%) (.1%)
------ ------ ------ ------
Income before income taxes
and minority interest (2.4%) (8.8%) (6.0%) .1%
Provision for income taxes (1.1%) (3.3%) (2.3%) -
Minority interest - - - -
------ ------ ------ ------
Net income (1.3%) (5.5%) (3.7%) .1%
====== ====== ====== ======
</TABLE>
NET SALES
---------
Net sales for the third quarter ended July 29, 1995 were $10,073,000 which was
8.1% lower than net sales of $10,961,000 in the third quarter ended July 30,
1994. For the nine months ended July 29, 1995, net sales were $31,236,000, or
15.1% lower, as compared to $36,785,000 for the same period in 1994.
Branded footwear sales for the Work/Outdoor Division were up 3.9% and 12.9%
for the nine months and the third quarter, respectively. Domestic sales in
the Work/Outdoor Division were 10.6% and 19.2% higher for the nine months and
third quarter, respectively. This particular style of footwear remains
popular with consumers, reflecting a trend that has been evident all year.
However, sales for this division were unfavorably impacted by the mild winter
of 1995. Pairs shipped were up 10.0% for the nine months and 16.0% for the
third quarter. Price per pair for domestic sales was up slightly for both
periods. Export sales in this division were down 21.5% for the nine months
and 19.9% for the third quarter as compared to 1994's results. Orders from
existing customers overseas have not kept pace with the prior year.
Branded footwear sales in the Western Boot Division continued to show
improvement. Sales in this division increased 9.6% for the nine months and
26.6% for the third quarter when compared to 1994. Retail sales of western
footwear were sluggish during most of 1994 which resulted in retailers
overstocking inventories. As a result, orders to replace inventory were slow
as retailers worked to turn their on-hand inventory. During 1995, retailers
have worked their inventories to a more manageable level which has resulted in
7
<PAGE> 9
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
NET SALES, Continued
--------------------
stronger orders in 1995 than in 1994. In addition, the Company has more
aggressively marketed its footwear in response to the slower sales of 1994.
This has led to greater competition for market share and more pressure on
pricing of its product. For the nine months and third quarter, pairs shipped
were up 15.0% and 36.9%, respectively. However, the average price per pair
fell 8.9% and 14.7% for the nine months and third quarter, respectively.
Sales in the Company's Private Label Division decreased 49.8% during the first
nine months and 51.5% during the third quarter as compared to the same periods
in 1994. The Company's customers that are included in this division carried
high inventories into the current year and have not achieved expected sales
levels, therefore, orders have been significantly reduced. Most private label
customers are only filling in existing lines as needed. The Company is
actively pursuing new private label markets that have not previously been
served in order to secure more shelf space with these retailers.
GROSS MARGIN
------------
The Company's gross margin fell to 24.1% for the first nine months of 1995
from 26.8% for the first nine months of 1994. For the third quarter of 1995
compared to 1994, the gross margin improved to 24.2% from 21.0%, respectively.
For the nine months, the gross margin was impacted by heavy discounting
programs in the branded divisions. Significant competition has led to
aggressive pricing and dating terms in order to induce orders and increase
market share. In addition, manufacturing variances, primarily from fixed
expenses, have had an unfavorable impact on the gross margin. For 1995, pairs
produced in the Company's plants has been 15.4% lower than 1994. The
improvement in the gross margin of 3.2% in the third quarter of 1995 over 1994
is attributable primarily to factors affecting 1994. For the third quarter,
1995's gross margin was comparable to results for the year. The gross margin
in 1994's third quarter was unusually lower because of nonrecurring inventory
adjustments and the large percentage of lower margin private label sales.
SELLING AND ADMINISTRATIVE EXPENSES
-----------------------------------
Selling and administrative expenses were $2,125,000 for the third quarter of
1995 as compared to $2,819,000 for the third quarter of 1994, a decrease of
24.6%. For the nine months ended July 29, 1995 and July 30, 1994, selling and
administrative expenses were $7,816,000 and $8,664,000, respectively, or 9.8%
lower. Expenses in most areas were lower in 1995 than in 1994. The Company
reviewed its expense structure and aggressively moved to reduce operating
expenses in 1995. Many of the reductions were implemented in the latter half
of the second quarter and their full impact has been realized in the third
quarter. Salary and benefits were down approximately $36,000 for the nine
months and $70,000 in the third quarter as compared to 1994. Several
personnel positions, which are vacant, have not been filled with their work
being redistributed. Computer costs for the third quarter are down $85,000
and for the nine months are down $176,000. During the first nine months of
1994, the Company implemented an extensive new manufacturing package which
required significant support from the software developer. Much of this
package was operational by the end of 1994 which required less support
expenses in 1995. In addition, the Company has postponed some new computer-
related projects in 1995 in order to reduce expenses. For the nine months
ended July 29, 1995, advertising expenses were $655,000 lower than the same
8
<PAGE> 10
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
SELLING AND ADMINISTRATIVE EXPENSES, Continued
-----------------------------------------------
period in 1994. Third quarter expenses for 1995 were $365,000 lower than
1994. The Company has reduced expenditures on its advertising programs in
order to reduce expenses in 1995. In addition, during 1994, the Company was
completing the development of its consumer/retailing advertising program.
These programs have been in place during much of 1995, resulting in lower
consumer advertising outlays.
INTEREST EXPENSE
----------------
Interest expense for the nine months ended July 29, 1995 was $1,160,000, or
$359,000 higher than interest expense of $801,000 for the nine months ended
July 30, 1994. For the third quarter, 1995 expense was $72,000 higher than
1994 expense. The increase for the nine month period and in the third quarter
can be attributed to the higher average balances on outstanding debt and
higher average interest rates than in the comparable periods of a year ago.
Average outstanding advances under the revolving finance agreement were
approximately $3,000,000 higher in the nine month period and $1,000,000 higher
in the third quarter than in 1994. Interest rates for this agreement ranged
from 8.25% to 9.5% in 1995 and from 6.75% to 7.75% in 1994. The other major
factor was outstanding amounts for promissory notes to shareholders. For
1995, the average amount outstanding for the nine month period was $1,130,000
compared to $876,000 for 1994. In the third quarter, the average amount
outstanding in 1995 was $1,197,000 compared to $754,000 in 1994. Interest
rates on these notes payable range from 8% to 10%.
The Company anticipates that interest expense from fixed rate debt will
increase due to changes in the Company's debt structure in 1995. The Company
financed the acquisition of a larger facility in Somerset, PA with $960,000 in
financing from two agencies of the Commonwealth of Pennsylvania and a bank
note. The financing from the governmental agencies amounted to $720,000 and
accrues interest at a rate of 2%. The bank note was for $240,000 and bears
interest at the bank's prime rate plus .75% (9.5% at July 29, 1995). In
addition, as part of a new financing agreement with a bank signed on August
15, 1995, the Company replaced the existing mortgage note payable which
amounted to $2,060,000 and carried interest at the bank's prime rate plus .75%
with a cap of 7.75% (7.75% at July 29, 1995) with a $3,000,000 term loan
bearing interest at the new bank's prime rate plus .5% (9.25% at August 15,
1995).
DEPRECIATION AND AMORTIZATION
-----------------------------
Depreciation and amortization rose $79,000 to $501,000 in 1995 from $422,000
in 1994 for the first nine months of the year. For the third quarter, the
expense was $168,000 in 1995 compared to $154,000 in 1994, an increase of
$14,000. Overall, depreciation is higher as a result of a full nine months of
depreciation in 1995 for assets acquired in 1994. Capital expenditures for
the first nine months of 1995 were $25,000 compared to $1,514,000 in 1994.
Capital expenditures for all of 1994 were $2,045,000.
9
<PAGE> 11
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
PROVISION FOR (RECOVERY OF) INCOME TAXES
----------------------------------------
For the nine months and third quarter ended July 29, 1995, the Company
recorded an income tax recovery of $717,000 and $108,000, respectively. For
the comparable periods of 1994, the Company had income tax expense of $12,000
and an income tax recovery of $363,000. Income tax rates applied to income
(loss) before income taxes were consistent between 1995 and 1994.
NET INCOME
----------
For the third quarter of 1995 and 1994, the Company reported a net loss of
$134,000 and $607,000, respectively. For the first nine months of 1995, the
Company's net loss was $1,191,000 compared to net income of $20,000 for the
same period in 1994. The Company's efforts to reduce expenses and postpone
outlays for other improvements helped offset lower sales to reduce the amount
reported as a net loss for 1995's third quarter compared to 1994's third
quarter. In addition, the Company made adjustments to raw materials
inventories in the third quarter of 1994 while no such adjustments were made
in 1995. For the nine months, net sales were significantly lower in 1995 than
in 1994. In addition, weaker margins and higher interest expense have
combined to produce a net loss for 1995.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company continues to rely on the revolving finance agreement with a bank
to provide its daily working capital requirements. The maximum availability
for the agreement the Company was operating under at July 29, 1995 was
$15,000,000. At July 29, 1995 and October 29, 1994, the Company had
outstanding advances of $13,283,000 and $12,890,000, respectively. The amount
available to be drawn was determined by a formula based on certain percentages
of eligible accounts receivable and inventories. At July 29, 1995, an
additional $285,000 was available to be drawn under this agreement. As
described more fully below, the Company entered a new agreement with a bank on
August 15, 1995 which replaced this revolving finance agreement.
On August 15, 1995, the Company entered into a new financing agreement with a
bank which expanded its credit facility and provided additional liquidity.
The new agreement provides a $20,000,000 revolving credit facility which
replaces the existing revolving finance agreement. Under the new agreement,
the amount available to be drawn is determined by a formula based on certain
percentages of eligible accounts receivable and inventories. Advances up to
$11,000,000 are available against eligible accounts receivable. The Company
may also draw advances against inventory amounts. Depending on the season of
the year, from $6,500,000 to $9,000,0000 may be borrowed on the eligible
inventory base. The new agreement computes interest at a rate based on the
bank's prime rate plus .5% (9.25% at the date of closing) which is consistent
with the old facility. At the date of closing, the Company had approximately
$1,700,000 in unused availability.
In addition, the new agreement provided a $3,000,000 term loan that was used
to repay the existing mortgage note payable to a bank. The term loan bears
interest at the bank's prime rate plus .5%. Per the terms of the note, the
Company will pay 84 monthly installments of principal and interest of
approximately $49,000.
10
<PAGE> 12
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
LIQUIDITY AND CAPITAL RESOURCES, Continued
-------------------------------------------
All borrowings under the agreement are secured by all accounts receivable,
inventories, machinery and equipment of the Company. In addition, the bank
has a first lien on the Asheboro land and facilities. The Company currently
is in the process of granting the bank a security interest in the Somerset
facility contingent upon the approval of the other lenders on the Somerset
facility. This security interest will be subordinated to the other lenders.
As a condition to providing the financing, the bank requires that the Company
meet various restrictive covenants. These covenants included, among other
things, maintenance of certain financial ratios, limits on capital
expenditures, and minimum net worth and net income requirements.
The Company believes that its revolving finance agreement will provide the
necessary liquidity to fund its current level of operations.
In July 1994, the Company purchased a larger manufacturing facility in
Somerset, Pennsylvania to replace the existing facility also located in
Somerset. As discussed below, the Company had obtained commitments for
permanent financing on a portion of the purchase cost of the facility. During
the period between the closing date of the purchase and the date the permanent
financing was finalized, the Company temporarily borrowed $696,000 from a bank
on a short term note to provide the funds for closing. The Company refinanced
the note on March 7, 1995 with long-term financing from two sources. The
first source of financing was from the Pennsylvania Industrial Development
Authority ("PIDA"), a program offered by the Department of Commerce of the
Commonwealth of Pennsylvania. The loan was for $480,000 and bears interest at
2% annually. Monthly installments of $3,089, which includes principal and
interest, will be paid over 15 years. The second source of financing came
from a bank note for $240,000. This loan bears interest at .75% above the
bank's prime rate (9.5% at July 29, 1995) and will be repaid in monthly
installments of principal and interest, currently $2,055, for 15 years.
On July 27, 1995, the Company finalized the long-term financing for this
project with a loan from a program offered by the Department of Commerce of
the Commonwealth of Pennsylvania. This financing, which was provided under
the Economic Development Partnership Program, was for $240,000. This note
bears interest at 2% annually with monthly payments of principal and interest
amounting to $1,544 for 15 years.
All notes are secured by the manufacturing facility. Capitalized in fixed
assets at July 29, 1995 are land and buildings with a cost of approximately
$1,052,000 related to the facility. The remainder of the expenditures made
for the facility were paid with borrowings under the revolving finance
agreement.
The level of other capital expenditures in 1995 has been significantly lower
than in prior two years. Capital expenditures for the first nine months of
1995 were $25,000 compared to $1,514,000 in the first nine months of 1994.
The Company made significant upgrades to its equipment and facilities in 1994,
while no such outlays have been made in 1995. The Company is focusing on
improving operations in 1995, making capital expenditures only to maintain
current levels of operations Funding for capital expenditures other than the
building acquisition has primarily come from the available balance on the
finance agreement.
11
<PAGE> 13
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
FINANCIAL CONDITION
ACCOUNTS RECEIVABLE
-------------------
Accounts receivable were $11,494,000 at July 29, 1995 compared to $13,736,000
at October 29, 1994, a decrease of $2,242,000. Trade receivables have
historically been at their highest point at the end of the fourth quarter
because of the heavy sales volume related to Christmas buying by retailers.
Second, certain dating programs offered by the Company ended in the first
quarter of 1995, resulting in collection of a significant amount of
outstanding receivables.
INVENTORIES
-----------
Inventories were $16,831,000 at July 29, 1995, an increase of $1,428,000 from
the inventories held at October 29, 1994 of $15,403,000. Of the increase,
approximately $1,723,000 is finished goods, $116,000 is work in process, and
there was a decrease of $411,000 in raw materials. Lower than expected sales
volume in the third quarter of 1995 contributed to the growth in finished
goods inventory compared to the 1994's ending inventory. In addition, sales
are historically at their highest point in the fourth quarter of each year.
Therefore, finished goods inventories are typically near their lowest amount
in October of each year. The growth in finished goods inventories was offset
partially by a reduction in the production at the Company's manufacturing
plants which have produced 15.4% fewer shoes than in 1994. The Company has
focused on improving the level of raw material inventories held in relation to
production needs, thereby reducing its investment in raw materials from year-
end.
BORROWINGS UNDER FINANCE AGREEMENT
----------------------------------
The balance outstanding under the finance agreement was $13,283,000 at July
29, 1995 compared to $12,890,000 at October 29, 1994. The increase is a
result of the additional borrowings necessary to fund the Company's
operations. The reduced sales levels have provided less cash from operations.
12
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------ --------------------------------
(a) Exhibits Filed:
(4)(c)(1) Credit Agreement dated August 15, 1995 between Mellon Bank, NA,
as Lender, and B.B. Walker Company, the Registrant, as Borrower. Replaces the
existing Exhibit (4)(c)(1) being the Loan and Security Agreement between Sanwa
Business Credit Corporation and the Registrant.
(4)(c)(2) $20,000,000 Revolving Credit Note to the Credit Agreement between
Mellon Bank, NA, as Lender and B.B. Walker Company, as Borrower. Replaces
existing Exhibit (4)(c)(2).
(4)(c)(3) $3,000,000 Term Loan Note to the Credit Agreement between Mellon
Bank, NA, as Lender and B.B. Walker Company, as Borrower. Replaces existing
(4)(d)(5).
(b) Reports on Form 8-K:
NONE
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
B.B. Walker Company
Date September 11, 1995 KENT T. ANDERSON
------------------ ----------------
Kent T. Anderson
Chairman of the Board, Chief
Executive Officer and President
Date September 11, 1995 WILLIAM C. MASSIE
------------------ -----------------
William C. Massie
Vice President-Finance and Administration
13
<PAGE> 1
Exhibit (4)(c)(1)
CREDIT AGREEMENT
by and between
B.B. WALKER COMPANY
and
MELLON BANK, N.A.
August 15, 1995
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS; CONSTRUCTION.........................................
1.01. Certain Definitions................................................
1.02. Construction.......................................................
ARTICLE 2 - THE CREDITS.......................................................
2.01. Revolving Credit Loans.............................................
2.02. Borrowing Base.....................................................
2.03. Letters of Credit..................................................
2.04. Term Loan..........................................................
2.05. Collections, Disbursements & Borrowing Availability................
2.06. Interest Rates.....................................................
2.07. Prepayments Generally..............................................
2.08. Optional Prepayments...............................................
2.09. Mandatory Prepayments..............................................
2.10. Optional Interest Payment Dates....................................
2.11. Default Rate of Interest...........................................
2.12. Fees...............................................................
2.13. Additional Compensation in Certain Circumstances...................
2.14. Taxes..............................................................
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES....................................
3.01. Corporate Status...................................................
3.02. Corporate Power and Authorization..................................
3.03. Execution and Binding Effect.......................................
3.04. Governmental Approvals and Filings.................................
3.05. Absence of Conflicts...............................................
3.06. Audited Financial Statements.......................................
3.07. Interim Financial Statements.......................................
3.08. Absence of Undisclosed Liabilities.................................
3.09. Absence of Material Adverse Changes................................
3.10. Accurate and Complete Disclosure...................................
3.11. Projections........................................................
3.12. Solvency...........................................................
3.13. Margin Regulations.................................................
3.14. Partnerships, Etc..................................................
3.15. Ownership and Control..............................................
3.16. Litigation.........................................................
3.17. Absence of Events of Default.......................................
3.18. Absence of Other Conflicts.........................................
3.19. Insurance..........................................................
3.20. Title to Property..................................................
3.21. Intellectual Property..............................................
3.22. Taxes..............................................................
3.23. Employee Benefits..................................................
3.24. Environmental Matters..............................................
3.25. ESOP Matters.......................................................
3.26. Outstanding Letters of Credit......................................
3.27. Dissolution of B.B. Walker Company of Virginia.....................
<PAGE> 3
ARTICLE 4 - CONDITIONS OF LENDING.............................................
4.01. Conditions to Initial Loans........................................
4.02. Conditions to All Loans............................................
ARTICLE 5 - AFFIRMATIVE COVENANTS
5.01. Basic Reporting Requirements.......................................
5.02. Insurance..........................................................
5.03. Payment of Taxes and Other Potential Charges and
Priority Claims...................................................
5.04. Preservation of Corporate Status...................................
5.05. Governmental Approvals and Filings.................................
5.06. Maintenance of Properties..........................................
5.07. Avoidance of Other Conflicts.......................................
5.08. Financial Accounting Practices.....................................
5.09. Use of Proceeds....................................................
5.10. Continuation of or Change in Business..............................
5.11. Consolidated Tax Return............................................
5.13. Bank Accounts......................................................
5.14. Possession of Instruments and Chattel Paper........................
ARTICLE 6 - NEGATIVE COVENANTS................................................
6.01. Financial Covenants................................................
6.02. Liens..............................................................
6.03. Indebtedness.......................................................
6.04. Guaranties, Indemnities, etc.......................................
6.05. Loans, Advances and Investments....................................
6.06. Accounts at Other Institutions.....................................
6.07. Dividends and Related Distributions................................
6.08. Sale-Leasebacks....................................................
6.09. Leases.............................................................
6.10. Mergers, Acquisitions, etc.........................................
6.11. Dispositions of Properties.........................................
6.12. Issuance of Subsidiary Stock.......................................
6.13. Dealings with Affiliates...........................................
6.14. Limitations on Modification of Certain Agreements
and Instruments....................................................
6.15. Limitation on Payments and Modification of
Restricted Indebtedness............................................
6.16. Limitation on Other Restrictions on Liens..........................
6.17. Limitation on Other Restrictions on Amendment of
the Loan Documents, etc............................................
ARTICLE 7 - DEFAULTS..........................................................
7.01. Events of Default..................................................
7.02. Consequences of an Event of Default................................
ARTICLE 8- MISCELLANEOUS......................................................
8.01. Holidays...........................................................
8.02. Records............................................................
8.03. Amendments and Waivers.............................................
8.04. No Implied Waiver; Cumulative Remedies.............................
8.05. Notices............................................................
8.06. Expenses; Taxes; Indemnity.........................................
<PAGE> 4
8.07. Severability.......................................................
8.08. Prior Understandings...............................................
8.09. Duration; Survival.................................................
8.10. Counterparts.......................................................
8.11. Limitation on Payments.............................................
8.12. Set-Off............................................................
8.13. Sharing of Collections.............................................
8.14. Successors and Assigns; Participations; Assignments................
8.15. Governing Law; Submission to Jurisdiction:
Waiver of Jury Trial...............................................
<PAGE> 5
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT (this "Agreement"), dated as of August 15, 1995, by
and between B.B. WALKER COMPANY, a North Carolina corporation (the
"Borrower"), and MELLON BANK, N.A., a national banking association (the
"Lender").
RECITALS
A. The Borrower has requested that the Lender establish certain
credit facilities for the Borrower in order to provide working capital
financing and to refinance certain existing indebtedness.
B. The Lender is willing to establish these facilities under the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE - DEFINITIONS; CONSTRUCTION
1.01. CERTAIN DEFINITIONS. In addition to other words and terms defined
elsewhere in this Agreement, as used herein the following words and terms
shall have the following meanings, respectively, unless the context hereof
otherwise clearly requires:
"ACCOUNT" shall mean any right to payment for goods sold or leased or for
services rendered, as defined in the Uniform Commercial Code as in effect in
the State of North Carolina, and which is not evidenced by an instrument or
chattel paper, whether or not it has been earned by performance.
"AFFILIATE" of a Person (the "Specified Person") shall mean (a) any
Person which directly or indirectly controls, or is controlled by, or is under
common control with, the Specified Person, (b) any director or officer (or, in
the case of a Person which is not a corporation, any individual having
analogous powers) of the Specified Person or of a Person who is an Affiliate
of the Specified Person within the meaning of the preceding clause (a), and
(c) for each individual who is an Affiliate of the Specified Person within the
meaning of the foregoing clauses (a) or (b), any other individual related to
such Affiliate by consanguinity within the third degree or in a step or
adoptive relationship within such third degree or related by affinity with
such Affiliate or any such individual. For purposes of the preceding
sentence, "CONTROL" of a Person means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by contract
or otherwise.
<PAGE> 6
"ASHEBORO DEED OF TRUST" shall have the meaning set forth in Section
4.01(d) hereof.
"BORROWING BASE" shall have the meaning set forth in Section 2.02 hereof.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday, public
holiday under the laws of the Commonwealth of Pennsylvania or other day on
which banking institutions are authorized or obligated to close in a city in
which is located an office of the Lender.
"CAPITAL EXPENDITURES" of any Person shall mean, for any period, all
expenditures (whether paid in cash or accrued as liabilities during such
period) of such Person during such period which would be classified as capital
expenditures in accordance with GAAP (including, without limitation,
expenditures for maintenance and repairs which are capitalized, and
Capitalized Leases to the extent an asset is recorded in connection therewith
in accordance with GAAP).
"CAPITALIZED LEASE" shall mean at any time any lease which is, or is
required under GAAP to be, capitalized on the balance sheet of the lessee at
such time, and "CAPITALIZED LEASE OBLIGATION" of any Person at any time shall
mean the aggregate amount which is, or is required under GAAP to be, reported
as a liability on the balance sheet of such Person at such time as lessee
under a Capitalized Lease.
"CASH COLLATERAL ACCOUNT" shall have the meaning set forth in Section
2.05(a) hereof.
"CASH EQUIVALENT INVESTMENTS" shall mean any of the following, to the
extent acquired for investment and not with a view to achieving trading
profits: (a) obligations fully backed by the full faith and credit of the
United States of America maturing not in excess of nine months from the date
of acquisition, (b) commercial paper maturing not in excess of nine months
from the date of acquisition and rated "P-1" by Moody's Investors Service or
"A-1" by Standard & Poor's Corporation on the date of acquisition, and (c) the
following obligations of any domestic commercial bank having capital and
surplus in excess of $500,000,000, which has, or the holding company of which
has, a commercial paper rating meeting the requirements specified in clause
(b) above: (i) time deposits, certificates of deposit and acceptances maturing
not in excess of nine months from the date of acquisition, or (ii) repurchase
obligations with a term of not more than seven days for underlying securities
of the type referred to in clause (a) above.
<PAGE> 7
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, and any successor statute of
similar import, and regulations thereunder, in each case as in effect from
time to time.
"CERCLIS" shall mean the Comprehensive Environmental Response,
Compensation and Liability Information System List, as the same may be amended
from time to time.
"CHANGE OF MANAGEMENT" shall mean that a majority of the Board of
Directors of the Borrower shall be other than those who were directors on the
date hereof, or Kent T. Anderson or William C. Massie shall die, become
disabled, shall be terminated from employment with the Borrower (voluntarily
or involuntarily), or for any reason shall cease to serve as
Chairman/President/CEO and Vice President of Finance/Administration,
respectively, of the Borrower, having duties and responsibilities
substantially similar to those held by them on the date hereof.
"CLOSING DATE" shall mean August 15, 1995.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor statute of similar import, and regulations thereunder, in each case
as in effect from time to time. References to sections of the Code shall be
construed also to refer to any successor sections.
"COLLATERAL" shall mean the property from time to time subject to or
purported to be subject to the Liens of the Security Documents.
"COLLATERAL MANAGEMENT FEE" shall have the meaning set forth in Section
2.12(c) hereof.
"COMMITMENTS" of the Lender shall mean the Revolving Credit Commitment
and the Term Loan Commitment.
"CONSOLIDATED CURRENT ASSETS" at any time shall mean the "current assets"
of the Borrower and its consolidated Subsidiaries determined on a consolidated
basis in accordance with GAAP excluding prepaid expenses, advanced payments on
goods not yet delivered, and monies held in environmental or reclamation
escrow accounts to the extent included in "current assets".
"CONSOLIDATED CURRENT LIABILITIES" at any time shall mean the "current
liabilities" of the Borrower and its consolidated Subsidiaries determined on a
consolidated basis in accordance with GAAP, except that Current Liabilities
shall include the aggregate amount of the Revolving Credit Loans to the extent
not included in "current liabilities" in conformity with GAAP.
<PAGE> 8
"CONSOLIDATED CURRENT RATIO" at any time shall mean the ratio of the
Consolidated Current Assets at such time to the Consolidated Current
Liabilities at such time.
"CONSOLIDATED LEVERAGE RATIO" at any time shall mean the ratio of
aggregate Indebtedness of the Borrower and its consolidated Subsidiaries,
determined on a consolidated basis in accordance with GAAP, to Consolidated
Tangible Net Worth.
"CONSOLIDATED NET INCOME" for any period shall mean the net earnings (or
loss) after taxes of the Borrower and its consolidated Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" at any time shall mean the total amount
of stockholders' equity of the Borrower and its consolidated subsidiaries at
such time determined in accordance with GAAP, except that there shall be
deducted therefrom the book value of all intangible assets of the Borrower and
its consolidated Subsidiaries at such time determined on a consolidated basis
in accordance with GAAP.
"CONSOLIDATED WORKING CAPITAL" at any time shall mean Consolidated
Current Assets at such time minus Consolidated Current Liabilities at such
time.
"CONTROLLED GROUP MEMBER" shall mean each trade or business (whether or
not incorporated) which together with the Borrower or is treated as a single
employer under Sections 4001(a)(14) or 4001(b)(1) of ERISA or Sections 414(b),
(c), (m) or (o) of the Code.
"COPYRIGHT ASSIGNMENT" shall have the meaning set forth in Section
4.01(c) hereof.
"CORRESPONDING SOURCE OF FUNDS" shall mean in the case of any Funding
Segment of the LIBOR Rate Portion, the proceeds of hypothetical receipts by a
Notional LIBOR Rate Funding Office or by a Lender through a Notional LIBOR
Rate Funding Office of one or more Dollar deposits in the interbank eurodollar
market at the beginning of the LIBOR Rate Funding Period corresponding to such
Funding Segment having maturities approximately equal to such LIBOR Rate
Funding Period and in an aggregate amount approximately equal to such Lender's
Pro Rata share of such Funding Segment.
"CROSS-DEFAULT EVENT" shall have the meaning set forth in Section 7.01(f)
hereof.
"CROSS-DEFAULT OBLIGATION" shall have the meaning set forth in Section
7.01(f) hereof.
"DILUTION" shall have the meaning set forth in Section 2.02(e) hereof.
<PAGE> 9
"DOLLAR," "DOLLARS" and the symbol "$" shall mean lawful money of the
United States of America.
"ELIGIBLE FINISHED GOODS INVENTORY" shall have the meaning set forth in
Section 2.02(f) hereof.
"ELIGIBLE INVENTORY" shall have the meaning set forth in Section 2.02(f).
"ELIGIBLE RAW MATERIALS INVENTORY" shall have the meaning set forth in
Section 2.02(f) hereof.
"ELIGIBLE RECEIVABLES" shall have the meaning set forth in Section
2.02(d) hereof.
"ELIGIBLE RETAIL INVENTORY" shall have the meaning set forth in Section
2.02(f) hereof.
"ENVIRONMENTAL AFFILIATE" shall mean, with respect to any Person, any
other Person whose liability (contingent or otherwise) for any Environmental
Claim such Person has retained, assumed or otherwise is liable for (by Law,
agreement or otherwise).
"ENVIRONMENTAL APPROVALS" shall mean any Governmental Action pursuant to
or required under any Environmental Law.
"ENVIRONMENTAL CLAIM" shall mean, with respect to any Person, any action,
suit, proceeding, investigation, notice, claim, complaint, demand, request for
information or other communication (written or oral) by any other Person
(including but not limited to any Governmental Authority, citizens' group or
present or former employee of such Person) alleging, asserting or claiming any
actual or potential (a) violation of any Environmental Law, (b) liability
under any Environmental Law or (c) liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages, property
damages, personal injuries, fines or penalties arising out of, based on or
resulting from the presence, or release into the environment, of any
Environmental Concern Materials at any location, whether or not owned by such
Person.
"ENVIRONMENTAL CLEANUP SITE" shall mean any location which is listed or
proposed for listing on the National Priorities List, on CERCLIS or on any
similar state list of sites requiring investigation or cleanup, or which is
the subject of any pending or threatened action, suit, proceeding or
investigation related to or arising from any alleged violation of any
Environmental Law.
<PAGE> 10
"ENVIRONMENTAL CONCERN MATERIALS" shall mean (a) any flammable substance,
explosive, radioactive material, hazardous material, hazardous waste, toxic
substance, solid waste, pollutant, contaminant or any related material, raw
material, substance, product or by-product of any substance specified in or
regulated or otherwise affected by any Environmental Law (including but not
limited to any "hazardous substance" as defined in CERCLA or any similar state
Law), (b) any toxic chemical or other substance from or related to industrial,
commercial or institutional activities, and (c) asbestos, gasoline, diesel
fuel, motor oil, waste and used oil, heating oil and other petroleum products
or compounds, polychlorinated biphenyls, radon and urea formaldehyde.
"ENVIRONMENTAL LAW" shall mean any Law, whether now existing or
subsequently enacted or amended, relating to (a) pollution or protection of
the environment, including natural resources, (b) exposure of Persons,
including but not limited to employees, to Environmental Concern Materials,
(c) protection of the public health or welfare from the effects of products,
by-products, wastes, emissions, discharges or releases of Environmental
Concern Materials or (d) regulation of the manufacture, use or introduction
into commerce of Environmental Concern Materials including their manufacture,
formulation, packaging, labeling, distribution, transportation, handling,
storage or disposal. Without limitation, "ENVIRONMENTAL LAW" shall also
include any Environmental Approval and the terms and conditions thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute of similar import, and regulations
thereunder, in each case as in effect from time to time. References to
sections of ERISA shall be construed also to refer to any successor sections.
"ESOP" shall mean the Employee Stock Ownership Plan of B.B. Walker
Company, originally effective as of November 1, 1976 and as subsequently
amended.
"EVENT OF DEFAULT" shall mean any of the Events of Default described in
Section 7.01 hereof.
"FUNDING BREAKAGE DATE" shall have the meaning set forth in Section 2.13
hereof.
"FUNDING BREAKAGE INDEMNITY" shall have the meaning set forth in Section
2.13 hereof.
"FUNDING PERIOD" or "FUNDING PERIODS" shall have the meaning set forth in
Section 2.06(d) hereof.
<PAGE> 11
"FUNDING SEGMENT" of the LIBOR Rate Portion of the Revolving Credit Loans
or the Term Loan at any time shall mean the entire principal amount of such
Portion to which at the time in question there is applicable a particular
Funding Period (as defined in Section 2.06(d) hereof) beginning on a
particular day and ending on a particular day. (By definition, each such
Portion is at all times composed of an integral number of discrete Funding
Segments and the sum of the principal amounts of all Funding Segments of any
such Portion at any time equals the principal amount of such Portion at such
time.)
"GAAP" shall mean generally accepted accounting principles in the United
States, in effect from time to time, consistently applied and maintained.
"GOVERNMENTAL ACTION" shall have the meaning set forth in Section 3.04
hereof.
"GOVERNMENTAL AUTHORITY" shall mean any government or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality of either, or any court, tribunal, grand jury or
arbitrator, in each case whether foreign or domestic.
"GUARANTOR" shall mean Bender Shoe Company, a Pennsylvania corporation.
"GUARANTY SECURITY AGREEMENT" shall having the meaning set forth in
Section 4.01(c) hereof.
"GUARANTY AND SURETYSHIP AGREEMENT" shall have the meaning set forth in
Section 4.01(c) hereof.
"GUARANTY EQUIVALENT" shall have the meaning set forth below: A Person
(the "DEEMED GUARANTOR") shall be deemed to subject to a Guaranty Equivalent
in respect of any indebtedness, obligation or liability (the "ASSURED
OBLIGATION") of another Person (the "DEEMED OBLIGOR") if the Deemed Guarantor
directly or indirectly guarantees, becomes surety for, endorses, assumes,
agrees to indemnify the Deemed Obligor against, or otherwise agrees, becomes
or remains liable (contingently or otherwise) for, such Assured Obligation.
Without limitation, a Guaranty Equivalent shall be deemed to exist if a Deemed
Guarantor agrees, becomes or remains liable (contingently or otherwise),
directly or indirectly: (a) to purchase or assume, or to supply funds for the
payment, purchase or satisfaction of, an Assured Obligation, (b) to make any
loan, advance, capital contribution or other investment in, or to purchase or
lease any property or services from, a Deemed Obligor (i) to maintain the
solvency of the Deemed Obligor, (ii) to enable the Deemed Obligor to meet any
other financial condition, (iii) to enable the Deemed Obligor to satisfy any
Assured Obligation or to make any Stock Payment or any other payment, or (iv)
to assure the holder of such Assured Obligation against loss, (c) to purchase
or lease property or services from the Deemed Obligor regardless of the non-
delivery of or failure to furnish of such property or services, (d) in a
transaction having the characteristics of a take-or-pay or throughput contract
or as described in paragraph 6 of FASB Statement of Financial Accounting
Standards No. 47, or (e) in respect of any other transaction the effect of
which is to assure the payment or performance (or payment of damages or other
remedy in the event of nonpayment or nonperformance) of any Assured
Obligation.
<PAGE> 12
"INDEBTEDNESS" of a Person shall mean:
(a) All obligations on account of money borrowed by, or credit
extended to or on behalf of, or for or on account of deposits with or advances
to, such Person;
(b) All obligations of such Person evidenced by bonds, debentures,
notes or similar instruments;
(c) All obligations of such Person for the deferred purchase price
of property or services;
(d) All obligations secured by a Lien on property owned by such
Person (whether or not assumed); and all obligations of such Person under
Capitalized Leases (without regard to any limitation of the rights and
remedies of the holder of such Lien or the lessor under such Capitalized Lease
to repossession or sale of such property);
(e) The face amount of all letters of credit issued for the account
of such Person and, without duplication, the unreimbursed amount of all drafts
drawn thereunder, and all other obligations of such Person associated with
such letters of credit or draws thereon;
(f) All obligations of such Person in respect of acceptances or
similar obligations issued for the account of such Person;
(g) All obligations of such Person under a product financing or
similar arrangement described in paragraph 8 of FASB Statement of Accounting
Standards No. 49 or any similar requirement of GAAP; and
(h) All obligations of such Person under any interest rate or
currency protection agreement, interest rate or currency future, interest rate
or currency option, interest rate or currency swap or cap or other interest
rate or currency hedge agreement.
"INDEMNIFIED PARTIES" shall mean the Lender, its respective affiliates,
and the directors, officers, employees, attorneys and agents of each of the
foregoing.
"INITIAL COMMITMENT FEE" shall have the meaning set forth in Section
2.12(a) hereof.
"INVENTORY BASED LOANS" shall have the meaning set forth in Section
2.02(b) hereof.
<PAGE> 13
"INVENTORY TURNOVER" shall mean the Borrower's annualized cost of goods
sold for the period measured, divided by the FIFO book value of the Borrower's
inventory as of the last day of such period, expressed on a calendar day
basis.
"LAW" shall mean any law (including common law), constitution, statute,
treaty, convention, regulation, rule, ordinance, order, injunction, writ,
decree or award of any Governmental Authority.
"L/C" or "L/Cs" shall have the meaning set forth in Section 2.03(a)
hereof.
"L/C FEES" shall have the meaning set forth in Section 2.12(e) hereof.
"LIBOR RATE" shall have the meaning set forth in Section 2.06(a)(ii)
hereof.
"LIBOR RATE OPTION" shall have the meaning set forth in Section
2.06(a)(ii) hereof.
"LIBOR RATE PORTION" of any Loan or Loans shall mean at any time the
portion, including the whole, of such Loan or Loans bearing interest at any
time under the LIBOR Rate Option or at a rate calculated by reference to the
LIBOR Rate under Section 2.11 hereof. If no Loan or Loans is specified,
"LIBOR RATE PORTION" shall refer to the LIBOR Rate Portion of all Loans
outstanding at such time.
"LIBOR RATE RESERVE PERCENTAGE" shall have the meaning set forth in
Section 2.06(a)(ii) hereof.
"LIEN" shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, including but not limited to any conditional sale or title
retention arrangement, and any assignment, deposit arrangement or lease
intended as, or having the effect of, security.
"LOAN" shall mean any loan by the Lender to the Borrower under this
Agreement, and "LOANS" shall mean all Loans made by the Lender under this
Agreement.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes, and the Security
Documents and all other agreements and instruments extending, renewing,
refinancing or refunding any indebtedness, obligation or liability arising
under any of the foregoing, in each case as the same may be amended, modified
or supplemented from time to time hereafter.
"LOAN PARTY" shall mean the Borrower and the Guarantor.
<PAGE> 14
"LOCKBOX" shall have the meaning set forth in Section 2.05(a) hereof.
"LOCKBOX AGREEMENT" shall have the meaning set forth in Section 2.05(a)
hereof.
"LONDON BUSINESS DAY" shall mean a day for dealing in deposits in Dollars
by and among banks in the London interbank market and which is a Business Day.
"MATERIAL ADVERSE EFFECT" shall mean: (a) a material adverse effect on
the Collateral or on the business, operations, condition (financial or
otherwise) or prospects of the Borrower or any Subsidiary, (b) a material
adverse effect on the ability of the Borrower or any Subsidiary to perform or
comply with any of the terms and conditions of any Loan Document, or (c) a
material adverse effect on the legality, validity, binding effect,
enforceability or admissibility into evidence of any Loan Document, or the
ability of the Lender to enforce any rights or remedies under or in connection
with any Loan Document.
"MERCHANDISE L/C" shall have the meaning set forth in Section 2.03(a)
hereof.
"MULTIEMPLOYER PLAN" shall mean any employee benefit plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which the Borrower or any Controlled Group Member has or had an obligation to
contribute.
"NET CASH PROCEEDS" with respect to any property shall mean cash or cash
equivalents received by the Borrower or any Subsidiary from the sale, lease or
other disposition of such property, MINUS the sum of (a) expenses reasonably
incurred in respect of such sale, lease or other disposition, (b) any sales or
transfer taxes payable as a result of such sale, and (c) the amount required
to discharge any indebtedness or obligation secured by a Lien on such property
and required to be discharged in connection with such sale, lease or other
disposition.
"NET VALUE" with regard to Eligible Receivables and Eligible Inventory
shall have the meaning set forth in Section 2.02(d) and 2.02(f), respectively.
"NOTE" or "NOTES" shall mean the Revolving Credit Note and the Term Loan
Note as the case may be, of the Borrower executed and delivered under this
Agreement, together with all extensions, renewals, refinancings or refundings
of any thereof in whole or part.
"NOTIONAL LIBOR RATE FUNDING OFFICE" shall mean any branch, subsidiary or
affiliate of the Lender which the Lender shall have deemed to have made,
maintained or funded any part of the LIBOR Rate Portion of the Loans.
<PAGE> 15
"OBLIGATIONS" shall mean all indebtedness, obligations and liabilities of
the Borrower to the Lender from time to time arising under or in connection
with or related to or evidenced by or secured by or under color of this
Agreement or any other Loan Document, and all extensions, renewals or
refinancings thereof, whether such indebtedness, obligations or liabilities
are direct or indirect, otherwise secured or unsecured, joint or several,
absolute or contingent, due or to become due, whether for payment or
performance, now existing or hereafter arising. Without limitation of the
foregoing, such indebtedness, obligations and liabilities include the
principal amount of Loans, interest, fees, indemnities or expenses under or in
connection with this Agreement or any other Loan Document, and all extensions,
renewals and refinancings thereof, whether or not such Loans were made in
compliance with the terms and conditions of this Agreement or in excess of the
obligation of the Lender to lend. Obligations shall remain Obligations
notwithstanding any assignment or transfer or any subsequent assignment or
transfer of any of the Obligations or any interest therein.
"OPERATING ACCOUNT" shall have the meaning set forth in Section 2.05(a).
"OPTION" shall mean either the Prime Rate Option or the LIBOR Rate
Option, as the case may be.
"OVERADVANCE" or "OVERADVANCES" shall have the meaning set forth in
Section 2.02(c) hereof.
"OVERADVANCE AMOUNT" shall mean Seven Hundred Fifty Thousand Dollars
($750,000).
"OVERADVANCE FEE" shall have the meaning set forth in Section 2.12(d)
hereof.
"OVERADVANCE PERIOD" shall mean the period from March 1 through November
30 of any year prior to the Revolving Credit Maturity Date.
"OVERADVANCE RATE" shall have the meaning set forth in Section 2.06(c)
hereof.
"PARTICIPANTS" shall have the meaning set forth in Section 8.13 hereof.
"PATENT ASSIGNMENT" shall have the meaning set forth in Section 4.01(c)
hereof.
"PBGC" means the Pension Benefit Guaranty Corporation established under
Title IV of ERISA or any other governmental agency, department or
instrumentality succeeding to the functions of said corporation.
<PAGE> 16
"PDCME LOAN" shall mean the equipment financing in an amount not to
exceed $265,000 to be provided to the Borrower or Guarantor by the
Pennsylvania Department of Commerce Machinery and Equipment Loan Fund.
"PENSION-RELATED EVENT" shall mean any of the following events or
conditions:
(a) Any action is taken by any Person (i) to terminate, or which
would result in the termination of, a Plan, either pursuant to its terms or by
operation of law (including, without limitation, any amendment of a Plan which
would result in a termination under Section 4041(e) of ERISA), or (ii) to have
a trustee appointed for a Plan pursuant to Section 4042 of ERISA;
(b) PBGC notifies any Person of its determination that an event
described in Section 4042 of ERISA has occurred with respect to a Plan, that a
Plan should be terminated, or that a trustee should be appointed for a Plan;
(c) Any Reportable Event occurs with respect to a Plan;
(d) Any action occurs or is taken which could result in the
Borrower or any Loan Party becoming subject to liability for a complete or
partial withdrawal by any Person from a Multiemployer Plan (including, without
limitation, seller liability incurred under Section 4204(a)(2) of ERISA), or
the Borrower, any Loan Party or any Controlled Group Member receives from any
Person a notice or demand for payment on account of any such alleged or
asserted liability; or
(e) (i) There occurs any failure to meet the minimum funding
standard under Section 302 of ERISA or Section 412 of the Code with respect to
a Plan, or any tax return is filed showing any tax payable under Section
4971(a) of the Code with respect to any such failure, or any Borrower, any
Loan Party or any Controlled Group Member receives a notice of deficiency from
the Internal Revenue Service with respect to any alleged or asserted such
failure, or (ii) any request is made by any Person for a variance from the
minimum funding standard, or an extension of the period for amortizing
unfunded liabilities, with respect to a Plan.
"PERMITTED LIENS" shall have the meaning set forth in Section 6.02
hereof.
"PERSON" shall mean an individual, corporation, partnership, trust,
unincorporated association, joint venture, joint-stock company, Governmental
Authority or any other entity.
<PAGE> 17
"PLAN" means any employee pension benefit plan within the meaning of
Section 3(2) of ERISA (other than a Multiemployer Plan) covered by Title IV of
ERISA by reason of Section 4021 of ERISA, of which the Borrower, any Loan
Party or any Controlled Group Member is or has been within the preceding five
years a "contributing sponsor" within the meaning of Section 4001(a)(13) of
ERISA, or which is or has been within the preceding five years maintained for
employees of the Borrower, any Loan Party or any Controlled Group Member.
"PORTION" shall mean the Prime Rate Portion or the LIBOR Rate Portion, as
the case may be.
"POSTRETIREMENT BENEFITS" shall mean any benefits, other than retirement
income, provided by the Borrower or any Loan Party to retired employees, or to
their spouses, dependents or beneficiaries, including, without limitation,
group medical insurance or benefits, or group life insurance or death
benefits.
"POSTRETIREMENT BENEFIT OBLIGATION" shall mean that portion of the
actuarial present value of all Postretirement Benefits expected to be provided
by the Borrower or any Loan Party which is attributable to employees' service
rendered to the date of determination (assuming that such liability accrues
ratably over an employee's working life to the earlier of his date of
retirement or the date on which the employee would first become eligible for
full benefits), reduced by the fair market value as of the date of
determination of any assets which are segregated from the assets of the
Borrower or such Loan Party and which have been restricted so that they cannot
be used for any purpose other than to provide Postretirement Benefits or to
defray related expenses.
"POTENTIAL DEFAULT" shall mean any event or condition which with notice,
passage of time or a determination by the Lender, or any combination of the
foregoing, would constitute an Event of Default.
"PRIME RATE" as used herein, shall mean the interest rate per annum
announced from time to time by the Lender, as its prime rate. The Prime Rate
may be greater or less than other interest rates charged by the Lender to
other borrowers and is not solely based or dependent upon the interest rate
which the Lender may charge any particular borrower or class of borrowers.
"PRIME RATE OPTION" shall have the meaning given in Section 2.06(a)(i)
hereof.
"PRIME RATE PORTION" of any Loan or Loans shall mean at any time the
portion, including the whole, of such Loan or Loans bearing interest at such
time at the Prime Rate Option or at a rate calculated by reference to the
Prime Rate under Section 2.11 hereof. If no Loan or Loans is specified,
"Prime Rate Portion" shall refer to the Prime Rate Portion of all Loans
outstanding at such time.
<PAGE> 18
"REGULAR PAYMENT DATE" shall mean the first day of each month beginning
with the first month following the Closing Date.
"RELATED LITIGATION" shall have the meaning set forth in Section 8.14
hereof.
"REPORTABLE EVENT" means (a) a reportable event described in Section 4043
of ERISA, (b) a withdrawal by a substantial employer from a Plan to which more
than one employer contributes, as referred to in Section 4063(b) of ERISA, (c)
a cessation of operations at a facility causing more than twenty percent (20%)
of Plan participants to be separated from employment, as referred to in
Section 4062(e) of ERISA, or (d) a failure to make a required installment or
other payment with respect to a Plan when due in accordance with Section 412
of the Code or Section 302 of ERISA which causes the total unpaid balance of
missed installments and payments (including unpaid interest) to exceed
$750,000.
"RESPONSIBLE OFFICER" shall mean either Kent T. Anderson, William C.
Massie or such officer of the Borrower as shall be acceptable to the Lender
from time to time.
"RESTRICTED INDEBTEDNESS" shall mean at any time any Indebtedness for
borrowed money of the Borrower which is approved in writing by, and which has
subordination provisions, terms of payment, interest rates and other terms and
conditions satisfactory to, the Lender.
"RETAIL LOCATION" or "RETAIL LOCATIONS" shall mean any one or more of the
Borrower's current retail stores in Myrtle Beach, S.C., Lancaster, PA and
Asheboro, N.C.
"REVOLVING CREDIT COMMITMENT" shall have the meaning set forth in Section
2.01(a) hereof.
"REVOLVING CREDIT COMMITMENT FEE" shall have the meaning set forth in
Section 2.12(b) hereof.
"REVOLVING CREDIT COMMITTED AMOUNT" shall mean Twenty Million Dollars
($20,000,000).
"REVOLVING CREDIT LOANS" shall have the meaning set forth in Section
2.01(a) hereof.
"REVOLVING CREDIT MATURITY DATE" shall mean July 31, 1998 as may be
subsequently renewed by agreement of the parties in accordance with this
Agreement.
<PAGE> 19
"REVOLVING CREDIT NOTE" shall mean the promissory note of the Borrower
executed and delivered under Section 2.01(c) hereof, any promissory note
issued in substitution therefor, together with all extensions, renewals,
refinancings or refundings thereof in whole or part.
"SEASONAL REDUCTION FORMULA" shall have the meaning set forth in Section
2.02(b) hereof.
"SECURITY AGREEMENT" shall have the meaning set forth in Section 4.01(c)
hereof.
"SECURITY DOCUMENTS" shall mean the Security Agreement, the Guaranty, the
Guaranty Security Agreement, the Lockbox Agreement, the Trademark Assignment,
the Copyright Assignment, the Patent Assignment, the Asheboro Deed of Trust,
the Somerset Mortgage and any other agreements or instruments from time to
time granting or purporting to grant the Lender a Lien in any property to
secure the Obligations, or subordinating to the Obligations.
"SOLVENT" means, with respect to any Person at any time, that at such
time (a) the sum of the debts and liabilities (including, without limitation,
contingent liabilities) of such Person is not greater than all of the assets
of such Person at a fair valuation, (b) the present fair salable value of the
assets of such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become absolute and
matured, (c) such Person has not incurred, will not incur, does not intend to
incur, and does not believe that it will incur, debts or liabilities
(including, without limitation, contingent liabilities) beyond such person's
ability to pay as such debts and liabilities mature, (d) such Person is not
engaged in, and is not about to engage in, a business or a transaction for
which such person's property constitutes or would constitute unreasonably
small capital, and (e) such Person is not otherwise insolvent as defined in,
or otherwise in a condition which could in any circumstances then or
subsequently render any transfer, conveyance, obligation or act then made,
incurred or performed by it avoidable or fraudulent pursuant to, any Law that
may be applicable to such Person pertaining to bankruptcy, insolvency or
creditors' rights (including but not limited to the Bankruptcy Code of 1978,
as amended, and, to the extent applicable to such Person, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act, or any other
applicable Law pertaining to fraudulent conveyances or fraudulent transfers or
preferences).
"SOMERSET MORTGAGE" shall have the meaning set forth in Section 4.01(d)
hereof.
"STANDARD NOTICE" shall mean an irrevocable notice whether by telephone
or in writing, provided to the Lender on a Business Day which is (a) at least
one Business Day in advance in the case of selection of, conversion to or
renewal of the Prime Rate Option; or (b) at least three (3) London Business
Days in advance in the case of selection of the LIBOR Rate Option of any LIBOR
Rate Portion. Standard Notice must be provided no later than 11:00 a.m.,
Philadelphia time, on the last day permitted for such notice.
<PAGE> 20
"STANDBY L/C" shall have the meaning set forth in Section 2.03(a) hereof.
"STOCK PAYMENT" by any Person shall mean any dividend, distribution or
payment of any nature (whether in cash, securities, or other property) on
account of or in respect of any shares of the capital stock (or warrants,
options or rights therefor) of such Person, including but not limited to any
payment on account of the purchase, redemption, retirement, defeasance or
acquisition of any shares of the capital stock (or warrants, options or rights
therefor) of such Person, in each case regardless of whether required by the
terms of such capital stock (or warrants, options or rights) or any other
agreement or instrument.
"SUBSIDIARY" of a Person at any time shall mean any corporation of which
a majority (by number of shares or number of votes) of any class of
outstanding capital stock normally entitled to vote for the election of one or
more directors (regardless of any contingency which does or may suspend or
dilute the voting rights of such class) is at such time owned directly or
indirectly, beneficially or of record, by such Person or one or more
Subsidiaries of such Person, and any trust of which a majority of the
beneficial interest is at such time owned directly or indirectly, beneficially
or of record, by such Person or one or more Subsidiaries of such Person.
"TAXES" shall have the meaning set forth in Section 2.14(a) hereof.
"TERM LOAN" shall have the meaning set forth in Section 2.04 hereof.
"TERM LOAN COMMITMENT" shall have the meaning set forth in Section
2.04(a) hereof.
"TERM LOAN COMMITTED AMOUNT" shall mean Three Million Dollars
($3,000,000).
"TERM LOAN MATURITY DATE" shall mean July 31, 1998.
"TERM LOAN NOTE" shall mean the promissory note of the Borrower executed
and delivered under Section 2.03(c) hereof, or any promissory note issued in
substitution therefor, together with all extensions, renewals, refinancings or
refundings thereof in whole or part.
<PAGE> 21
"TRADEMARK ASSIGNMENT" shall have the meaning set forth in Section
4.01(c) hereof.
"TREASURY RATE" as of any Funding Breakage Date shall mean the rate per
annum determined by the Lender (which determination shall be conclusive,
absent manifest error) to be the semiannual equivalent yield to maturity
(expressed as a semiannual equivalent and decimal and, in the case of United
States Treasury bills, converted to a bond equivalent yield) for United States
Treasury securities maturing on the last day of the corresponding Funding
Period and trading in the secondary market in reasonable volume (or if no such
securities mature on such date, the rate determined by standard securities
interpolation methods as applied to the series of securities maturing as close
as possible to, but earlier than, such date, and the series of such securities
maturing as close as possible to, but later than, such date).
1.02. Construction. Unless the context of this Agreement otherwise
clearly requires, references to the plural include the singular, the singular
the plural and the part the whole; "or" has the inclusive meaning represented
by the phrase "and/or"; and "property" includes all properties and assets of
any kind or nature, tangible or intangible, real, personal or mixed.
References in this Agreement to "determination" (and similar terms) by the
Lender mean good faith estimates by the Lender (in the case of quantitative
determinations) and good faith beliefs by the Lender (in the case of
qualitative determinations). The words "hereof," "herein," "hereunder" and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. References herein to "out-of-
pocket expenses" of the Lender shall mean actual expenses reasonably incurred
by the Lender in connection with the administration of the Loan. The section
and other headings contained in this Agreement and the Table of Contents
preceding this Agreement are for reference purposes only and shall not control
or affect the construction of this Agreement or the interpretation thereof in
any respect. Section, subsection and exhibit references are to this Agreement
unless otherwise specified.
ARTICLE 2 - THE CREDITS
2.01. REVOLVING CREDIT LOANS.
(a) REVOLVING CREDIT COMMITMENT. Subject to the terms and
conditions and relying upon the representations and warranties herein set
forth, the Lender agrees (such agreement being herein called "REVOLVING CREDIT
COMMITMENT") to make loans (the "REVOLVING CREDIT LOANS") to the Borrower at
any time or from time to time on or after the date hereof and to but not
including the Revolving Credit Maturity Date. The Lender shall have no
<PAGE> 22
obligation to make a Revolving Credit Loan to the extent that the aggregate
principal amount of Revolving Credit Loans at any time outstanding would
exceed the lesser of (i) the Revolving Credit Committed Amount at such time,
or (ii) the Borrowing Base, after giving effect to any outstanding
Overadvances. Subject to these limitations, the outstanding balance of all
Revolving Credit Loans may fluctuate from time to time, as the balance is
reduced by repayments made by the Borrower or increased by Revolving Credit
Loans. Notwithstanding any other provision of this Agreement, any
determination as to whether there is availability within the Borrowing Base
for Revolving Credit Loans shall be determined by the Lender and shall be
binding upon the Borrower. Except as provided in Section 2.02(c) with respect
to Overadvances, if the aggregate principal amount of all Revolving Credit
Loans exceeds the Borrowing Base, the Borrower will immediately, and without
affecting any other rights or remedies of the Lender, repay in full the amount
which exceeds the Borrowing Base. The Lender shall have the right from time
to time to establish reserves against the Borrowing Base in such amounts and
with respect to such matters as the Lender deems reasonably appropriate, in
accordance with reasonable commercial finance standards and practices.
(b) NATURE OF CREDIT. Within the limits of time and amount set
forth in this Section 2.01, and subject to the provisions of this Agreement,
and in the absence of an Event of Default or Potential Default, the Borrower
may borrow, repay and reborrow Revolving Credit Loans hereunder.
(c) REVOLVING CREDIT NOTE. The obligation of the Borrower to repay
the unpaid principal amount of the Revolving Credit Loans made by the Lender
and to pay interest thereon shall be evidenced in part by a promissory note of
the Borrower, dated the Closing Date (the "REVOLVING CREDIT NOTE") in
substantially the form attached hereto as EXHIBIT A, with the blanks
appropriately filled, payable to the order of the Lender in a face amount
equal to the Revolving Credit Committed Amount.
(d) MATURITY. To the extent not due and payable earlier, the
Revolving Credit Loans shall be due and payable on the Revolving Credit
Maturity Date. The Revolving Credit Loans shall automatically renew for one
year from the Revolving Credit Maturity Date unless (i) the Borrower or the
Lender (each in its sole discretion) notifies the other in writing of its
intention not to renew at least sixty days prior to the Revolving Credit
Maturity Date, or (ii) an Event of Default or Potential Default has occurred.
2.02. BORROWING BASE.
(a) BORROWING BASE. The "BORROWING BASE" at any time shall mean
the sum of
<PAGE> 23
(i) eighty-five percent (85%) of the Net Value of Eligible
Receivables; plus
(ii) sixty percent (60%) of the Net Value of Eligible Finished
Goods Inventory; plus
(iii) fifty percent (50%) of the Net Value of Eligible Raw
Materials Inventory; plus
(iv) forty (40%) of the Net Value of Eligible Retail
Inventory, Provided, however, that in no event shall aggregate Loans made
against Eligible Retail Inventory exceed $300,000; plus
(v) an amount equal to fifty percent (50%) of the face amount
of Merchandise L/Cs used to purchase Eligible Inventory;
LESS, an amount equal to one hundred percent (100%) of the face amount of all
issued and outstanding Standby L/Cs and Merchandise L/Cs. The Lender may
impose the maintenance of any additional reserve against the Borrowing Base,
in accordance with reasonable commercial finance standards and practices,
based on determinations as to the value, quality of collectibility of the
Eligible Receivables or Eligible Inventory, or the value or lien status of any
Collateral.
(b) SEASONAL REDUCTION OF THE BORROWING BASE. Notwithstanding the
foregoing Section 2.02(a), the aggregate amount of all Revolving Credit Loans
made based upon the Net Value of all Eligible Inventory (the "INVENTORY BASED
LOANS") shall not exceed the following amounts during the following periods of
time, at any time prior to the Revolving Credit Maturity Date (the "SEASONAL
REDUCTION FORMULA"):
AMOUNT OF INVENTORY BASED LOANS APPLICABLE TIME PERIOD
EACH YEAR
$9,000,000 May 1 through September 30
$8,000,000 April 1 through April 30 and
October 1 through October 31
$7,000,000 March 1 through March 31 and
November 1 through November 30
$6,500,000 December 1 through February 29
(c) OVERADVANCES. Notwithstanding the foregoing Sections 2.02(a)
and (b), during the Overadvance Period only, the aggregate amount of all
Revolving Credit Loans outstanding may exceed the Borrowing Base, after giving
effect to the Seasonal Reduction Formula, by the Overadvance Amount (the
"OVERADVANCES"); provided, however, that in no event shall the aggregate
amount of all Revolving Credit Loans outstanding exceed the Revolving Credit
Committed Amount. No Overadvance shall be available if an Event of Default or
a Potential Default has occurred and is continuing hereunder.
<PAGE> 24
(d) ELIGIBLE RECEIVABLES. "ELIGIBLE RECEIVABLE" at any time shall
mean all rights to payments due and to become due to the Borrower which meet
each of the following requirements at such time:
(i) The Borrower shall have good title to such Eligible
Receivable, free and clear of any Lien, except for the Liens in favor of the
Lender, and such Eligible Receivable is subject to such a valid and perfected
Lien in favor of the Lender.
(ii) Such Eligible Receivable constitutes an Account.
(iii) Such Eligible Receivable is good and collectible, is not
disputed, and represents an unconditional payment obligation in favor of the
Borrower. All services rendered and merchandise sold in connection with such
Eligible Receivable have been finally delivered to and accepted by the obligor
on such Eligible Receivable without return, rejection, repossession, dispute,
offset, defense or counterclaim (including but not limited to any claim for
credits, allowances or adjustments). No contra account or other obligation,
contingent or otherwise, exists from a Borrower to such obligor.
(iv) Such Eligible Receivable has been fully invoiced by the
Borrower, is an unconditional payment obligation of the obligor thereon, is
not subject to offset or reductions, and is payable by its terms in full in
Dollars on ordinary trade terms; provided, however, that each Eligible
Receivable must be evidenced by an invoice which is no more than 120 days
beyond the date of its issuance. Eligible Receivables shall not include
cross-agings Accounts owed by an obligor if fifty percent (50%) or more of
such obligor's Accounts owed to the Borrower are 120 or more days beyond the
date of issuance. The due date of such Eligible Receivable has not been
extended. Such Eligible Receivable is payable by the obligor to the Lockbox
referred to in the Security Documents and the obligor has been so instructed.
(v) The obligor on such Eligible Receivable (A) is a Person
whose principal office is located in the United States, (B) is not a
Subsidiary or an Affiliate of the Borrower, (C) is not the United States of
America, and (D) is not insolvent, subject to any bankruptcy, insolvency or
similar proceeding or unable to pay its debts as they become due.
The "NET VALUE" of an Eligible Receivable shall be its face amount, net of any
portion thereof which constitutes payment of sales, use or other taxes.
<PAGE> 25
(e) EXCLUSION OF ELIGIBLE RECEIVABLES. The Lender from time to
time may exclude any otherwise Eligible Receivable from the class of Eligible
Receivables based on determinations as to the creditworthiness of the obligor,
as to the aggregate amount of Accounts owing by such obligor and its
affiliates, or as to such other and further eligibility standards as the
Lender may determine from time to time in accordance with reasonable
commercial finance standards and practices. The Lender shall give notice to
the Borrower of the terms of any such exclusion. Except as otherwise
expressly stated in such notice, all such exclusions shall be continuing and
cumulative, and an exclusion as to any obligor shall apply in the aggregate to
all Accounts of such obligor and its affiliates.
Notwithstanding the Lender's right to impose further
eligibility standards on Eligible Receivables, and without limiting such
right, the Lender shall have the right to make further adjustments with
respect to Eligible Receivables for the effect of "DILUTION". "DILUTION"
shall mean at any time any reduction in Accounts other than by cash collected
from the obligor, and without regard to whether such non-cash reduction shall
be in the form of a credit, counterclaim, allowance, offset or any other
method. Should Dilution reach levels which are unacceptable to the Lender,
the Lender may make appropriate adjustments to Eligible Receivables in
accordance with reasonable commercial finance standards practices.
(f) ELIGIBLE INVENTORY. "ELIGIBLE INVENTORY" shall mean at any
time: (i) finished goods owned by the Borrower and held for sale by the
Borrower in the ordinary course of its business (the "ELIGIBLE FINISHED GOODS
INVENTORY"), (ii) unfinished goods and raw materials owned by the Borrower
(the "ELIGIBLE RAW MATERIALS INVENTORY"), and (iii) finished goods owned by
the Borrower and held for sale by the Borrower in any Retail Location (the
"ELIGIBLE RETAIL INVENTORY"). Such Eligible Inventory shall meet each of the
following requirements at such time:
(i) Borrower has good title to such Eligible Inventory, free
and clear of any Lien, except for the Liens in favor of the Lender securing
the Obligations and such Eligible Inventory and proceeds thereof is subject to
such a valid and perfected Lien in favor of the Lender.
(ii) Such Eligible Inventory conforms to such other
eligibility standards as the Lender may impose from time to time, in
accordance with reasonable commercial finance standards and practices.
(iii) Such Eligible Retail Inventory is located at one of the
Borrower's Retail Locations.
<PAGE> 26
The "NET VALUE" of Eligible Inventory shall be the Borrower's book value at
lower of cost or market, net of all reserves required by GAAP, with "cost"
calculated on a first-in, first-out basis, all determined in accordance with
GAAP.
2.03. LETTERS OF CREDIT.
(a) LETTER OF CREDIT COMMITMENT. Subject to the terms and
conditions of this Agreement, the Lender agrees to issue commercial letters of
credit (each a "MERCHANDISE L/C") or standby letters of credit (each a
"STANDBY L/C") for the account of the Borrower (collectively, the "L/Cs", or
each, an "L/C") for the account of the Borrower in an aggregate face amount
not to exceed the lesser of: (i) the Borrowing Base less the amount of
outstanding Revolving Credit Loans, and (ii) Two Million Dollars ($2,000,000).
Each Merchandise L/C shall have an expiration date which shall be the earlier
of (i) ninety (90) days from issuance or (ii) the maturity date of the
obligation for which it was issued. Each Standby L/C shall have an expiration
date which shall be the earlier of (i) one year from issuance or (ii) the
maturity date of the obligation for which it was issued. Notwithstanding the
foregoing, each L/C shall have an expiration date no later than sixty (60)
days prior to the Revolving Credit Maturity Date (without regard to any
potential renewal term) and all such L/Cs shall be in form and substance
acceptable to the Lender in its sole discretion. The Lender shall not have
any obligation to issue L/Cs to the extent that the face amount of all
outstanding L/Cs, plus the amount of all outstanding Revolving Credit Loans,
would exceed the Revolving Credit Committed Amount. The L/Cs issued under
this Section 2.03 shall be used by the Borrower, consistent with this
Agreement, for its general working capital purposes, or to support its
obligations with respect to workers' compensation premiums or similar
obligations. If the Lender is obligated to advance funds under an L/C, the
amount so advanced immediately shall be deemed to be a Revolving Credit Loan
made by the Lender to the Borrower pursuant to Section 2.01 and, thereafter,
shall bear interest at the rates then applicable under Section 2.06.
(b) L/C INDEMNIFICATION. The Borrower hereby agrees to indemnify,
save, defend, and hold the Lender harmless from any loss, cost, expense, or
liability, including payments made by the Lender, expenses, and reasonable
attorneys' fees incurred by the Lender arising out of or in connection with
any L/C. The Borrower agrees to be bound by the Lender's interpretations of
any L/C issued by the Lender to or for the Borrower's account, even though
this interpretation may be different from the Borrower's own, and the Borrower
understands and agrees that the Lender shall not be liable for any error,
negligence, or mistakes, whether of omission or commission, in following the
Borrower's instructions or those contained in any L/C or any modifications,
amendments, or supplements thereto.
<PAGE> 27
(c) TERMINATION OF AGREEMENT PRIOR TO L/C MATURITY. Immediately
upon the termination of this Agreement, the Borrower agrees to either: (i)
provide cash collateral to be held by the Lender in an amount equal to the
maximum amount of the Lender's obligations under L/Cs, or (ii) cause to be
delivered to the Lender releases of all of the Lender's obligations under its
outstanding L/Cs. At the Lender's discretion, any proceeds of Collateral
received by the Lender after the occurrence and during the continuation of an
Event of Default or Potential Default may be held as the cash collateral
required by this Section 2.03(c).
2.04. TERM LOAN.
(a) TERM LOAN COMMITMENT. Subject to the terms and conditions and
relying upon the representations and warranties herein set forth, the Lender
agrees (such agreement being herein called the Lender's "TERM LOAN
COMMITMENT") to make a term loan (the "TERM LOAN") to the Borrower on the
Closing Date in the Term Loan Committed Amount.
(b) NATURE OF CREDIT. The Borrower may not reborrow amounts repaid
with respect to the Term Loan.
(c) TERM LOAN NOTE. The obligation of the Borrower to repay the
unpaid principal amount of the Term Loan made by the Lender and to pay
interest thereon shall be evidenced in part by the promissory note of the
Borrower dated the Closing Date in substantially the form attached hereto as
Exhibit B, with the blanks appropriately filled, payable to the order of the
Lender in a face amount equal to the Term Loan Commitment Amount.
(d) SCHEDULED AMORTIZATION; MATURITY. Principal due under the Term
Loan shall be payable on each Regular Payment Date in equal monthly
installments based on a seven (7) year amortization schedule, with all
remaining principal due and payable on the Term Loan Maturity Date.
2.05. COLLECTIONS, DISBURSEMENTS AND BORROWING AVAILABILITY.
(a) LOCKBOX ARRANGEMENT. The Borrower shall maintain a lockbox
account(s) (the "LOCKBOX") with the Lender and a non-interest bearing
depository account(s) (the "CASH COLLATERAL ACCOUNT"), with the Lender subject
to the provisions of this Section 2.05, and shall execute a Lockbox Agreement
in form and substance acceptable to the Lender (the "LOCKBOX AGREEMENT"), and
such other agreements related thereto as the Lender may require. All
collections of Accounts shall be paid directly from obligors into the Lockbox
from which funds shall be transferred to the Cash Collateral Account, and from
which funds shall be applied by the Lender, daily, to reduce the outstanding
indebtedness under the Revolving Credit Loans and future Revolving Credit
Loans to be made by the Lender under the conditions set forth in this
<PAGE> 28
Agreement. In the event that collections of Accounts and proceeds of other
Collateral are received at any time by the Borrower, such collections shall be
held in trust for the benefit of the Lender and shall be remitted, in form
received, to the Lender for deposit in the Cash Collateral Account immediately
upon receipt by the Borrower or any Loan Party. All funds transferred from
the Cash Collateral Account shall immediately reduce the Revolving Credit
Loans, but for the purpose of calculating interest, shall be subject to a one
(1) business day clearance period from the time such funds are transferred to
the Cash Collateral Account. The Borrower shall have no right of access to or
withdrawal from the Lockbox or the Cash Collateral Account. At any time prior
to the occurrence of an Event of Default or Potential Default, if no Revolving
Credit Loans are outstanding, funds received in the Cash Collateral Account
shall be transferred to the Borrower's operating account (the "OPERATING
ACCOUNT") with the Lender.
(b) AVAILABILITY OF LOAN AMOUNTS. Revolving Credit Loans shall be
made to the Borrower by crediting such proceeds to the Operating Account.
Revolving Credit Loans will be made available to the Borrower on any Business
Day after receipt of Standard Notice by the Lender. If Standard Notice is by
telephone, the Lender may request, at its option, that the Borrower confirm
such request, in writing, within one (1) Business Day of any such telephonic
request. The Lender may rely upon Standard Notice, whether telephonic or
written, which is purported to be made by the Borrower through any Responsible
Officer.
(c) COLLECTION OF FEES, ETC. The Lender shall provide the Borrower
with bills for interest, fees and expenses, but shall have not waived its
rights to payment for its failure to do so. The Lender may, in its sole
discretion, charge the Operating Account of the Borrower with the Lender for
all of the Borrower's Obligations to the Lender as they become due from time
to time under this Agreement or any other Loan Document, including without
limitation, interest, principal, fees and reimbursement of expenses.
2.06. INTEREST RATES.
(a) OPTIONAL BASES OF BORROWING. The unpaid principal amount of
the Revolving Credit Loans and the Term Loan shall bear interest for each day
until due on one or more bases selected by the Borrower from among the
interest rate Options set forth below. Subject to the provisions of this
Agreement, the Borrower may select different Options to apply simultaneously
to different Portions of the Revolving Credit Loans and the Term Loan and may
select different Funding Segments to apply simultaneously to different parts
of the LIBOR Rate Portion of such Loans. Each selection of a rate Option
shall apply separately and without overlap to the Revolving Credit Loans as a
class and the Term Loans as a class. The aggregate number of Funding Segments
applicable to the LIBOR Rate Portion of the Revolving Credit Loans at any time
shall not exceed two and the aggregate number of Funding Segments applicable
to the LIBOR Rate Portion of the Term Loan at any time shall not exceed one.
<PAGE> 29
(i) PRIME RATE OPTION: A rate per annum (computed on the
basis of a year of 360 days and actual days elapsed) for each day equal to the
Prime Rate for such day plus one-half of one percent (0.50%).
(ii) LIBOR RATE OPTION: A rate per annum (based on a year of
360 days and actual days elapsed) for each day equal to the LIBOR Rate for
such day plus two and one-half percent (2.50%). "LIBOR RATE" for any day, as
used herein, shall mean for each Funding Segment of the LIBOR Rate Portion
corresponding to a proposed or existing LIBOR Rate Funding Period, the rate
per annum determined by the Lender by dividing (the resulting quotient to be
rounded upward to the nearest 1/100 of 1%) (A) the rate of interest (which
shall be the same for each day in such LIBOR Rate Funding Period) determined
in good faith by the Lender in accordance with its usual procedures (which
determination shall be conclusive) to be the average of the rates per annum
for deposits in Dollars offered to major money center banks in the London
interbank market at approximately 11:00 a.m., London time, two London Business
Days prior to the first day of such LIBOR Rate Funding Period for delivery on
the first day of such LIBOR Rate Funding Period in amounts comparable to such
Funding Segment and having maturities comparable to such Funding Period by (B)
a number equal to 1.00 minus the LIBOR Rate Reserve Percentage.
"LIBOR RATE RESERVE PERCENTAGE" for any day shall mean the
percentage (expressed as a decimal, rounded upward to the nearest 1/100 of
1%), as determined in good faith by the Lender (which determination shall be
conclusive), which is in effect on such day as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) representing the
maximum reserve requirement (including, without limitation, supplemental,
marginal and emergency reserve requirements) with respect to eurocurrency
funding (currently referred to as "Eurocurrency liabilities") of a member bank
in such System. The LIBOR Rate shall be adjusted automatically as of the
effective date of each change in the LIBOR Rate Reserve Percentage. The LIBOR
Rate Option shall be calculated in accordance with the foregoing whether or
not the Lender is actually required to hold reserves in connection with its
eurocurrency funding or, if required to hold such reserves, is required to
hold reserves at the "LIBOR Rate Reserve Percentage" as herein defined.
The Lender shall give prompt notice to the Borrower of the
LIBOR Rate determined or adjusted in accordance with the definition of the
LIBOR Rate, which determination or adjustment shall be conclusive if made in
good faith.
<PAGE> 30
(b) INTEREST RATE REDUCTIONS. If, upon receipt by the Lender of
the Borrower's audited financial statements for the fiscal year ending October
31, 1996, (a) no Event of Default or Potential Default shall have occurred and
is continuing under this Agreement, (b) the Borrower shall have availability
under the Revolving Credit Loan of not less than $1,500,000, and (c) all
accounts payable of the Borrower (and any consolidated Subsidiary) shall be
substantially current (except for those accounts payable disputed in good
faith by the Borrower), the applicable interest rate Option accruing on any
Loan (except for Overadvances) shall be reduced by one-quarter of one percent
(0.25%), in accordance with the other applicable terms and provisions of this
Agreement.
(c) INTEREST ON OVERADVANCE(S). Notwithstanding anything to the
contrary provided herein, any Overadvance shall bear interest for each day at
a per annum rate equal to the Prime Rate plus one percent (1%) (the
"OVERADVANCE RATE").
(d) FUNDING PERIODS. At any time when the Borrower shall select,
convert to or renew the LIBOR Rate Option to apply to any part of the
Revolving Credit Loans or the Term Loan, the Borrower shall specify one or
more periods (the "FUNDING PERIODS") during which each such Option shall
apply. Such Funding Periods shall be for one (1), two (2), three (3) or six
(6) months for no other periods of time, provided that:
(i) Each LIBOR Rate Funding Period shall begin on a London
Business Day, and the term "MONTH," when used in connection with a LIBOR Rate
Funding Period, shall be construed in accordance with prevailing practices in
the interbank eurodollar market at the commencement of such LIBOR Rate
Funding Period, as determined in good faith by the Lender (which determination
shall be conclusive);
(ii) In the case of (A) Revolving Credit Loans, the Borrower
may not select a Funding Period that would end after the Revolving Credit
Maturity Date and (B) the Term Loan, the Borrower may not select a Funding
Period that would end after the Term Loan Maturity Date; and
(iii) The Borrower shall, in selecting any Funding Period,allow
for scheduled mandatory payments and foreseeable mandatory prepayments of the
Loans.
(e) TRANSACTIONAL AMOUNTS. Every selection of, conversion from,
conversion to or renewal of one of the foregoing interest rate Options and
every payment or prepayment of any Revolving Credit Loan or Term Loan shall be
in a principal amount such that after giving effect thereto the aggregate
principal amount of the Prime Rate Portion of the Revolving Credit Loans and
the Term Loan, respectively, or the aggregate principal amount of each Funding
Segment of the LIBOR Rate Portion of the Revolving Credit Loans and the Term
Loan respectively, as the case may be, shall be as set forth below:
<PAGE> 31
PORTION OR FUNDING SEGMENT ALLOWABLE AGGREGATE PRINCIPAL AMOUNT
-------------------------- ------------------------------------
Prime Rate Portion Any;
Each Funding Segment $100,000 or an integral
of the LIBOR Rate Portion multiple thereof
PROVIDED, however, that the Prime Rate Portion of the Term Loan, at any time,
shall be in a principal amount sufficient to amortize regularly scheduled
principal amortization due each month pursuant to Section 2.04(d) hereof.
(f) LIBOR RATE UNASCERTAINABLE; IMPRACTICABILITY. If
(i) on any date on which a LIBOR Rate would otherwise be set
the Lender shall have determined in good faith (which determination shall be
conclusive, absent manifest error) that:
(A) adequate and reasonable means do not exist for
ascertaining such LIBOR Rate,
(B) a contingency has occurred which materially and
adversely affects the interbank eurodollar market, or
(C) the effective cost to the Lender of funding a
proposed Funding Segment of the LIBOR Rate Portion from a Corresponding Source
of Funds shall exceed the LIBOR Rate applicable to such Funding Segment, or
(ii) at any time the Lender shall have determined in good
faith (which determination shall be conclusive, absent manifest error) that
the making, maintenance or funding of any part of the LIBOR Rate Portion has
been made impracticable or unlawful by compliance by the Lender or a Notional
LIBOR Rate Funding Office in good faith with any Law or guideline or
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof or with any request or
directive of any such Governmental Authority (whether or not having the force
of law);
then, and in any such event, the Lender may notify the Borrower of such
determination. Upon such date as shall be specified in such notice (which
shall not be earlier than the date such notice is given), the obligation of
the Lender to allow the Borrower to select, convert to or renew the LIBOR Rate
Option shall be suspended until the Lender shall have later notified the
Borrower of the Lender's determination in good faith (which determination
shall be conclusive, absent manifest error) that the circumstances giving rise
to such previous determination no longer exist.
<PAGE> 32
If the Lender notifies the Borrower of a determination under
subsection (ii) of this Section 2.06(f), the LIBOR Rate Portion of the
Revolving Credit Loans or the Term Loans shall automatically be converted to
the Prime Rate Option as of the date specified in such notice (and accrued
interest thereon shall be due and payable on such date).
If at the time the Lender makes a determination under subsection (i)
or (ii) of this Section 2.06(f) the Borrower has previously notified the
Lender that it wishes to select, convert to or renew the LIBOR Rate Option,
with respect to any proposed Revolving Credit Loan or the Term Loan but such
Loan or Loans have not yet been made, such notification shall be deemed to
provide for selection of, conversion to or renewal of the Prime Rate Option
instead of the LIBOR Rate Option with respect to such Loans.
(g) CONVERSION OR RENEWAL. Subject to the provisions of Section
2.13(b) hereof, and if no Event of Default or Potential Default shall have
occurred and be continuing or shall exist, the Borrower may convert any part
of its Revolving Credit Loans or the Term Loan from any interest rate Option
to another and may renew the LIBOR Rate Option as to any Funding Segment of
the LIBOR Rate Portion:
(i) At any time with respect to conversion from the Prime Rate
Option; or
(ii) At the expiration of any Funding Period with respect to
conversions from or renewals of the LIBOR Rate Option as to the Funding
Segment corresponding to such expiring Funding Period.
Whenever the Borrower desires to convert or renew any interest rate Option,
the Borrower shall provide to the Lender Standard Notice setting forth the
following information:
(v) Whether such conversion or renewal is to apply to Revolving
Credit Loans or the Term Loan;
(w) The date, which shall be a Business Day, on which the proposed
conversion or renewal is to be made;
(x) The principal amounts selected in accordance with Section
2.06(e) hereof of the Prime Rate Portion and each Funding Segment the LIBOR
Rate Portion to be converted from or renewed;
<PAGE> 33
(y) The interest rate Option selected in accordance with Section
2.06(a) hereof and the principal amounts selected in accordance with Section
2.06(e) hereof of the Prime Rate Portion and each Funding Segment of the LIBOR
Rate Portion to be converted to; and
(z) With respect to each Funding Segment to be converted to or
renewed, the Funding Period selected in accordance with Section 2.06(d) hereof
to apply to such Funding Segment.
Standard Notice having been so provided, after the date specified in such
Standard Notice, interest shall be calculated upon the principal amount of the
Revolving Credit Loans or the Term Loan as so converted or renewed. Interest
on the principal amount of any part of the Revolving Credit Loans or the Term
Loan converted or renewed (automatically or otherwise) shall be due and
payable on the conversion or renewal date.
(h) FAILURE TO CONVERT OR RENEW. Absent due notice from the
Borrower of conversion or renewal in the circumstances described in Section
2.06(g)(ii) hereof, any part of the LIBOR Rate Portion for which such notice
is not received shall be converted automatically to the Prime Rate Option on
the last day of the expiring Funding Period.
2.07. PREPAYMENTS GENERALLY.
(a) Whenever the Borrower desires or is required to prepay any part
of its Loans, it shall provide Standard Notice to the Lender setting forth the
following information:
(i) Whether such prepayment is to be applied to the Revolving
Credit Loans or the Term Loan;
(ii) The date, which shall be a Business Day, on which the
proposed prepayment is to be made;
(iii) The total principal amount of such prepayment, which
shall be the sum of the principal amounts selected pursuant to clause (d) of
this Section 2.07; and
(iv) The principal amounts selected in accordance with Section
2.06(e) hereof of any Prime Rate Portion and each part of each Funding Segment
of any LIBOR Rate Portion to be prepaid.
Standard Notice having been so provided, on the date specified in such
Standard Notice, the principal amounts of the Prime Rate Portion and each part
of LIBOR Rate Portion specified in such notice, together with interest on each
such principal amount to such date, shall be due and payable.
<PAGE> 34
(b) At the Lender's sole option, prepayments, or any portion of any
prepayment (and whether or not such prepayment is mandatory or optional
hereunder), may be applied to either the Revolving Credit Loans or the Term
Loan.
2.08. OPTIONAL PREPAYMENTS.
(a) The Borrower shall have the right at its option from time to
time to prepay its Loans in whole or part without premium or penalty (subject,
however, to Subsection (b) below and Section 2.13(b) hereof):
(i) At any time with respect to any principal accruing
interest at the Prime Rate or the Overadvance Rate; or
(ii) At the expiration of any Funding Period with respect to
prepayment of the LIBOR Rate Portion with respect to any part of the Funding
Segment corresponding to such expiring Funding Period.
Any such prepayment shall be made in accordance with Section 2.07 hereof.
(b) Upon prepayment of all of the Revolving Credit Loans or the
Term Loan prior to the Revolving Credit Maturity Date or the Term Loan
Maturity Date, respectively, the Borrower shall pay to the Lender a prepayment
fee equal to the following percentage of the Revolving Credit Committed Amount
or the Term Loan Committed Amount, as the case may be, in accordance with the
following schedule:
PERCENTAGE PAYMENT MADE ON OR BETWEEN
---------- --------------------------
3% Closing Date through
August 31, 1996
2% September 1, 1996 through
August 31, 1997
1% September 1, 1997 through
the Revolving Credit Maturity
Date or Term Loan Maturity
Date
2.09. MANDATORY PREPAYMENTS.
(a) BORROWING BASE. If on any date the aggregate principal amount
of the Revolving Credit Loans outstanding hereunder exceeds the Borrowing Base
(except as allowed during the Overadvance Period), the Borrower shall prepay a
principal amount of the Revolving Credit Loans in an aggregate amount not less
than the amount of such excess.
<PAGE> 35
(b) ASSET SALES. The Borrower shall prepay a principal amount of
the Loans from time to time in an amount not less than the Net Cash Proceeds
upon the sale of assets in accordance with Section 6.11(b) hereof, payable
immediately.
(c) APPLICABILITY OF CERTAIN PROVISIONS. Prepayments required by
this Section 2.09 are subject to all of the terms and conditions applicable to
prepayments generally, optional prepayments and the funding breakage provision
of Section 2.13(b) hereof. The requirement to provide Standard Notice
pursuant to Section 2.07(a) (except for 2.07(a)(iv)) shall only apply to
mandatory prepayments made in accordance with 2.09(b) hereof. Notwithstanding
Section 2.07(b) hereof, mandatory prepayments made in accordance with Section
2.09(a) shall be applied to the Revolving Credit Loans only. Additionally,
Sections 2.08(a)(ii) and 2.08(b) hereof shall not apply to mandatory
prepayments.
2.10. INTEREST PAYMENT DATES. Interest accruing at the Prime Rate
Option or Overadvance Rate shall be due and payable monthly in arrears on each
Regular Payment Date. Interest on each Funding Segment of the LIBOR Rate
Portion shall be due and payable on the last day of the corresponding LIBOR
Rate Funding Period and, if such LIBOR Rate Funding Period is longer than
three (3) months, also every third month during such Funding Period. After
maturity of any part of the Loans (by acceleration or otherwise), interest on
such part of the Loans shall be due and payable on demand.
2.11. DEFAULT RATE OF INTEREST. To the extent permitted by Law, after
there shall have become due (by acceleration or otherwise) principal,
interest, fees, indemnity, expenses or any other amounts due from the Borrower
hereunder or under any other Loan Document, such amounts shall bear interest
for each day until paid (before and after judgment), payable on demand, at a
rate per annum (in each case based on a year of 360 days and actual days
elapsed) which for each day shall be equal to the following: (i) In the case
of any part of LIBOR Rate Portion of any Revolving Credit Loan or Term Loan,
(A) until the end of the applicable then-current Funding Period at a rate per
annum two percent (2%) above the rate otherwise applicable to such part, and
(B) thereafter in accordance with the following clause (ii); and
(ii) In the case of any other amount due from the Borrower hereunder or under
any other Loan Document, two percent (2%) above the then-current Prime Rate
Option or Overadvance Rate applicable to any Loan.
<PAGE> 36
2.12. FEES.
(a) INITIAL COMMITMENT FEE. The Borrower acknowledges that it has
unconditionally paid to the Lender and the Lender acknowledges that it has
received a one-time, non-refundable commitment fee of $143,750 (the "INITIAL
COMMITMENT FEE").
(b) REVOLVING CREDIT COMMITMENT FEE. The Borrower shall pay to the
Lender a commitment fee (the "REVOLVING CREDIT COMMITMENT FEE") equal to one-
quarter of one percent (.25%) per annum (based on a year of 360 days and
actual days elapsed), for each day from and including the date hereof to but
not including the Revolving Credit Maturity Date, on the amount (not less than
zero) equal to (i) the Revolving Credit Committed Amount on such day, minus
(ii) the aggregate principal amount of the Revolving Credit Loans outstanding
on such day and the aggregate face amount of all L/Cs issued and outstanding
on such day. Such Revolving Credit Commitment Fee shall be due and payable
for the preceding period for which such fee has not been paid: (x) on each
Regular Payment Date, (y) on the date of each prepayment of the Revolving
Credit Committed Amount (whether optional or mandatory) on the amount so
prepaid, and (z) on the Revolving Credit Maturity Date.
(c) COLLATERAL MANAGEMENT FEE. So long as Revolving Credit Loans
are outstanding, or the Obligations with respect to the Revolving Credit Loans
have not been satisfied in full, the Borrower shall unconditionally pay to the
Lender a non-refundable quarterly collateral management fee (the "Collateral
Management Fee") payable in advance in the amount of $4,000, the first of
which shall be payable on the Closing Date. Thereafter, the Collateral
Management Fee shall be payable in advance in equal quarterly installments
beginning with the end of the third full month after the Closing Date.
(d) OVERADVANCE FEE. So long as Revolving Credit Loans are
outstanding, or the Obligations with respect to the Revolving Credit Loans
have not been satisfied in full, the Borrower shall unconditionally pay to the
Lender a non-refundable annual fee for the availability of the Overadvance
Amount (the "Overadvance Fee") in the amount of $15,000, payable on the
Closing Date and on each anniversary thereafter until the Revolving Credit
Maturity Date.
(e) L/C FEES. Upon issuance, the Borrower shall pay to the Lender
a fee equal to (i) two percent (2%) per annum times the face amount of any
Merchandise L/C, and (ii) two percent (2%) per annum times the face amount of
any of Standby L/C.
<PAGE> 37
2.13. ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES.
(a) INCREASED COSTS OR REDUCED RETURN RESULTING FROM TAXES,
RESERVES, CAPITAL ADEQUACY REQUIREMENTS, EXPENSES, ETC. If any Law or
guideline or interpretation or application thereof by any Governmental
Authority charged with the interpretation or administration thereof or
compliance with any request or directive of any Governmental Authority
(whether or not having the force of Law) now existing or hereafter adopted:
(i) subjects the Lender or any Notional LIBOR Rate Funding
Office to any tax or changes the basis of taxation with respect to this
Agreement, the Notes, the Loans or payments by the Borrower of principal,
interest, commitment fee or other amounts due from the Borrower hereunder or
under the Notes (except for taxes on the overall net income or overall gross
receipts of the Lender or any Notional LIBOR Rate Funding Office imposed by
the jurisdictions (federal, state and local) in which the Lender's principal
office is located),
(ii) imposes, modifies or deems applicable any reserve,
special deposit or similar requirement against credits or commitments to
extend credit extended by, assets (funded or contingent) of, deposits with or
for the account of, or other acquisitions of funds by, the Lender or any
Notional LIBOR Rate Funding Office (other than requirements expressly included
herein in the determination of the LIBOR Rate hereunder),
(iii) imposes, modifies or deems applicable any capital
adequacy or similar requirement (A) against assets (funded or contingent) of,
or credits or commitments to extend credit extended by, the Lender or any
Notional LIBOR Rate Funding Office, or (B) otherwise applicable to the
obligations of the Lender or any Notional LIBOR Rate Funding Office under this
Agreement, or
(iv) imposes upon the Lender or any Notional LIBOR Rate
Funding Office any other condition or expense with respect to this Agreement,
the Notes or its making, maintenance or funding of any Loan or any security
therefor,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon
the Lender, any Notional LIBOR Rate Funding Office or, in the case of clause
(iii) hereof, any Person controlling the Lender, with respect to this
Agreement, the Notes or the making, maintenance or funding of any Loan (or, in
the case of any capital adequacy or similar requirement, to have the effect of
reducing the rate of return on the Lender's or controlling Person's capital,
taking into consideration the Lender's or controlling Person's policies with
respect to capital adequacy) by an amount which the Lender deems to be
material, (the Lender being deemed for this purpose to have made, maintained
or funded each Funding Segment of the LIBOR Rate Portion from a Corresponding
<PAGE> 38
Source of Funds), the Lender may from time to time notify the Borrower of the
amount determined in good faith (using any averaging and attribution methods)
by the Lender (which determination shall be conclusive, absent manifest error)
to be necessary to compensate the Lender or such Notional LIBOR Rate Funding
Office for such increase, reduction or imposition. Such amount shall be due
and payable by the Borrower to the Lender five (5) Business Days after such
notice is given, together with an amount equal to interest on such amount from
the date two (2) Business Days after the date demanded until such due date at
the Prime Rate Option applicable to the Term Loan. A certificate by the
Lender as to the amount due and payable under this Section 2.13(a) from time
to time and the method of calculating such amount shall be conclusive, absent
manifest error.
(b) FUNDING BREAKAGE. In addition to all other amounts payable
hereunder, if and to the extent for any reason any part of any Funding Segment
of any LIBOR Rate Portion of the Loans becomes due (by acceleration or
otherwise), or is paid, prepaid or converted to another interest rate Option
(whether or not such payment, prepayment or conversion is mandatory or
automatic and whether or not such payment or prepayment is then due), on a day
other than the last day of the corresponding Funding Period (the date such
amount so becomes due, or is so paid, prepaid or converted, being referred to
as the "FUNDING BREAKAGE DATE"), the Borrower shall pay the Lender an amount
("FUNDING BREAKAGE INDEMNITY") determined by the Lender as follows:
(i) first, calculate the following amount: (A) the principal
amount of such Funding Segment of the Loans owing to the Lender which so
became due, or which was so paid, prepaid or converted, times (B) the greater
of (x) zero or (y) the rate of interest applicable to such principal amount on
the Funding Breakage Date minus the Treasury Rate as of the Funding Breakage
Date, times (C) the number of days from and including the Funding Breakage
Date to but not including the last day of such Funding Period, times (D)
1/360;
(ii) the Funding Breakage Indemnity to be paid by the Borrower
to such Lender shall be the amount equal to the present value as of the
Funding Breakage Date (discounted at the Treasury Rate as of such Funding
Breakage Date, and calculated on the basis of a year of 365 or 366 days, as
the case may be, and actual days elapsed) of the amount described in the
preceding clause (i) (which amount described in the preceding clause (i) is
assumed for purposes of such present value calculation to be payable on the
last day of the corresponding Funding Period).
Such Funding Breakage Indemnity shall be due and payable on demand. In
addition, the Borrower shall, on the due date for payment of any Funding
Breakage Indemnity, pay to the Lender an additional amount equal to interest
on such Funding Breakage Indemnity from the Funding Breakage Date to but not
<PAGE> 39
including such due date at the Prime Rate Option applicable to the Term Loan
(calculated on the basis of a year of 360 days and actual days elapsed). The
amount payable to the Lender under this Section 2.13(b) shall be determined in
good faith by the Lender, and such determination shall be conclusive, absent
manifest error.
2.14. TAXES.
(a) PAYMENTS NET OF TAXES. All payments made by the Borrower under
this Agreement or any other Loan Document shall be made free and clear of, and
without reduction or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed, levied, collected,
withheld or assessed by any Governmental Authority, and all liabilities with
respect thereto, excluding
(i) income or franchise taxes imposed on the Lender by the
jurisdiction under the laws of which the Lender is organized or any political
subdivision or taxing authority thereof or therein or as a result of a
connection between the Lender and any jurisdiction other than a connection
resulting solely from this Agreement and the transactions contemplated hereby,
and
(ii) income or franchise taxes imposed by any jurisdiction in
which the Lender's lending offices which make or book Loans are located or any
political subdivision or taxing authority thereof or therein
(all such non-excluded taxes, levies, imposts, deductions, charges or
withholdings being hereinafter called "TAXES"). If any Taxes are required to
be withheld or deducted from any amounts payable to the Lender under this
Agreement or any other Loan Document, the Borrower shall pay the relevant
amount of such Taxes and the amounts so payable to the Lender shall be
increased to the extent necessary to yield to the Lender (after payment of all
Taxes) interest or any such other amounts payable hereunder at the rates or in
the amounts specified in this Agreement and the other Loan Documents.
Whenever any Taxes are paid by the Borrower with respect to payments made in
connection with this Agreement or any other Loan Document, as promptly as
possible thereafter, the Borrower shall send to the Lender for its own account
a certified copy of an original official receipt received by the Borrower
showing payment thereof.
(b) INDEMNITY. The Borrower hereby indemnifies the Lender for the
full amount of all Taxes attributable to payments by or on behalf of the
Borrower hereunder or under any of the other Loan Documents, any Taxes paid by
the Lender, and any present or future claims, liabilities or losses with
respect to or resulting from any omission to pay or delay in paying any Taxes
(including any incremental Taxes, interest or penalties that may become
<PAGE> 40
payable by the Lender as a result of any failure to pay such Taxes), whether
or not such Taxes were correctly or legally asserted.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Lender as follows:
3.01. CORPORATE STATUS. Each Loan Party is a corporation duly
organized, validly existing and in good standing (except as the term "good
standing" is inapplicable in the State of North Carolina) under the laws of
its jurisdiction of incorporation. Each Loan Party has corporate power and
authority to own its respective property and transact the business in which it
is engaged or presently proposes to engage. Each Loan Party is duly qualified
to do business as a foreign corporation and is in good standing (except as the
term "good standing" is inapplicable in the State of North Carolina) in all
jurisdictions in which the ownership of its respective properties or the
nature of its respective activities or both makes such qualification necessary
or advisable. Schedule 3.01 hereof states as of the date hereof the
jurisdiction of incorporation of each Loan Party and each jurisdiction in
which each Loan Party is qualified to do business as a foreign corporation.
3.02. CORPORATE POWER AND AUTHORIZATION. Each Loan Party has corporate
power and authority to execute, deliver, perform, and take all actions
contemplated by each Loan Document to which it is a party, and all such action
has been duly and validly authorized by all necessary corporate proceedings on
its part. Without limitation of the foregoing, the Borrower has the corporate
power and authority to borrow pursuant to the Loan Documents to the fullest
extent permitted hereby and thereby from time to time, and has taken all
necessary corporate action to authorize such borrowings.
3.03. EXECUTION AND BINDING EFFECT. This Agreement and each other Loan
Document to which a Loan Party is a party which is required to be delivered on
or before the Closing Date pursuant to Section 4.01 hereof have been duly and
validly executed and delivered by such Loan Party. This Agreement and each
such other Loan Document constitutes, the legal, valid and binding obligation
of such Loan Party, enforceable against such Loan Party in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or other similar laws of general application affecting the
enforcement of creditors' rights or by general principles of equity limiting
the availability of equitable remedies.
3.04. GOVERNMENTAL APPROVALS AND FILINGS. Except as provided on Schedule
3.04 hereof, no approval, order, consent, authorization, certificate, license,
<PAGE> 41
permit or validation of, or exemption or other action by, or filing, recording
or registration with, or notice to, any Governmental Authority (collectively,
"GOVERNMENTAL ACTION") is or will be necessary in connection with the
execution and delivery of any Loan Document, consummation of the transactions
herein or therein contemplated, performance of or compliance with the terms
and conditions hereof or thereof or to ensure the legality, validity, binding
effect, enforceability or admissibility in evidence hereof or thereof.
3.05. ABSENCE OF CONFLICTS. Except as provided on Schedule 3.05 hereof,
neither the execution and delivery of any Loan Document, nor consummation of
the transactions herein or therein contemplated, nor performance of or
compliance with the terms and conditions hereof or thereof does or will
(a) violate or conflict with any Law in any material respect, or
(b) violate, conflict with or result in a material breach of any
term or condition of, or constitute a default under, or result in (or give
rise to any right, contingent or otherwise, of any Person to cause) any
termination, cancellation, prepayment or acceleration of performance of, or
result in the creation or imposition of (or give rise to any obligation,
contingent or otherwise, to create or impose) any Lien upon any property of
any Loan Party (except for any Lien in favor of the Lender securing the
Obligations) pursuant to, or otherwise result in (or give rise to any right,
contingent or otherwise, of any Person to cause) any change in any right,
power, privilege, duty or obligation of any Loan Party under or in connection
with,
(i) the articles of incorporation or by-laws (or other
constituent documents) of any Loan Party,
(ii) any agreement or instrument creating, evidencing or
securing any Indebtedness to which any Loan Party is a party or by which any
of them or any of their respective properties (now owned or hereafter
acquired) may be subject or bound, or
(iii) any other agreement or instrument to which any Loan
Party is a party or by which any of them or any of their respective properties
(now owned or hereafter acquired) may be subject or bound.
3.06. AUDITED FINANCIAL STATEMENTS. The Borrower has heretofore
furnished to the Lender consolidated balance sheets of the Borrower as of
October 31, 1994 and the related consolidated statements of income, cash flows
and changes in stockholders' equity for the fiscal years then ended, as
examined and reported on by Price Waterhouse, independent certified public
accountants for the Borrower, who delivered an unqualified opinion in respect
<PAGE> 42
thereof. Such financial statements (including the notes thereto) present
fairly the financial condition of the Borrower and its consolidated
Subsidiaries as of the end of each such fiscal year and the results of their
operations and their cash flows for the fiscal years then ended, all in
conformity with GAAP.
3.07. INTERIM FINANCIAL STATEMENTS. The Borrower has heretofore
furnished to the Lender interim consolidated balance sheets of the Borrower
dated May 31, 1995, together with the related consolidated statements of
income, cash flows and changes in stockholders' equity for the applicable
fiscal periods ending on each such date. Such financial statements (including
the notes thereto) present fairly the financial condition of the Borrower and
its consolidated Subsidiaries as of the end of each such fiscal quarter and
the results of their operations and their cash flows for the fiscal periods
then ended, all in conformity with GAAP, subject to normal and recurring year-
end audit adjustments.
3.08. ABSENCE OF UNDISCLOSED LIABILITIES. No Loan Party has a liability
or obligation of any nature whatever (whether absolute, accrued, contingent or
otherwise, whether or not due), forward or long-term commitments or unrealized
or anticipated losses from unfavorable commitments, except (i) as disclosed in
the financial statements referred to in Sections 3.06 and 3.07 hereof, (x)
matters that, individually or in the aggregate, could not have a Material
Adverse Effect, (ii) as disclosed in Schedule 3.08 hereof, and (iii)
liabilities, obligations, commitments and losses incurred after May 31, 1995
in the ordinary course of business and consistent with past practices.
3.09. ABSENCE OF MATERIAL ADVERSE CHANGES. Since May 31, 1995, there
has been no material adverse change in the business, operations, condition
(financial or otherwise), or prospects of the Borrower and its consolidated
Subsidiaries.
3.10. ACCURATE AND COMPLETE DISCLOSURE. All factual information (taken
as a whole) heretofore, contemporaneously or hereafter provided (orally or in
writing) by or on behalf of the Borrower to the Lender (or to any accounting
firm, law firm, appraisal firm, environmental or other engineer, or other
applicable expert), for the benefit of Lender, pursuant to or in connection
with any Loan Document or any transaction contemplated hereby or thereby, is
or will be (as the case may be) true and accurate in all material respects on
the date as of which such information is dated (or, if not dated, when
received by the Lender as the case may be) and does not or will not (as the
case may be) omit to state any material fact necessary to make such
information (taken as a whole) not misleading at such time in light of the
circumstances in which it was provided. The Borrower has disclosed to the
Lender in writing every fact or circumstance which has, or which could have, a
Material Adverse Effect.
<PAGE> 43
3.11. PROJECTIONS. The projections prepared by the Borrower and
delivered to the Lender demonstrate the projected financial condition and
results of operations of the Borrower and its consolidated Subsidiaries, for
the period ending on October 31, 1996, which projections were accompanied by a
written statement of the assumptions and estimates underlying such
projections. Such projections were prepared on the basis of such assumptions
and estimates. Such projections, assumptions and estimates, as of the date of
preparation thereof and as of the date hereof, are reasonable, are made in
good faith, are consistent with the Loan Documents, and represent the
Borrower's best judgment as to such matters. Nothing has come to the
attention of the Borrower which would lead the Borrower to believe that such
projections will not be attained or exceeded. Nothing contained in this
Section shall constitute a representation or warranty that such future
financial performance or results of operations will in fact be achieved.
3.12. SOLVENCY. On and as of the Closing Date, and after giving effect
to all Loans and other obligations and liabilities being incurred on such date
in connection therewith, and on the date of each subsequent Loan or other
extension of credit hereunder and after giving effect to application of the
proceeds thereof in accordance with the terms of the Loan Documents, each Loan
Party is and will be Solvent.
3.13. MARGIN REGULATIONS. No part of the proceeds of any Loan hereunder
will be used for the purpose of buying or carrying any "margin stock," as such
term is used in Regulations G and U of the Board of Governors of the Federal
Reserve System, as amended from time to time, or to extend credit to others
for the purpose of buying or carrying any "margin stock". No Loan Party is
engaged in the business of extending credit to others for the purpose of
buying or carrying "margin stock". No Loan Party owns "margin stock".
Neither the making of any Loan nor any use of proceeds of any such Loan will
violate or conflict with the provisions of Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System, as amended from time to
time.
3.14. PARTNERSHIPS, ETC. No Loan Party is a partner (general or
limited) of any partnership, is a party to any joint venture, owns
(beneficially or of record) any equity or similar interest in any Person
(including but not limited to any interest pursuant to which a Loan Party has
or may in any circumstance have an obligation to make capital contributions
to, or be generally liable for or on account of the liabilities, acts or
omissions of such other Person), except for the matters set forth in Schedule
3.14 hereof.
3.15. OWNERSHIP AND CONTROL. Schedule 3.15 hereof states as of the date
hereof the authorized capitalization of each Loan Party, the number of shares
of each class of capital stock issued and outstanding of each Loan Party and
the number and percentage of outstanding shares of each such class of capital
<PAGE> 44
stock and the names of the record owners of shares in an amount equal to five
percent (5%) or more of all outstanding shares and, to the Borrower's
knowledge after due inquiry, the direct or indirect beneficial owners of such
shares. The outstanding shares of capital stock of each Loan Party has been
duly authorized and validly issued and is fully paid and nonassessable.
Except as shown on Schedule 3.15 hereof, there are no options, warrants,
calls, subscriptions, conversion rights, exchange rights, preemptive rights or
other rights, agreements or arrangements (contingent or otherwise) which may
in any circumstances now or hereafter obligate a Loan Party to issue any
shares of its capital stock or any other securities. As of the date hereof,
there are no shareholder agreements between the Borrower and any of its
shareholders, except for agreements with shareholders and employees otherwise
disclosed in this Agreement. Except for the Guarantor, the Borrower has no
Subsidiaries.
3.16. LITIGATION. Except as provided on Schedule 3.16 hereof, there is
no pending or (to the Borrower's knowledge after due inquiry) threatened
action, suit, proceeding or investigation by or before any Governmental
Authority against or affecting any Loan Party.
3.17. ABSENCE OF EVENTS OF DEFAULT. No event has occurred and is
continuing and no condition exists which constitutes an Event of Default or
Potential Default.
3.18. ABSENCE OF OTHER CONFLICTS. No Loan Party is in violation of or
conflict with, or is subject to any contingent liability on account of any
violation of or conflict with:
(a) any Law (which violation or conflict would result in a Material
Adverse Effect),
(b) its respective articles of incorporation or by-laws (or other
constituent documents), or
(c) any agreement or instrument or arrangement to which it is a
party or by which it or any of its properties (now owned or hereafter
acquired) may be subject or bound (which violation or conflict would result in
a Material Adverse Effect).
3.19. INSURANCE. Each Loan Party maintains with financially sound and
reputable insurers insurance with respect to its properties and business and
against at least such liabilities, casualties and contingencies and in at
least such types and amounts as is customary in the case of corporations
engaged in the same or a similar business or having similar properties
similarly situated. Schedule 3.19 hereof sets forth a list of all insurance
currently maintained by each Loan Party, setting forth the identity of the
insurance carrier, the type of coverage, the amount of coverage and the
deductible. There are no claims, actions, suits, proceedings against, arising
under or based upon any of such insurance policies except as set forth in such
Schedule 3.19.
<PAGE> 45
3.20. TITLE TO PROPERTY. Each Loan Party has good and marketable title
in fee simple to all real property owned or purported to be owned by it and
good title to all other property of whatever nature owned or purported to be
owned by it, including but not limited to all property reflected in the most
recent audited balance sheet referred to in Section 3.06 hereof or submitted
pursuant to Section 5.01(a) hereof, as the case may be (except as sold or
otherwise disposed of in the ordinary course of business after the date of
such balance sheet, in each case free and clear of all Liens, other than
Permitted Liens.
3.21. INTELLECTUAL PROPERTY. Each Loan Party owns, or is licensed or
otherwise has the right to use, all the patents, trademarks, service marks,
names (trade, service, fictitious or otherwise), copyrights, technology
(including but not limited to computer programs and software), processes, data
bases and other rights, free from burdensome restrictions, necessary to own
and operate its properties and to carry on its business as presently conducted
and presently planned to be conducted without conflict with the rights of
others.
3.22. TAXES. All tax and information returns required to be filed by or
on behalf of any Loan Party have been properly prepared, executed and filed.
All taxes, assessments, fees and other governmental charges upon any Loan
Party or upon any of its respective properties, incomes, sales or franchises
which are due and payable have been paid other than those not yet delinquent
and payable without premium or penalty, and except for those being diligently
contested in good faith by appropriate proceedings, and in each case adequate
reserves and provisions for taxes have been made on the books of such Loan
Party. The reserves and provisions for taxes on the books of each Loan Party
are adequate for all open years and for the current fiscal period. No Loan
Party has knowledge of any proposed additional assessment or basis for any
material assessment for additional taxes (whether or not reserved against).
3.23. EMPLOYEE BENEFITS. A copy of the most recent Annual Report (5500
Series Form) including all attachments thereto as filed with the Internal
Revenue Service for each Plan has been provided to the Lender and fairly
presents the funding status of each Plan. There has been no material
deterioration in any Plan's funding status since the date of such Annual
Report. Schedule 3.23 hereof sets forth as of the date hereof a list of all
Plans and Multiemployer Plans, and all information available to any Loan Party
with respect to the direct, indirect or potential withdrawal liability to any
Multiemployer Plan of any Loan Party or any Controlled Group Member. Except
as set forth in Schedule 3.23 hereof, no Loan Party has any liability
(contingent or otherwise) for or in connection with, and none of their
<PAGE> 46
respective properties is subject to a Lien in connection with, any Pension-
Related Event. No Loan Party has any liability (contingent or otherwise) for
or in connection with, any Postretirement Benefits.
3.24. ENVIRONMENTAL MATTERS. Except as provided on Schedule 3.24, and
with respect to Environmental Affiliates, to the best knowledge of the
Borrower:
(a) Each Loan Party and each of its respective Environmental
Affiliates is and has been in full compliance with all applicable
Environmental Laws. There are no circumstances that may prevent or interfere
with such full compliance in the future.
(b) Each Loan Party and its respective Environmental Affiliates has
all Environmental Approvals necessary or desirable for the ownership and
operation of its respective properties, facilities and businesses as presently
owned and operated and as presently proposed to be owned and operated.
(c) There is no Environmental Claim pending or threatened, and
there are no past or present acts, omissions, events or circumstances
(including but not limited to any dumping, leaching, deposition, removal,
abandonment, escape, emission, discharge or release of any Environmental
Concern Material at, on or under any facility or property now or previously
owned, operated or leased by any Loan Party or any of its respective
Environmental Affiliates) that could form the basis of any Environmental
Claim, against any Loan Party or any of its respective Environmental
Affiliates.
(d) No facility or property now or previously owned, operated or
leased by any Loan Party or any of its respective Environmental Affiliates is
an Environmental Cleanup Site. No Loan Party nor any of its respective
Environmental Affiliates has directly transported or directly arranged for the
transportation of any Environmental Concern Materials to any Environmental
Cleanup Site. No Lien exists, and no condition exists which could result in
the filing of a Lien, against any property of any Loan Party or any of its
respective Environmental Affiliates under any Environmental Law.
3.25. ESOP MATTERS. No Loan Party has a liability or obligation of any
nature (whether absolute, accrued, contingent or otherwise, whether or not
due) for any Indebtedness of the ESOP. With respect to liabilities or
obligations of any Loan Party which may arise under the ESOP or under
applicable Law, each Loan Party has estimated such liabilities or obligations
as described in the summary attached hereto as Schedule 3.25.
<PAGE> 47
3.26. OUTSTANDING LETTERS OF CREDIT. As of the Closing Date, the
Borrower is not an account party to any issued or outstanding letter of
credit.
3.27. DISSOLUTION OF B.B. WALKER COMPANY OF VIRGINIA. B.B. Walker
Company of Virginia, a former Subsidiary of the Borrower, has been dissolved
under the laws of its state of incorporation and a copy of the articles of
dissolution have been delivered to the Lender.
ARTICLE 4 - CONDITIONS OF LENDING
4.01. CONDITIONS TO INITIAL LOANS. The obligation of the Lender to make
Loans on the Closing Date is subject to the satisfaction, immediately prior to
or concurrently with the making of such Loans, of the following conditions
precedent, in addition to the conditions precedent set forth in Section 4.02
hereof:
(a) AGREEMENT; NOTE. The Lender shall have received this
Agreement, duly executed by the Borrower, and an executed Revolving Credit
Note and Term Loan Note conforming to the requirements hereof, duly executed
on behalf of the Borrower.
(b) FEES. The Lender shall have received from the Borrower payment
of the Initial Commitment Fee, the Collateral Management Fee and the
Overadvance Fee and, if any L/C is issued on the Closing Date, the applicable
L/C fee.
(c) CERTAIN SECURITY DOCUMENTS PERTAINING TO PERSONAL PROPERTY.
The Lender shall have received the following, each of which shall be in form
and substance satisfactory to the Lender:
(i) Executed copies of each of the following:
(A) A Security Agreement, duly executed on behalf of the
Borrower, in substantially the form of Exhibit C hereto (as amended, modified
or supplemented from time to time, the "SECURITY AGREEMENT".
(B) A Trademark Assignment, duly executed on behalf of
the Borrower, in substantially the form of Exhibit D (as amended, modified or
supplemented from time to time, the "TRADEMARK SECURITY AGREEMENT").
(C) A Copyright Assignment, duly executed on behalf of
the Borrower, in substantially the form of Exhibit E (as amended, modified or
supplemented from time to time, the "COPYRIGHT ASSIGNMENT").
<PAGE> 48
(D) A Patent Assignment, duly executed on behalf of the
Borrower, in substantially the form of Exhibit F (as amended, modified or
supplemented from time to time, the "PATENT ASSIGNMENT").
(E) A Guaranty and Suretyship Agreement, duly executed on
behalf of the Guarantor, in substantially the form of Exhibit G (as amended,
modified or supplemented from time to time, the "GUARANTY").
(F) A Guaranty Security Agreement, duly executed on
behalf of the Guarantor, in substantially the form of Exhibit H (as amended,
modified or supplemented from time to time, the "GUARANTY SECURITY
AGREEMENT").
(G) A Lockbox Agreement, duly executed on behalf of the
Borrower, in substantially the form of Exhibit I (as amended, modified or
supplemented from time to time, the "LOCKBOX AGREEMENT").
(ii) Evidence of the completion of all recordings and filings
of or with respect to, and of all other actions with respect to, the above
Security Documents as may be necessary to create or perfect the Liens created
or purported to be created by such Security Documents as valid, continuing and
perfected Liens in favor of the Lender securing the Obligations, prior to all
other Liens; and evidence of the payment of any necessary fee, tax or expense
relating to such recording or filing. The Lender shall receive:
(A) Acknowledgment copies of proper financing statements
duly filed under the Uniform Commercial Code in all jurisdictions as may be
necessary or, in the opinion of the Lender, desirable to create or perfect
such Liens in favor of the Lender; and
(B) Evidence of filings of assignments in form and
substance satisfactory to the Lender with the United States Patent and
Trademark Office with respect to the Trademark Assignment and Patent
Assignment and with the United States Copyright Office with respect to the
Copyright Assignment.
(iii) Each of the following reports, dated as of July 31,
1995: inventory certification, accounts receivable report, accounts payable
report, and a report of sales, credits and collections received.
(iv) Evidence of the insurance required by the terms of the
above Security Documents, containing the endorsements required by such
Security Documents and this Agreement.
<PAGE> 49
(v) Waivers of landlord's liens, warehouseman's liens and like
rights.
(vi) Certified copies of the License Agreement dated October
14, 1991 by and between KR Sales, Inc. and the Borrower and the License
Agreement dated February 15, 1993 between Jack Daniel Distillery and the
Borrower.
(vii) A contemporaneous search of UCC, real property, tax,
judgment and litigation dockets and records and other appropriate registers
shall have revealed no filings or recordings in effect with respect to the
Collateral purported to be covered by the above Security Documents, except
such as are acceptable to the Lender (it being understood that such acceptance
does not limit the obligations of the Borrower or any Loan Party with respect
to the priority of the Liens in favor of the Lender), and the Lender shall
have received a copy of the search reports received as a result of the search
and of the acknowledgment copies of the financing statements or other
instruments required to be filed or recorded pursuant to this subsection
bearing evidence of the recording of such statements or instruments at each of
such filing or recording places.
(d) CERTAIN SECURITY DOCUMENTS PERTAINING TO REAL PROPERTY. The
Lender shall have received the following, each of which shall be in form and
substance satisfactory to the Lender:
(i) Executed copies of each of the following:
(A) A Deed of Trust, duly executed on behalf of the
Borrower, in substantially the form of Exhibit J hereto, encumbering the
Asheboro, NC property (as amended, modified or supplemented from time to time,
the "ASHEBORO DEED OF TRUST").
(B) A Fourth Mortgage, duly executed on behalf of the
Borrower, in substantially the form of Exhibit K hereto, encumbering the
Somerset, PA property (as amended, modified or supplemented from time to time,
the "SOMERSET MORTGAGE").
(ii) Evidence of the completion of all recordings and filings
of or with respect to, and of all other actions with respect to, the above
Security Documents as may be necessary or, in the opinion of the Lender,
desirable or required to create or perfect the Liens created or purported to
be created by such Security Documents as valid, continuing and perfected Liens
in favor of the Lender for the benefit of the Lender securing the Obligations,
having the priority purported to be given such Liens under such Security
Documents; and evidence of the payment of any necessary fee, tax or expense
relating to such recording or filing.
<PAGE> 50
(iii) With respect to such Security Documents, the Lender
shall have received in respect of each property or estate constituting
Collateral thereunder one or more mortgagee's title insurance policies (or
marked up unconditional binders for such insurance) dated the Closing Date.
Each such policy shall: (A) be in an amount satisfactory to the Lender; (B) be
issued at ordinary rates; (C) insure that each Security Document insured
thereby creates a valid Lien on such property or estate of the mortgagor, free
and clear of all Liens, defects and other exceptions to title, except such as
may be approved by the Lender; (D) name the Lender as the insured thereunder;
(E) be in the form of ALTA Loan Policy -- 1970 (or other form acceptable to
the Lender); (F) contain such endorsements and affirmative coverage as the
Lender may request; (G) be issued by a title insurance company satisfactory to
the Lender; and (H) be accompanied by such coinsurance and reinsurance and
direct access agreements as the Lender or any Lender may require. The Lender
shall have received a copy of such of the recorded documents referred to, or
listed as exceptions to title in, such policy or policies or binders as the
Lender has requested and a copy of all other documents requested by the Lender
affecting the property covered by each such Security Document. The Lender and
such title insurers shall have received such affidavits from the mortgagor as
they may require.
(iv) With respect to such Security Documents, the Lender and
the title insurance company issuing any applicable title insurance policy or
binder referred to in clause (iii) above shall have received an as-built
survey of the site of each property or estate covered by each Security
Document, certified to the Lender and such title insurance company in a manner
satisfactory to the Lender and such title insurance company, dated a date
satisfactory to both of them by an independent professional licensed land
surveyor satisfactory to both of them. Such survey shall include such matters
as the Lender or such title insurance company may request.
(v) With respect to Collateral referred to in such Security
Documents, certified copies of all leases (as lessor or as lessee) pertaining
to any part of such Collateral.
(vi) With respect to Collateral referred to in such Security
Documents, such subordination, attornment and nondisturbance agreements (in
recordable form) from such of the tenants of such of the Collateral as the
Lender may require.
(vii) Evidence of the insurance required by the terms of the
above Security Documents, containing the endorsements required by such
Security Documents and this Agreement.
<PAGE> 51
(viii) Evidence that all other action necessary or, in the
opinion of the Lender, desirable to create, perfect and protect the Liens
created or purported to be created by the above Security Documents have been
taken.
(e) CAPITALIZATION, ETC. The corporate and capital structures of
each Loan Party, the articles of incorporation and by-laws (or other
constituent documents) of each Loan Party, and the terms, conditions, amounts
and holders of all equity, debt and other indebtedness, obligations and
liabilities of each Loan Party, shall be satisfactory to the Lender.
(f) GOVERNMENTAL APPROVALS AND FILINGS. The Lender shall have
received true and correct copies (in each case certified as to authenticity on
such date on behalf of any Loan Party) of all items referred to in Schedule
3.04 hereof and such items shall be satisfactory in form and substance to the
Lender and shall be in full force and effect.
(g) OTHER CONFLICTS. The Lender shall have received true and
correct copies (in each case certified as to authenticity on such date on
behalf of any Loan Party) of all items referred to in Schedule 3.05 hereof and
such items shall be satisfactory in form and substance to the Lender and shall
be in full force and effect.
(h) CORPORATE PROCEEDINGS. The Lender shall have received
certificates by the Secretary or Assistant Secretary of each Loan Party dated
as of the Closing Date as to (i) true copies of the articles of incorporation
and by-laws (or other constituent documents) of each Loan Party in effect on
such date (which, in the case of articles of incorporation or other
constituent documents filed or required to be filed with the Secretary of
State or other Governmental Authority in its jurisdiction of incorporation,
shall be certified to be true, correct and complete by such Secretary of State
or other Governmental Authority not more than thirty (30) days before the
Closing Date), (ii) true copies of all corporate action taken by any Loan
Party relative to this Agreement and the other Loan Documents and (iii) the
incumbency and signature of the respective officers of each Loan Party
executing this Agreement and the other Loan Documents, together with
satisfactory evidence of the incumbency of such Secretary or Assistant
Secretary. The Lender shall have received certificates from the appropriate
Secretaries of State or other applicable Governmental Authorities dated not
more than thirty (30) days before the Closing Date showing the good standing
of each Loan Party in its state of incorporation and each state in which each
Loan Party does business, if applicable in such state.
(i) INSURANCE. The Lender shall have received a report from
Allendale Insurance and Family and Business Insurance Center, Inc. addressed
to the Lender, satisfactory in form and substance to the Lender, as to
insurance matters pertaining to each Loan Party. The Lender shall have
<PAGE> 52
received evidence satisfactory to it that the insurance policies required by
this Agreement and the other Loan Documents have been obtained, containing the
endorsements required hereby and thereby.
(j) APPRAISALS OF CERTAIN ASSETS. The Lender shall have received
appraisals made by Pollack & Sons (as to machinery and equipment of the Loan
Parties) and Shaw Boykin & Associates (as to real estate owned by any Loan
Party) which shall be addressed to the Lender and shall be satisfactory in
form and substance to the Lender.
(k) ENVIRONMENTAL MATTERS. The Lender shall have a report from
Atec Consultants, addressed to the Lender, satisfactory in form and substance
to the Lender, as to such environmental matters pertaining to any Loan Party
as the Lender may request (including but not limited to a Phase I
environmental risk report for all real property constituting Collateral and a
Phase II environmental risk report for such real property to the extent
requested by the Lender). In addition, the Lender shall have received, such
certifications by officers or employees of any Loan Party as the Lender may
request with respect to (A) compliance by such Loan Party with existing
Environmental Laws, (B) potential environmental liabilities arising from past
or present conditions, operations or practices, and (C) potential
environmental liabilities arising from off-site disposal of materials
generated by such Loan Party.
(l) FINANCIAL STATEMENTS, PROJECTIONS. The Lender shall have
received copies of the financial statements, and projections referred to in
Sections 3.06, 3.07 and 3.11 hereof.
(m) LETTER OF CREDIT AGREEMENT. The Lender shall have received a
Letter of Credit Agreement, duly executed by the Borrower, in substantially
the form attached hereto as Exhibit L.
(n) CASH MANAGEMENT AGREEMENT. The Lender shall have received a
Cash Management Agreement, duly executed by the Borrower, in substantially the
form attached hereto as Exhibit M.
(o) WIRE TRANSFER AGREEMENT. The Lender shall have received a Wire
Transfer Agreement, duly executed by the Borrower, in substantially the form
attached hereto as Exhibit N.
(p) LEGAL OPINION OF COUNSEL TO THE LOAN PARTIES. The Lender shall
have received an opinion addressed to the Lender, dated the Closing Date, of
Smith, Helms, Mulliss & Moore, L.L.P., Greensboro, N.C., counsel to the Loan
Parties, in substantially the form attached hereto as Exhibit O.
(q) OFFICERS' CERTIFICATES. The Lender shall have received
certificates from such officers of each Loan Party in the form of Exhibit P
attached hereto.
<PAGE> 53
(r) FEES, EXPENSES, ETC. All fees and other compensation
(including, without limitation, attorneys' fees, costs of searches, filing and
recording fees) required to be paid to the Lender pursuant hereto or pursuant
to any other written agreement on or prior to the Closing Date shall have been
paid or received, including but not limited to those referred to in the
commitment letter.
(s) SUPPORT AGREEMENTS. The Lender shall have received, in the
form of Exhibit Q hereto, copies of the support agreements and validity
letters issued by the appropriate Responsible Officers of each Loan Party.
(t) PAY-OFF LETTER. The Lender shall have received a pay-off
letter, in form and substance satisfactory to the Lender, from Sanwa Business
Credit Corporation respecting the amount necessary to pay in full all of the
obligations of the Borrower owing to such Lender as of the Closing Date and
obtain a termination or release of all of the security interests or liens
existing in favor of such lender in and to the properties or assets of the
Borrower.
(u) CONFLICTS WITH OTHER AGREEMENTS. In the event of any conflict
between the terms and conditions of this Agreement and the terms and
conditions of the documents and agreements referred to in Subsections
4.01(c)(i)(G), 4.01(m), 4.01(n) or 4.01(o) above, the terms and conditions of
this Agreement shall govern (except for the terms of the Asheboro Deed of
Trust and the Somerset Mortgage with regard to the requirement that the
Borrower or Guarantor comply with all Laws in relation to the properties).
4.02. CONDITIONS TO ALL LOANS. The obligation of the Lender to make any
Loan is subject to performance by the Borrower of its obligations to be
performed hereunder or under the other Loan Documents on or before the date of
such Loan, satisfaction of the conditions precedent set forth herein and in
the other Loan Documents and satisfaction of the following further conditions
precedent:
(a) BORROWING BASE. In the case of Revolving Credit Loans, each
request for Loans shall be accompanied by a borrowing base certificate, signed
by a Responsible Officer of the Borrower, dated as of the date of such
request.
(b) REPORTS. Each of the following reports, in its most current
version as required by this Agreement: inventory certification, accounts
receivable report, accounts payable report, and a report of sales, credits and
collections received.
(c) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties made by the Borrower in Article 3 hereof shall be true and
correct in all material respects on and as of such date as if made on and as
of such date, both before and after giving effect to the Loans requested to be
made on such date.
<PAGE> 54
(d) NO DEFAULTS. No Event of Default or Potential Default shall
have occurred and be continuing on such date or after giving effect to the
Loans requested to be made on such date.
(e) NO VIOLATIONS OF LAW, ETC. Neither the making nor use of the
Loans shall cause the Lender to violate or conflict with any Law.
(f) NO MATERIAL ADVERSE CHANGE. There shall not have occurred, or
be threatened, a material adverse change in the business, operations, assets
or condition (financial or otherwise) or prospects of any Loan Party since the
Closing Date. There shall not have occurred, or be threatened, any other
event, act or condition which could have a Material Adverse Effect on any Loan
Party.
Each request by the Borrower for any Loan shall constitute a representation
and warranty by the Borrower that the conditions set forth in this Section
4.02 have been satisfied as of the date of such request. Failure of the
Lender to receive notice from the Borrower to the contrary before such Loan is
made shall constitute a further representation and warranty by the Borrower
that the conditions referred to in this Section 4.02 have been satisfied as of
the date such Loan is made.
ARTICLE 5 - AFFIRMATIVE COVENANTS
The Borrower hereby covenants to the Lender as follows:
5.01. BASIC REPORTING REQUIREMENTS.
(a) ANNUAL AUDIT REPORTS. As soon as practicable, and in any event
within ninety (90) days after the close of each fiscal year of the Borrower,
the Borrower shall furnish to the Lender, consolidated statements of income,
cash flows and changes in stockholders' equity of the Borrower and its
consolidated Subsidiaries for such fiscal year and a balance sheet of the
Borrower and its consolidated Subsidiaries as of the close of such fiscal
year, and notes to each, all in reasonable detail, setting forth in
comparative form the corresponding figures for the preceding fiscal year.
Such financial statements shall be accompanied by an opinion of independent
certified public accountants selected by the Borrower and acceptable to the
Lender. A copy of the opinion of such accountants shall be addressed to the
Lender and signed by such accountants. Such opinion shall be free of
exceptions or qualifications not acceptable to the Lender and in any event
shall be free of any exception or qualification which is of "going concern" or
like nature or which relates to a limited scope of examination. Such opinion
<PAGE> 55
in any event shall contain a written statement of such accountants
substantially to the effect that (i) such accountants examined such financial
statements in accordance with generally accepted auditing standards and
accordingly made such tests of accounting records and such other auditing
procedures as such accountants considered necessary under the circumstances
and (ii) in the opinion of such accountants such financial statements present
fairly the financial position of the Borrower and its consolidated
subsidiaries as of the end of such fiscal year and the results of their
operations and their cash flows and changes in stockholders' equity for such
fiscal year, in conformity with GAAP.
(b) MONTHLY FINANCIAL STATEMENTS. As soon as practicable, and in
any event within thirty (30) days after the end of each month, the Borrower
shall furnish to the Lender internally prepared monthly consolidating
financial statements of the Borrower and its consolidated subsidiaries
(reflecting activity for the current month, as well as activity year-to-date),
certified by a Responsible Officer of the Borrower.
(c) QUARTERLY COMPLIANCE CERTIFICATES. The Borrower shall deliver
to the Lender a Quarterly Compliance Certificate in substantially the form set
forth as Exhibit Q hereto, duly completed and signed by the President or Vice
President-Finance of the Borrower concurrently with the delivery of the
financial statements referred to in subsections (a) and (b).
(d) PROJECTIONS.
(i) On the Closing Date (with respect to the then-current
current fiscal year of the Borrower), and as soon as practicable and in any
event within thirty (30) days prior to the close of each subsequent fiscal
year of the Borrower, the Borrower shall furnish to the Lender a certificate
signed by a Responsible Officer on behalf of the Borrower containing a
projection of the availability under the Revolving Credit Commitment,
revenues, expenditures (capital or otherwise) and results of operations and
cash position of the Borrower and its consolidated Subsidiaries as of the end
of each month in the forthcoming fiscal year, together with a statement of the
assumptions and estimates upon which such projections are based. Such
projections, estimates and assumptions, as of the date of preparation thereof,
shall be reasonable, made in good faith, shall be consistent with the Loan
Documents, and shall represent the Borrower's best judgment as to such
matters.
(ii) As soon as practicable, and in any event within thirty
(30) days after the end of each month after the Closing Date, the Borrower
shall furnish to the Lender a certificate signed by a Responsible Officer of
the Borrower containing the unaudited statements of revenues, expenditures
<PAGE> 56
(capital or otherwise) and results of operations and cash position of the
Borrower and its consolidated Subsidiaries for such month and for the period
from the beginning of the Borrower's fiscal year to the end of such month,
together with management commentary thereon, all in reasonable detail, setting
forth in comparative form the corresponding figures for projected for the same
period or as of the same date as set forth in the most recent projections
referred to in subsection (i) of this Section 5.01(d), and shall contain an
analysis of significant variances from such projections. Such report shall be
certified by a Responsible Officer of the Borrower as presenting fairly the
financial position of the Borrower and its consolidated Subsidiaries as of the
end of such month and the results of their operations and their cash flows for
the periods covered thereby, in conformity with GAAP, subject to normal and
recurring year-end audit adjustments.
(e) ACCOUNTANTS' CERTIFICATE. Each set of financial statements
delivered pursuant to Section 5.01(a) hereof shall be accompanied by (i)
management letters, (ii) a certificate or report dated the date of such
statements and balance sheet by the independent certified public accountants
who opined on such financial statements stating in substance that they have
reviewed this Agreement and that in making the examination necessary for their
certification of such statements and balance sheet they did not become aware
of any Event of Default or Potential Default, or if they did become so aware,
such certificate or report shall state the nature and period of existence
thereof, and (iii) a certificate or report dated as of the date of such
financial statements by such accountants stating in reasonable detail the
information and calculations necessary to establish compliance with the
financial covenants described in Section 6.01 as of the end of such fiscal
year.
(f) FINANCIAL REPORTS. The Borrower shall furnish to the Lender:
(i) No less than once each week, a certificate on a form
acceptable to the Lender or more frequently as the Lender determine, which
shall include, but not be limited to, a report of sales, credits issued and
collections received;
(ii) No less than once each week, weekly inventory
certifications as to finished goods, by location;
(iii) Within fifteen (15) days of the end of each calendar
month, monthly inventory certifications which shall include, among other
things, a breakdown of the amount of inventory by type (raw materials, work-
in-progress and finished goods) by location, and identification of write-offs
and write-downs;
<PAGE> 57
(iv) Within fifteen (15) days of the end of each calendar
month, monthly accounts receivable reports (which shall include, among other
things, a breakout of aging and collections, identification of each
receivable, obligor, due date and original invoice date, identification of
write-offs and changes made in reserves for bad debts, and identification of
any extension of the maturity of, refinancing or other material change in the
terms of any receivables, and identification of any receivable that fails to
meet any requirement of an Eligible Receivable);
(v) Within fifteen (15) days of the end of each calendar
month, monthly accounts payable reports (which shall include, among other
things, a breakout of aging);
(vi) Such other data, reports, certificates and information
concerning the financial or operating condition or status of the Borrower and
its consolidated subsidiaries as the Lender may reasonably request from time
to time. Annual statements shall set forth comparative form figures for the
corresponding periods in the prior fiscal year. All financial statements
shall include a balance sheet, statement of earnings and statement of cash
flow and shall be prepared in accordance with GAAP.
(g) CERTAIN OTHER REPORTS AND INFORMATION. Promptly upon their
becoming available to the Borrower, the Borrower shall deliver to the Lender a
copy of (i) all regular or special reports, registration statements and
amendments to the foregoing which the Borrower shall file with the Securities
and Exchange Commission (or any successor thereto) or any securities exchange,
(ii) all reports, proxy statements, financial statements and other information
distributed by the Borrower to its stockholders, bondholders or the financial
community generally, and (iii) all accountants' management letters pertaining
to, all other reports submitted by accountants in connection with any audit
of, and all other material reports from outside accountants with respect to,
the Borrower.
(h) FURTHER INFORMATION. The Borrower will promptly furnish to the
Lender such other information and in such form as the Lender may reasonably
request from time to time.
(i) NOTICE OF CERTAIN EVENTS. Promptly upon becoming aware of any
of the following, the Borrower shall give the Lender notice thereof, together
with a written statement of a Responsible Officer of the Borrower setting
forth the details thereof and any action with respect thereto taken or
proposed to be taken by the Borrower:
(i) Any Event of Default or Potential Default.
<PAGE> 58
(ii) Any material adverse change in the business, operations
or condition (financial or otherwise) or prospects of any Loan Party.
(iii) Any pending or threatened action, suit, proceeding or
investigation by or before any Governmental Authority against or affecting any
Loan Party, except for matters that if adversely decided, individually or in
the aggregate, could not have a Material Adverse Effect.
(iv) Any material violation, breach or default by any Loan
Party or by any other party of or under any agreement or instrument material
to the business, operations, condition (financial or otherwise) or prospects
of any Loan Party.
(v) Any amendment or supplement to, or extension, renewal,
refinancing, or refunding of, or waiver by any other party thereto of any
right under or conditions of, any licensing agreement, any agreement or
instrument creating, evidencing or securing any Indebtedness or Guaranty
Equivalent of any Loan Party; any agreement or instrument material to the
business, operations, condition (financial or otherwise) or prospects of any
Loan Party, and any negotiations pertaining to any of the foregoing.
(vi) Any Pension-Related Event. Such notice shall be
accompanied by: (A) a copy of any notice, request, return, petition or other
document received by any Loan Party or any Controlled Group Member from any
Person, or which has been or is to be filed with or provided to any Person
(including without limitation the Internal Revenue Service, PBGC or any Plan
participant, beneficiary, alternate payee or employer representative), in
connection with such Pension-Related Event, and (B) in the case of any
Pension-Related Event with respect to a Plan, the most recent Annual Report
(5500 Series), with attachments thereto, and the most recent actuarial
valuation report, for such Plan.
(vii) Any Environmental Claim pending or threatened against
any Loan Party or any Environmental Affiliates, or any past or present acts,
omissions, events or circumstances (including but not limited to any dumping,
leaching, deposition, removal, abandonment, escape, emission, discharge or
release of any Environmental Concern Material at, on or under any facility or
property now or previously owned, operated or leased by any Loan Party or any
Environmental Affiliates that could form the basis of such Environmental
Claim, which Environmental Claim, if adversely resolved, individually or in
the aggregate, could have a Material Adverse Effect.
(j) NOTICES UNDER OTHER AGREEMENTS. Concurrently with the
Borrower's delivery or receipt thereof, the Borrower shall provide the Lender
with copies of (i) any financial reports furnished by the Borrower to any
<PAGE> 59
other lender or other party to any agreement or instrument material to the
business, operations, condition (financial or otherwise) or prospects of the
Borrower, or, (ii) any notices (of default or otherwise) received by the
Borrower from any other lender or other party to any of the foregoing.
(k) VISITATION; VERIFICATION. Each Loan Party shall permit such
Persons as the Lender may designate from time to time to visit and inspect any
of its properties, to examine its books and records and take copies and
extracts therefrom and to discuss its affairs with its directors, officers,
employees and independent accountants and independent engineers, etc. at such
times and as often as the Lender may reasonably request. Each Loan Party
hereby authorizes such officers, employees and independent accountants and
independent engineers, etc. to discuss with the Lender its affairs. The
Lender shall have the right to examine and verify accounts, inventory and
other properties and liabilities of each Loan Party from time to time, and
each Loan Party shall cooperate with the Lender in such verification. The
Lender shall use its best efforts to notify the Borrower prior to contacting
any independent accountant, independent engineer or other professional.
5.02. INSURANCE. Each Loan Party shall maintain insurance on all
insurable tangible Collateral against fire, flood, casualty and such other
hazards, as well as business interruption coverage, all as may be reasonably
acceptable to the Lender in such amounts, with such deductibles and with such
insurers as may be reasonably acceptable to the Lender. The policies of all
such casualty insurance shall contain standard Lender's Loss Payable Clauses
issued in favor of the Lender under which all losses thereunder shall be paid
to the Lender as the Lender's interest may appear. Such policies shall
expressly provide that the requisite insurance cannot be altered or canceled
without thirty (30) days prior written notice to the Lender and shall insure
the Lender notwithstanding the act or neglect of the insured. In the event a
Loan Party fails to procure or cause to be procured any such insurance or to
timely pay or cause to be paid the premium(s) on any such insurance, the
Lender may do so for such Loan Party but the such Loan Party shall continue to
be liable for the cost of such insurance. Each Loan Party hereby appoints
the Lender as its attorney-in-fact, exercisable at the Lender's option, to
endorse any check which may be payable to such Loan Party in order to collect
the proceeds of such insurance. Any and all amount or amounts received or
collected by the Lender pursuant to the provisions of this paragraph may be
applied by the Lender to any Obligations or to repair, reconstruct or replace
the loss of or damage to Collateral as the Lender in its sole judgment may
from time to time determine. Each Loan Party shall furnish to the Lender from
time to time upon request the policies under which such insurance is issued,
certificates of insurance and such other information relating to such
insurance as the Lender may request, and provide such other insurance and
endorsements as are required by this Agreement and the other Loan Documents.
<PAGE> 60
5.03. PAYMENT OF TAXES AND OTHER POTENTIAL CHARGES AND PRIORITY CLAIMS.
The Borrower shall pay or discharge
(a) on or prior to the date on which penalties attach thereto, all
taxes, assessments and other governmental charges imposed upon it or any of
its properties;
(b) on or prior to the date when due, all lawful claims of
materialmen, mechanics, carriers, warehousemen, landlords and other like
Persons which, if unpaid, might result in the creation of a Lien upon any such
property, which Liens shall not exceed in the aggregate $50,000 at any one
time; and
(c) on or prior to the date when due, all other lawful claims
which, if unpaid, might result in the creation of a Lien upon any such
property or which, if unpaid, might give rise to a claim entitled to priority
over general creditors of the Borrower or such Subsidiary in a case under
Title 11 (Bankruptcy) of the United States Code, as amended;
PROVIDED, that unless and until foreclosure, distraint, levy, sale or similar
proceedings shall have been commenced the Borrower need not pay or discharge
any such tax, assessment, charge or claim so long as (x) the validity thereof
is contested in good faith and by appropriate proceedings diligently
conducted, (y) such reserves or other appropriate provisions as may be
required by GAAP shall have been made therefor.
5.04. PRESERVATION OF CORPORATE STATUS. The Borrower shall maintain its
status as a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation (if applicable under the
Laws of such jurisdiction), and to be duly qualified to do business as a
foreign corporation and in good standing in all jurisdictions in which the
ownership of its properties or the nature of its business or both make such
qualification necessary or advisable.
5.05. GOVERNMENTAL APPROVALS AND FILINGS. The Borrower shall keep and
maintain in full force and effect all Governmental Actions necessary or
advisable in connection with execution and delivery of any Loan Document,
consummation of the transactions herein or therein contemplated, performance
of or compliance with the terms and conditions hereof or thereof or to ensure
the legality, validity, binding effect, enforceability or admissibility in
evidence hereof or thereof.
5.06. MAINTENANCE OF PROPERTIES. The Borrower shall maintain or cause
to be maintained in good repair, working order and condition the properties
now or hereafter owned, leased or otherwise possessed by it and shall make or
cause to be made all needful and proper repairs, renewals, replacements and
improvements thereto so that the business carried on in connection therewith
may be properly and advantageously conducted at all times.
<PAGE> 61
5.07. AVOIDANCE OF OTHER CONFLICTS. The Borrower shall not violate or
conflict with, be in violation of or conflict with, or be or remain subject to
any liability (contingent or otherwise) on account of any violation or
conflict with
(a) any Law (except for violations or conflicts that would not have
a Material Adverse Effect),
(b) its articles of incorporation of by-laws (or other constituent
documents), or
(c) any agreement or instrument to which it is party or by which
any of them or any of their respective Subsidiaries is a party or by which any
of them or any of their respective properties (now owned or hereafter
acquired) may be subject or bound (except for violations or conflicts which
would not have a Material Adverse Effect).
5.08. FINANCIAL ACCOUNTING PRACTICES. The Borrower shall make and keep
books, records and accounts which, in reasonable detail, accurately and fairly
reflect its transactions and dispositions of its assets and maintain a system
of internal accounting controls sufficient to provide reasonable assurances
that (a) transactions are executed in accordance with management's general or
specific authorization, (b) transactions are recorded as necessary (i) to
permit preparation of financial statements in conformity with GAAP and (ii) to
maintain accountability for assets, (c) access to assets is permitted only in
accordance with management's general or specific authorization and (d) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
5.09. USE OF PROCEEDS. The Borrower shall apply the proceeds of all
Loans hereunder only to refinance existing Indebtedness and for working
capital, subject to the terms and conditions of this Agreement. The Borrower
shall not use the proceeds of any Loans hereunder directly or indirectly for
any unlawful purpose, in any manner inconsistent with Section 3.13 hereof, or
inconsistent with any other provision of any Loan Document.
5.10. CONTINUATION OF OR CHANGE IN BUSINESS. The Borrower shall
continue to engage in its business substantially as conducted and operated
during the present and preceding fiscal year, and the Borrower shall not
engage in any other business.
<PAGE> 62
5.11. CONSOLIDATED TAX RETURN. The Borrower shall not file or consent
to the filing of any consolidated income tax return with any Person other than
the Borrower and its consolidated Subsidiaries.
5.12. FISCAL YEAR. The parties acknowledge that the fiscal year end of
the Borrower falls on the last Saturday of October and that the fiscal
quarters of the Borrower are determined on a four week, four week, five week
basis. The Borrower shall not change the foregoing fiscal year or fiscal
quarters.
5.13. BANK ACCOUNTS. As additional consideration for the establishment
by the Lender of the Revolving Credit Loans and the Term Loan, as soon as
possible, and in no event later than ninety (90) days from the closing date,
each Loan Party shall establish and maintain all of its depository accounts
and disbursement accounts at the Lender (including, without limitation the
Cash Collateral Account, the Operating Account), except for the accounts set
forth on Schedule 5.13.
5.14. POSSESSION OF INSTRUMENTS AND CHATTEL PAPER. Immediately after
the conversion of an Account into an instrument or chattel paper, each Loan
Party shall immediately, but in no event more than ten (10) days later, notify
the Lender if such Account becomes evidenced or secured by an instrument or
chattel paper, and, upon request by the Lender, promptly deliver possession of
such instrument or chattel paper to the Lender.
ARTICLE 6 - NEGATIVE COVENANTS
The Borrower hereby covenants to the Lender as follows:
6.01. FINANCIAL COVENANTS.
(a) CONSOLIDATED CURRENT RATIO. The Consolidated Current Ratio
shall not at any time be less than 1.25 to 1.00 as of and from July 31, 1995
and at all times through October 30, 1996; and 1.30 to 1.00 as of and from
October 31, 1996 and at all times thereafter.
(b) CONSOLIDATED LEVERAGE RATIO. The Consolidated Leverage Ratio
shall not at any time exceed 2.95 to 1.00 as of and from July 31, 1995 and at
all times through October 30, 1995; 2.85 to 1.00 as of and from October 31,
1995 and at all times through October 30, 1996; and 2.45 to 1.00 as of and
from October 31, 1996 and at all times thereafter.
(c) CONSOLIDATED TANGIBLE NET WORTH. Consolidated Tangible Net
Worth shall not at any time be less than $8,600,000 as of and from July 31,
1995 and at all times through October 30, 1995; $9,400,000 as of and from
October 31, 1995 and at all times through October 30, 1996; and $9,900,000
from October 31, 1996 and at all times thereafter.
<PAGE> 63
(d) CONSOLIDATED WORKING CAPITAL. Consolidated Working Capital
shall not at any time be less than $8,500,000 as of and from July 31, 1995 and
at all times through October 30, 1995; $9,400,000 as of and from October 31,
1995 and at all times through October 30, 1996; and $9,700,000 as of and from
October 31, 1996 and at all times thereafter.
(e) CONSOLIDATED NET INCOME. Consolidated Net Income for the nine
month period ending July 31, 1995 shall not exceed a loss of ($1,200,000), and
for the fiscal year ending October 31, 1995 shall not exceed a loss of
($400,000). Consolidated Net Income for the fiscal quarters ending January
31, 1996, April 30, 1996 and July 31, 1996 shall be break even. Consolidated
Net Income for the fiscal year ending October 31, 1996 shall be $500,000.
(f) CAPITAL EXPENDITURES. The Borrower shall not make any Capital
Expenditures which exceed, in the aggregate, (a) $75,000 for the nine month
period ending July 31, 1995; (b) $150,000 for the fiscal year ending October
31, 1995; (c) $135,000 for the first fiscal quarter ending January 31, 1996;
(d) $185,000 for the six month period ending April 30, 1996; (e) $235,000 for
the nine month period ending July 31, 1996; and (f) $285,000 for the fiscal
year ending October 31, 1996; provided, however, that for the fiscal year
ending October 31, 1996 and for all periods thereafter, fifty percent (50%) of
the funding for permitted Capital Expenditures shall come from sources other
than Lender. As a one time only exception to the foregoing Capital
Expenditure limitation, the Borrower or the Guarantor may make Capital
Expenditures of $265,000 in order to obtain the PDCME Loan.
(g) INVENTORY TURNOVER. The Borrower shall not have Inventory
Turnover, determined quarterly and annually, of greater than 200 days as of
and from July 31, 1995 and at all times through October 30, 1995; 150 days as
of and from October 31, 1995 and at all times through January 30, 1996; 155
days as of and from January 31, 1996 and at all times through July 30, 1996;
165 days as of and from July 31, 1996 and at all times through October 30,
1996; and 140 days as of and from October 31, 1996 and at all times
thereafter.
6.02. LIENS. The Borrower shall not at any time create, incur, assume
or suffer to exist any Lien on any of its property (now owned or hereafter
acquired), or agree, become or remain liable (contingently or otherwise) to do
any of the foregoing, except for the following ("Permitted Liens"):
(a) Liens pursuant to the Security Documents in favor of the Lender
to secure the Obligations;
<PAGE> 64
(b) Liens existing on the date hereof securing obligations existing
on the date hereof, as such Liens and obligations are listed in Schedule 6.02
hereto;
(c) Liens in favor of the Pennsylvania Department of Commerce
pursuant to the PDCME Loan;
(d) Liens incurred in connection with Capital Expenditures which
are permitted pursuant to Section 6.01(f);
"Permitted Lien" shall in no event include any Lien imposed by, or required to
be granted pursuant to, ERISA, any Environmental Law or arising from taxes,
assessments, charges or claims described in Section 5.03 hereof. Nothing in
this Section 6.02 shall be construed to limit any other restriction on Liens
imposed by the Security Documents or otherwise in the Loan Documents.
6.03. INDEBTEDNESS. The Borrower shall not at any time create, incur,
assume or suffer to exist any Indebtedness, or agree, become or remain liable
(contingently or otherwise) to do any of the foregoing, except:
(a) Indebtedness to the Lender pursuant to this Agreement and the
other Loan Documents;
(b) Indebtedness of the Borrower existing on the date hereof and
listed in Schedule 6.03(b) hereof (but not any extensions, renewals or
refinancings thereof);
(c) Restricted Indebtedness as set forth on Schedule 6.03(c) as of
the date hereof;
(d) Accounts payable to trade creditors arising out of purchases of
goods or services in the ordinary course of business;
(e) Capitalized Leases listed in Schedule 6.03(e);
(f) Indebtedness incurred in connection with the PDCME Loan;
(g) Indebtedness of the Borrower arising from the issuance of
unsecured promissory notes issued to the Borrower's shareholders, provided,
however, (i) the aggregate principal amount of all such notes, including all
existing stockholder notes, shall not exceed $1,500,000 at any time, (ii) the
aggregate principal amount of any stockholder notes presented for payment in
any fiscal quarter shall not exceed $300,000 per quarter, and (iii) the
aggregate principal amount of any stockholder notes shall not fall below
$750,000 at any time.
<PAGE> 65
6.04. GUARANTIES, INDEMNITIES, ETC. The Borrower shall not be or become
subject to or bound by any Guaranty Equivalent, or agree, become or remain
liable (contingently or otherwise) to do any of the foregoing, except:
(a) Guaranty Equivalents existing on the date hereof and listed in
Schedule 6.04 hereto (but not extensions, renewals or refinancings thereof);
(b) Guaranty Equivalents arising in connection with the PCDME Loan;
(c) Contingent liabilities arising from the endorsement of
negotiable or other instruments for deposit or collection or similar
transactions in the ordinary course of business; and
(d) Indemnities by the Borrower of the liabilities of its directors
or officers in their capacities as such pursuant to provisions presently
contained in their articles of incorporation or by-laws (or other constituent
documents) or as permitted by Law.
6.05. LOANS, ADVANCES AND INVESTMENTS. The Borrower shall not at any
time make or suffer to exist or remain outstanding any loan or advance to, or
purchase, acquire or own (beneficially or of record) any stock, bonds, notes
or securities of, or any partnership interest (whether general or limited) in,
or any other interest in, or make any capital contribution to or other
investment in, any other Person, or agree, become or remain liable
(contingently or otherwise) to do any of the foregoing, except:
(a) Loans and investments existing on the date hereof and listed in
Schedule 6.05 hereof (but not any amendments, extensions or refinancings
thereof);
(b) Receivables owing to the Borrower arising from sales of
inventory under usual and customary terms in the ordinary course of business;
(c) Intercompany transfers from the Borrower to a Subsidiary, so
long as such transfers are in the ordinary course of business and consistent
with past practices of the Borrower and the Subsidiary;
(d) Loans from a Subsidiary to the Borrower (it being understood
that the Borrower shall at the request of the Lender, forthwith cause such
Subsidiary to subordinate any or all such loans existing or hereafter arising,
to the Obligations upon terms and conditions satisfactory to Lender);
<PAGE> 66
(e) Demand advances to officers and employees of the Borrower to
meet expenses incurred by such officers and employees in the ordinary course
of business and in amounts consistent with past practices;
(f) Indebtedness to the Borrower arising from loans to directors,
officers and management of the Borrower for the purpose of purchasing shares
of common stock of the Borrower, provided, however, that the aggregate amount
due pursuant to such loans shall not exceed $300,000;
(g) Cash Equivalent Investments;
(h) Instruments or chattel paper evidencing an obligation to the
Borrower for past due receivables, provided that such instruments or chattel
paper shall be immediately delivered to the Lender and the Borrower takes such
further action as required by the Lender, and provided, further that the total
aggregate amount of such instruments and chattel paper shall not exceed
$1,000,000 any time;
(i) The purchase and redemption of up to 100,000 shares per year of
the common stock of the Borrower by the Borrower, provided, however, that such
purchases and redemptions are duly approved and authorized by the Borrowers
and do not result in a breach of any financial covenant set forth in Article 6
of this Agreement.
6.06. ACCOUNTS AT OTHER INSTITUTIONS. The Borrower shall not maintain
any accounts of any kind at any depository institution other than the Lender,
except as provided in Section 5.13 hereof.
6.07. DIVIDENDS AND RELATED DISTRIBUTIONS.
(a) The Borrower shall not declare or make any Stock Payment, or
agree, become or remain liable (contingently or otherwise) to do any of the
foregoing, except
(i) A Subsidiary may declare and make Stock Payments if all of
the capital stock of such Subsidiary is owned by the Borrower or by a direct
or indirect wholly-owned Subsidiary of the Borrower.
(ii) The Borrower may from time to time declare and make Stock
Payments if such Stock Payment is payable solely in shares of capital stock
(or options, warrants or rights therefor) of the Borrower.
(iii) Stock Payments made by the Borrower and the Guarantor to
holders of preferred stock as set forth in Schedule 6.07 hereto.
<PAGE> 67
6.08. SALE-LEASEBACKS. The Borrower shall not at any time enter into or
suffer to remain in effect any transaction to which the Borrower are a party
involving the sale, transfer or other disposition by the Borrower of any
property (now owned or hereafter acquired), with a view directly or indirectly
to the leasing back of any part of the same property or any other property
used for the same or a similar purpose or purposes, or agree, become or remain
liable (contingently or otherwise) to do any of the foregoing.
6.09. LEASES. The Borrower shall not at any time enter into or suffer
to remain in effect any lease, as lessee, of any property, or agree, become or
remain liable (contingently or otherwise) to do any of the foregoing, except:
(a) Operating leases of data processing equipment, office
equipment, manufacturing equipment, transportation equipment or office space
used by the lessee in the ordinary course of business, provided that such
leases will not result in the payment or accrual by the Borrower of more than
$500,000 in the aggregate in any twelve-month period and no such lease has a
term longer than 5 years;
(b) Leases cancellable by the lessee without penalty on not more
than ninety (90) days' notice; and
(c) Capitalized Leases permitted under Section 6.03 hereof.
6.10. MERGERS, ACQUISITIONS, ETC. The Borrower shall not (v) merge with
or into or consolidate with any other Person, (w) liquidate, wind-up, dissolve
or divide, (x) acquire all or any substantial portion of the properties of any
going concern or going line of business, (y) acquire all or any substantial
portion of the properties of any other Person, or (z) agree, become or remain
liable (contingently or otherwise) to do any of the foregoing.
6.11. DISPOSITIONS OF PROPERTIES. The Borrower shall not sell, convey,
assign, lease, transfer, abandon or otherwise dispose of, voluntarily or
involuntarily, any of its properties, or agree, become or remain liable
(contingently or otherwise) to do any of the foregoing, except:
(a) The Borrower may sell inventory in the ordinary course of
business; and
(b) The Borrower may dispose of equipment which is obsolete or no
longer useful in the business of the Borrower provided, that (i) the Borrower
will report such disposition to the Lender in a timely manner, (ii) the Net
Cash Proceeds of any such disposition shall substantially approximate the
appraised value (taking into consideration depreciation) set forth in the
<PAGE> 68
equipment appraisal from Pollack & Sons, and (iii) an amount equal to the Net
Cash Proceeds of such disposition shall be paid as a mandatory prepayment in
accordance with Section 2.09(b) hereof (except for Net Cash Proceeds from
dispositions in amounts not greater than $5,000 per item of equipment and
$50,000 per annum in the aggregate proceeds which may be retained by the
Borrower).
By way of illustration, and without limitation, it is understood that the
following are dispositions of property subject to this Section 6.11: any
disposition of Accounts, chattel paper or general intangibles, with or without
recourse; any disposition of any leasehold interest. Nothing in this Section
6.11 shall be construed to limit any other restriction on dispositions of
property imposed by the Security Documents or otherwise in the Loan Documents.
6.12. ISSUANCE OF STOCK. Except with respect to the matters set forth
in Schedule 6.12, the Borrower shall not issue, sell, otherwise dispose or
suffer to remain outstanding, voluntarily or involuntarily, any additional
shares of capital stock, or any options, warrants, calls, subscriptions,
conversion rights, exchange rights, preemptive rights or other rights,
agreements or arrangements (contingent or otherwise) which may in any
circumstances now or hereafter obligate the Borrower to issue any shares of
its capital stock, except shares of capital stock outstanding on the date
hereof and set forth on Schedule 3.15 hereof.
6.13. DEALINGS WITH AFFILIATES. Subject to Section 6.05 above, the
Borrower shall not enter into or carry out any transaction with (including,
without limitation, purchase or lease property or services from, sell or lease
property or services to, loan or advance to, or enter into, suffer to remain
in existence or amend any contract, agreement or arrangement with) any
Affiliate of the Borrower, directly or indirectly, or agree, become or remain
liable (contingently or otherwise) to do any of the foregoing, except:
(a) Existence and performance of contracts, agreements and
arrangements in existence as of the date hereof and set forth in Schedule 6.13
hereof;
(b) Directors and officers of the Borrower may be compensated for
services rendered in such capacity to the Borrower, provided that such
compensation is in good faith and on terms no less favorable to the Borrower
than those that could have been obtained in a comparable transaction on an
arm's-length basis from an unrelated Person, and the board of directors of
such Borrower (including a majority of the directors having no direct or
indirect interest in such transaction) approve the same;
<PAGE> 69
(c) Other transactions with Affiliates in good faith and on terms
no less favorable to the Borrower than those that could have been obtained in
a comparable transaction on an arm's-length basis from an unrelated Person, as
to which the board of directors of such Borrower (including a majority of the
directors having no direct or indirect interest in such transaction) approve
such transaction and determine that such terms are no less favorable to the
Borrower than those that could have been obtained in a comparable transaction
on an arm's-length basis from an unrelated Person.
6.14. LIMITATIONS ON MODIFICATION OF CERTAIN AGREEMENTS AND INSTRUMENTS.
The Borrower shall not amend, modify or supplement its articles of
incorporation or by-laws (or similar constituent documents).
6.15. LIMITATION ON PAYMENTS OF RESTRICTED INDEBTEDNESS. The Borrower
shall not directly or indirectly, pay, prepay, purchase, redeem, retire,
defease or acquire, or make any payment (on account of principal, interest,
premium or otherwise) of, or grant or suffer the existence of any Lien on any
of its property (now owned or hereafter acquired) to secure any indebtedness,
obligation or liability with respect to, or amend, modify or supplement any of
the terms and conditions of, any Restricted Indebtedness, or, or agree, become
or remain liable (contingently or otherwise) to do any of the foregoing,
except for payments on account of Indebtedness allowed pursuant to Section
6.03.
6.16. LIMITATION ON OTHER RESTRICTIONS ON LIENS. The Borrower shall not
enter into, become or remain subject to any agreement or instrument to which
the Borrowers are a party or by which either of them or any of their
respective properties (now owned or hereafter acquired) may be subject or
bound that would prohibit the grant of any Lien upon any of its properties
(now owed or hereafter required), except:
(a) The Loan Documents; and
(b) (i) Restrictions pursuant to non-assignment provisions of any
executory contract or of any lease by the Borrowers as lessee, and (ii)
restrictions on granting Liens on property subject to a Permitted Lien for the
benefit of the holder of such Permitted Lien to the extent in existence on the
date hereof.
6.17. LIMITATION ON OTHER RESTRICTIONS ON AMENDMENT OF THE LOAN
DOCUMENTS, ETC. The Borrowers shall not enter into, become or remain subject
to any agreement or instrument to which the Borrowers are a party or by which
either of them or any of their respective properties (now owned or hereafter
acquired) may be subject or bound that would prohibit or require the consent
of any Person to any amendment, modification or supplement to any of the Loan
Documents, except for the Loan Documents.
<PAGE> 70
6.18. MINIMUM AVAILABILITY. Immediately after the initial funding under
this Agreement at the Closing and after considering all other then current
expenditures, the Borrowers shall have availability under the Revolving Credit
Facility which shall not be less than $1,500,000.
ARTICLE 7 - DEFAULTS
7.01. EVENTS OF DEFAULT. An Event of Default shall mean the occurrence
or existence of one or more of the following events or conditions (for any
reason, whether voluntary, involuntary or effected or required by Law):
(a) The Borrower shall fail to pay when due principal of any Loan.
(b) The Borrower shall fail to pay when due interest on any Loan,
any fees, indemnity or expenses, or any other amount due hereunder or under
any other Loan Document.
(c) Any representation or warranty made or deemed made by any Loan
Party in or pursuant to or in connection with any Loan Document, or any
statement made by any Loan Party in any financial statement, certificate,
report, exhibit or document furnished by any Loan Party to the Lender pursuant
to or in connection with any Loan Document, shall prove to have been false or
misleading in any material respect as of the time when made or deemed made
(including by omission of material information necessary to make such
representation, warranty or statement not misleading).
(d) The Borrower shall default in the performance or observance of
any covenant contained in Articles 5 and 6 hereof or any of the covenants
contained in Sections 2.02 and 2.09.
(e) Any Loan Party shall default in the performance or observance
of any other covenant, agreement or duty under this Agreement or any other
Loan Document.
(f) Any Cross-Default Event shall occur with respect to any Cross-
Default Obligation; PROVIDED, that if a Cross-Default Event would have
occurred with respect to a Cross-Default Obligation but for the grant of a
waiver or similar indulgence, a Cross-Default Event shall nevertheless be
deemed to have occurred if the Borrower directly or indirectly gave or agreed
to give any consideration for such waiver or indulgence (including but not
limited to a reduction in maturity, an increase in rates or the granting of
collateral). As used herein, "CROSS-DEFAULT OBLIGATION" shall mean any
Indebtedness of the Borrower, or any agreement or instrument creating,
evidencing or securing such Indebtedness. As used herein, "CROSS-DEFAULT
EVENT" with respect to a Cross-Default Obligation shall mean the occurrence of
<PAGE> 71
any default, event or condition which causes or which would permit any Person
or Persons to cause or which would with the giving of notice or the passage of
time or both would permit any Person or Persons to cause all or any part of
such Cross-Default Obligation to become due (by acceleration, mandatory
prepayment or repurchase, or otherwise) before its otherwise stated maturity,
or failure to pay all or any part of such Cross-Default Obligation at its
stated maturity.
(g) One or more judgments for the payment of money in excess of
$50,000 in the aggregate at any one time shall have been entered against any
Loan Party, and such judgment or judgments shall have remained undischarged
and unstayed for a period of thirty consecutive days.
(h) One or more writs or warrants of attachment, garnishment,
execution, distraint or similar process shall have been issued against any
Loan Party or any of its properties in excess of $50,000 in the aggregate at
any one time and shall have remained undischarged and unstayed for a period of
thirty consecutive days.
(i) Any Governmental Action now or hereafter made by or with any
Governmental Authority in connection with any Loan Document is not obtained or
shall have ceased to be in full force and effect or shall have been modified
or amended or shall have been held to be illegal or invalid, provided,
however, such event has a Material Adverse Effect on the Borrower.
(j) Any Security Document shall cease to be in full force and
effect, or any Lien created or purported to be created in any Collateral
pursuant to any Security Document shall fail to be valid, enforceable and
perfected Lien in favor of the Lender securing the Obligations, having the
priority purported to be given such Lien under such Security Document, or any
Loan Party or any Governmental Authority shall assert any of the foregoing.
(k) Any Loan Document or term or provision thereof shall cease to
be in full force and effect (except in accordance with the express terms of
such Loan Document), or any Loan Party shall, or shall purport to, terminate
(except in accordance with the terms of such Loan Document), repudiate,
declare voidable or void or otherwise contest, any Loan Document or term or
provision thereof or any obligation or liability of any Loan Party thereunder.
(l) The Lender shall have determined in good faith (which
determination shall be conclusive absent manifest error) that an event or
condition has occurred which could have a Material Adverse Effect, including
without limitation any material and adverse change in any of the operations,
management or financial condition of any Loan Party or in the value of the
Collateral.
<PAGE> 72
(m) Any one or more Pension-Related Events referred to in
subsection (a)(ii), (b) or (e) of the definition of "Pension-Related Event"
shall have occurred; or any one or more other Pension-Related Events shall
have occurred and the Lender shall determine in good faith (which
determination shall be conclusive) that such other Pension-Related Events,
individually or in the aggregate, could have a Material Adverse Effect.
(n) Any one or more of the events or conditions set forth in the
following clauses (i) or (ii) shall have occurred in respect of any Loan
Party, and the Lender shall determine in good faith (which determination shall
be conclusive) that such events or conditions, individually or in the
aggregate, could have a Material Adverse Effect: (i) except as provided on
Schedule 3.24, any past or present violation of any Environmental Law by such
Person, (ii) the existence of any pending or threatened Environmental Claim
against any such Person, or the existence of any past or present acts,
omissions, events or circumstances that could form the basis of any
Environmental Claim against any such Person.
(o) A Change of Management shall have occurred unless (i) within
ninety (90) days of such Change of Management the Borrower shall have
presented to the Lender a succession plan acceptable to the Lender; or (ii)
the Borrower is diligently pursing a management succession plan and the
failure to provide such succession plan does not have a Material Adverse
Effect, provided, however, that within six (6) months of such Change of
Management a succession plan acceptable to the Lender is presented by the
Borrower and provided, further, however, that in the case of either (i) or
(ii) above, within thirty (30) days of hiring a successor pursuant to the
succession plan, the Borrower shall have used its best efforts to procure from
the successor a management support letter (in substantially the form of
Exhibit Q).
(p) A proceeding shall have been instituted in respect of any Loan
Party
(i) seeking to have an order for relief entered in respect of
such Loan Party, or seeking a declaration or entailing a finding that such
Loan Party is insolvent or a similar declaration or finding, or seeking
dissolution, winding-up, charter revocation or forfeiture, liquidation,
reorganization, arrangement, adjustment, composition or other similar relief
with respect to such Loan Party, its assets or its debts under the United
States Bankruptcy Code or any similar federal or state Law, or under any other
Law relating to bankruptcy, insolvency, relief of debtors or protection of
creditors, termination of legal entities or any other similar Law now or
hereafter in effect, or
(ii) seeking appointment of a receiver, trustee, liquidator,
assignee, sequestrator or other custodian for such Loan Party or for all or
any substantial part of its property
<PAGE> 73
and such proceeding shall result in the entry, making or grant of any such
order for relief, declaration, finding, relief or appointment, or such
proceeding shall remain undismissed and unstayed for a period of thirty (30)
consecutive days.
(q) Any Loan Party shall become insolvent; shall fail to pay,
become unable to pay, or state that it is or will be unable to pay, its debts
as they become due; shall voluntarily suspend transaction of its business;
shall make a general assignment for the benefit of creditors; shall institute
(or fail to controvert in a timely and appropriate manner) a proceeding
described in Section 7.01(p)(i) hereof, or (whether or not any such proceeding
has been instituted) shall consent to or acquiesce in any such order for
relief, declaration, finding or relief described therein; shall institute (or
fail to controvert in a timely and appropriate manner) a proceeding described
in Section 7.01(p)(ii) hereof, or (whether or not any such proceeding has been
instituted) shall consent to or acquiesce in any such appointment or to the
taking of possession by any such custodian of all or any substantial part of
its property; shall dissolve, wind-up, revoke or forfeit its charter (or other
constituent documents) or liquidate itself or any substantial part of its
property; or shall take any action in furtherance of any of the foregoing.
(r) Any strike, lockout, labor dispute, embargo, condemnation, act
of God or public emergency, or other casualty loss shall occur which results
in the cessation or substantial curtailment of production or other revenue
producing activities at any facility of any Loan Party for more than thirty
(30) days.
(s) Any projections delivered to the Lender pursuant to this
Agreement shall indicate that an Event of Default or Potential Default may
occur.
(t) Any Loan Party shall fail to properly maintain, protect and
preserve all of its assets and properties, including without limitation any
Collateral, or any Loan Party shall incur any insured or uninsured loss with
respect to its assets and properties in an amount in excess of $250,000,
including without limitation any Collateral.
7.02. CONSEQUENCES OF AN EVENT OF DEFAULT.
(a) If an Event of Default specified in subsections (a) through (t)
of Section 7.01 hereof (except for subsections (p) and (q)) shall occur and be
continuing or shall exist, then, in addition to all other rights and remedies
which the Lender may have hereunder or under any other Loan Document, at law,
in equity or otherwise, the Lender shall be under no further obligation to
make Loans hereunder, and the Lender may, by notice to the Borrower, from time
to time do any or all of the following:
<PAGE> 74
(i) Declare the Commitments terminated, whereupon the
Commitments will terminate and any fees hereunder shall be immediately due and
payable without presentment, demand, protest or further notice of any kind,
all of which are hereby waived, and an action therefor shall immediately
accrue.
(ii) Declare the unpaid principal amount of the Loans,
interest accrued thereon and all other Obligations to be immediately due and
payable without presentment, demand, protest or further notice of any kind,
all of which are hereby waived, and an action therefor shall immediately
accrue.
(b) If an Event of Default specified in subsection (p) or (q) of
Section 7.01 hereof shall occur or exist, then, in addition to all other
rights and remedies which the Lender may have hereunder or under any other
Loan Document, at law, in equity or otherwise, the Commitments shall
automatically terminate and the Lender shall be under no further obligation to
make Loans, and the unpaid principal amount of the Loans, interest accrued
thereon and all other Obligations shall become immediately due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby waived, and an action therefor shall immediately accrue.
ARTICLE 8 - MISCELLANEOUS
8.01. HOLIDAYS. Whenever any payment or action to be made or taken
hereunder or under any other Loan Document shall be stated to be due on a day
which is not a Business Day, such payment or action shall be made or taken on
the next following Business Day and such extension of time shall be included
in computing interest or fees, if any, in connection with such payment or
action.
8.02. RECORDS. The unpaid principal amount of the Loans owing to the
Lender, the unpaid interest accrued thereon, the interest rate or rates
applicable to such unpaid principal amount, the duration of such
applicability, the Revolving Credit Committed Amount, and the accrued and
unpaid Revolving Credit Commitment Fees shall at all times be determined from
the records of the Lender, which shall be conclusive absent manifest error.
8.03. AMENDMENTS AND WAIVERS. Neither this Agreement nor any Loan
Document may be amended, modified or supplemented except in accordance with
the provisions of this Section. The Lender and the Borrower may from time to
time amend, modify or supplement the provisions of this Agreement or any other
Loan Document for the purpose of amending, adding to, or waiving any
provisions, releasing any Collateral, or changing in any manner the rights and
<PAGE> 75
duties of the Borrower or the Lender. Any such amendment, modification or
supplement made by Borrower and the Lender in accordance with the provisions
of this Section shall be binding upon the Borrower and the Lender. Any such
amendment, modification or supplement must be in writing and shall be
effective only to the extent set forth in such writing. Any Event of Default
or Potential Default waived or consented to in any such amendment,
modification or supplement shall be deemed to be cured and not continuing to
the extent and for the period set forth in such waiver or consent, but no such
waiver or consent shall extend to any other or subsequent Event of Default or
Potential Default or impair any right consequent thereto.
8.04. NO IMPLIED WAIVER; CUMULATIVE REMEDIES; ESOP MATTERS.
(a) No course of dealing and no delay or failure of the Lender in
exercising any right, power or privilege under this Agreement or any other
Loan Document shall affect any other or future exercise thereof or exercise of
any other right, power or privilege; nor shall any single or partial exercise
of any such right, power or privilege or any abandonment or discontinuance of
steps to enforce such a right, power or privilege preclude any further
exercise thereof or of any other right, power or privilege. The rights and
remedies of the Lender under this Agreement and any other Loan Document are
cumulative and not exclusive of any rights or remedies which the Lender would
otherwise have hereunder or thereunder, at law, in equity or otherwise.
(b) The Loan Parties have made the representations and warranties
contained in Section 3.25 regarding their estimated liabilities or obligations
relating to the ESOP. The Loan Parties each acknowledge that, notwithstanding
any such liabilities or obligations arising under the ESOP or under any
applicable Law, the performance of any such obligation or satisfaction of any
such liability by a Loan Party shall not excuse such Loan Party from the
performance of its obligations, or satisfaction of its liabilities, under the
Loan Documents. The Loan Parties acknowledge that, for example, the exercise
of "put" rights by employees pursuant to the ESOP may trigger payment
obligations for a Loan Party, which, if paid, may nevertheless cause the
occurrence of an Event of Default or Potential Default, notwithstanding the
fact that the Loan Party may have had an obligation under the ESOP or
applicable Law to honor the "put." The Loan Parties further acknowledge that
the disclosure of these possible ESOP related obligations or liabilities in
this Agreement does not create any implied waiver or consent on the part of
the Lender with respect to any Event of Default or Potential Default.
<PAGE> 76
8.05. NOTICES.
(a) Except to the extent otherwise expressly permitted hereunder or
thereunder, all notices, requests, demands, directions and other
communications (collectively "NOTICES") under this Agreement or any Loan
Document shall be in writing (including telexed and facsimile communication)
and shall be sent by first-class mail, or by nationally-recognized overnight
courier, or by telex or facsimile transmission (with confirmation in writing
mailed first-class or sent by such an overnight courier), or by personal
delivery. All notices shall be sent to the applicable party at the address
stated on the signature pages hereof or in accordance with the last unrevoked
written direction from such party to the other parties hereto, in all cases
with postage or other charges prepaid. Any such properly given notice to the
Lender shall be effective when received. Any such properly given notice to
the Borrower shall be effective on the earliest to occur of receipt, telephone
confirmation of receipt of telex or facsimile communication, one Business Day
after delivery to a nationally-recognized overnight courier, or three Business
Days after deposit in the mail.
(b) The Lender may rely on any notice (whether or not such notice
is made in a manner permitted or required by this Agreement or any Loan
Document) purportedly made by or on behalf of the Borrower, and the Lender
shall have no duty to verify the identity or authority of any Person giving
such notice.
8.06. EXPENSES; TAXES; INDEMNITY.
(a) The Borrower agrees to pay or cause to be paid and to save the
Lender harmless against liability for the payment of all reasonable out-of-
pocket costs and expenses (including but not limited to reasonable fees and
expenses of counsel, including local counsel, auditors, consulting engineers,
appraisers, and all other professional, accounting, evaluation and consulting
costs) incurred by the Lender from time to time arising from or relating to
(i) the negotiation, preparation, execution, delivery, administration and
performance of this Agreement and the other Loan Documents (including but not
limited to the Collateral Management Fee, the Overadvance Fee, the Revolving
Credit Commitment Fee and expenses of field examinations and periodic
commercial finance audits of the Borrower, (ii) any requested amendments,
modifications, supplements, waivers or consents (whether or not ultimately
entered into or granted) to this Agreement or any Loan Document, and (iii) the
enforcement or preservation of rights under this Agreement or any Loan
Document (including but not limited to any such costs or expenses arising from
or relating to (A) the creation, perfection or protection of the Lender's Lien
on any Collateral, (B) the protection, collection, lease, sale, taking
possession of, preservation of, or realization on, any Collateral, including
without limitation advances for storage, insurance premiums, transportation
<PAGE> 77
charges, taxes, filing fees and the like, (C) collection or enforcement of an
outstanding Loan or any other amount owing hereunder or thereunder by the
Lender, and (D) any litigation, proceeding, dispute, workout, restructuring or
rescheduling related in any way to this Agreement or the Loan Documents).
(b) The Borrower hereby agrees to pay all stamp, document,
transfer, recording, filing, registration, search, sales and excise fees and
taxes and all similar impositions now or hereafter determined by the Lender to
be payable in connection with this Agreement or any other Loan Documents or
any other documents, instruments or transactions pursuant to or in connection
herewith or therewith, and the Borrower agrees to save the Lender harmless
from and against any and all present or future claims, liabilities or losses
with respect to or resulting from any omission to pay or delay in paying any
such fees, taxes or impositions.
(c) The Borrower hereby agrees to reimburse and indemnify each of
the Indemnified Parties from and against any and all losses, liabilities,
claims, damages, expenses, obligations, penalties, actions, judgments, suits,
costs or disbursements of any kind or nature whatsoever (including, without
limitation, the fees and disbursements of counsel for such Indemnified Party
in connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not such Indemnified Party shall be
designated a party thereto) that may at any time be imposed on, asserted
against or incurred by such Indemnified Party as a result of, or arising out
of, or in any way related to or by reason of, this Agreement or any other Loan
Document, any transaction from time to time contemplated hereby or thereby, or
any transaction financed in whole or in part or directly or indirectly with
the proceeds of any Loan (and without in any way limiting the generality of
the foregoing, including any violation or breach of any Environmental Law or
any other Law by the Borrower; any Environmental Claim arising out of the
management, use, control, ownership or operation of property by any of such
Persons, including all on-site and off-site activities involving Environmental
Concern Materials; any grant of Collateral; or any exercise by the Lender or
any Lender of any of its rights or remedies under this Agreement or any other
Loan Document); but excluding any such losses, liabilities, claims, damages,
expenses, obligations, penalties, actions, judgments, suits, costs or
disbursements resulting solely from the gross negligence or willful misconduct
of such Indemnified Party, as finally determined by a court of competent
jurisdiction. If and to the extent that the foregoing obligations of the
Borrower under this subsection (c), or any other indemnification obligation of
the Borrower hereunder or under any other Loan Document, are unenforceable for
any reason, the Borrower hereby agrees to make the maximum contribution to the
payment and satisfaction of such obligations which is permissible under
applicable Law.
<PAGE> 78
8.07. SEVERABILITY. The provisions of this Agreement are intended to be
severable. If any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
8.08. PRIOR UNDERSTANDINGS. This Agreement and the other Loan Documents
supersede all prior and contemporaneous understandings and agreements, whether
written or oral, among the parties hereto relating to the transactions
provided for herein and therein.
8.09. DURATION; SURVIVAL. All representations and warranties of each
Loan Party contained herein or in any other in the Loan Document or made in
connection herewith or therewith shall survive the making of, and shall not be
waived by the execution and delivery of, this Agreement or any other Loan
Document, any investigation by or knowledge of the Lender, the making of any
Loan, or any other event or condition whatever. All covenants and agreements
of each Loan Party contained herein or in any other Loan Document shall
continue in full force and effect from and after the date hereof so long as
the Borrower may borrow hereunder and until payment in full of all
Obligations. Without limitation, all obligations of each Loan Party hereunder
or under any other Loan Document to make payments to or indemnify the Lender
shall survive the payment in full of all other Obligations, termination of the
Borrower's right to borrow hereunder, and all other events and conditions
whatever.
8.10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts each
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument.
8.11. LIMITATION ON PAYMENTS. The parties hereto intend to conform to
all applicable Laws in effect from time to time limiting the maximum rate of
interest that may be charged or collected. Accordingly, notwithstanding any
other provision hereof or of any other Loan Document, the Borrower shall not
be required to make any payment to or for the account of the Lender, and the
Lender shall refund any payment made by the Borrower, to the extent that such
requirement or such failure to refund would violate or conflict with
nonwaivable provisions of applicable Laws limiting the maximum amount of
interest which may be charged or collected by the Lender.
8.12. SET-OFF. The Borrower hereby agrees that, to the fullest extent
permitted by law, if an Event of Default shall have occurred and be continuing
or shall exist and if any Obligation of the Borrower shall be due and payable
<PAGE> 79
(by acceleration or otherwise), each Lender shall have the right, without
notice to the Borrower, to set-off against and to appropriate and apply to
such Obligation any indebtedness, liability or obligation of any nature owing
to the Borrower by the Lender, including but not limited to all deposits
(whether time or demand, general or special, provisionally credited or finally
credited, whether or not evidenced by a certificate of deposit) now or
hereafter maintained by the Borrower with the Lender. Such right shall be
absolute and unconditional in all circumstances and, without limitation, shall
exist whether or not the Lender or any other Person shall have given notice or
made any demand to the Borrower or any other Person, whether such
indebtedness, obligation or liability owed to the Borrower are contingent,
absolute, matured or unmatured (it being agreed that the Lender may deem such
indebtedness, obligation or liability to be then due and payable at the time
of such set-off), and regardless of the existence or adequacy of any
collateral, guaranty or any other security, right or remedy available to the
Lender or any other Person. The rights provided by this Section are in
addition to all other rights of set-off and banker's lien and all other rights
and remedies which the Lender may otherwise have under this Agreement, any
other Loan Document, at law or in equity, or otherwise, and nothing in this
Agreement or any other Loan Document shall be deemed a waiver or prohibition
of or restriction on the rights of set-off or bankers' lien of any such
Person.
8.13. SUCCESSORS AND ASSIGNS; PARTICIPATIONS; ASSIGNMENTS.
(a) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the Borrower, the Lender, all future holders of
the Notes, and their respective successors and assigns, except that the
Borrower may not assign or transfer any of their rights hereunder or interests
herein without the prior written consent of the Lender, and any purported
assignment without such consent shall be void.
(b) PARTICIPATIONS. Provided that the Lender maintains voting
control over the Loans, the Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable Law, at any time
sell participations to one or more commercial banks or other Persons (each a
"PARTICIPANT") in all or a portion of its rights and obligations under this
Agreement and the other Loan Documents (including, without limitation, all or
a portion of its Commitments and the Loans owing to it and any Note held by
it). Notwithstanding the foregoing, this provision shall not effect the
Participation Agreement between the Lender and First National Bank and Trust
Company relating to the Term Loan.
<PAGE> 80
(c) FINANCIAL AND OTHER INFORMATION. The Borrower authorize the
Lender to disclose to any Participant (each, a "TRANSFEREE") and any
prospective transferee any and all financial and other information in such
Person's possession concerning the Borrower and its affiliates which has been
or may be delivered to such Person by or on behalf of the Borrower in
connection with this Agreement or any other Loan Document or such Person's
credit evaluation of the Borrower and its affiliates.
8.14. GOVERNING LAW; SUBMISSION TO JURISDICTION: WAIVER OF JURY TRIAL.
(a) GOVERNING LAW. THIS AGREEMENT AND ALL OTHER LOAN DOCUMENTS
(EXCEPT TO THE EXTENT, IF ANY, OTHERWISE EXPRESSLY STATED IN SUCH OTHER LOAN
DOCUMENTS) SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO CHOICE OF LAW
PRINCIPLES.
(b) CERTAIN WAIVERS. THE BORROWER HEREBY IRREVOCABLY AND
UNCONDITIONALLY:
(i) AGREES THAT ANY ACTION, SUIT OR PROCEEDING BY ANY PERSON
ARISING FROM OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY
STATEMENT, COURSE OF CONDUCT, ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION
HEREWITH OR THEREWITH (COLLECTIVELY, "RELATED LITIGATION") MAY BE BROUGHT IN
ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN PHILADELPHIA
COUNTY, PENNSYLVANIA, SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND TO THE
FULLEST EXTENT PERMITTED BY LAW AGREES THAT IT WILL NOT BRING ANY RELATED
LITIGATION IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF
THE LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM);
(ii) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE
LAYING OF VENUE OF ANY RELATED LITIGATION BROUGHT IN ANY SUCH COURT, WAIVES
ANY CLAIM THAT ANY SUCH RELATED LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM, AND WAIVES ANY RIGHT TO OBJECT, WITH RESPECT TO ANY RELATED LITIGATION
BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER THE
BORROWER;
(iii) CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT
OR OTHER LEGAL PROCESS IN ANY RELATED LITIGATION BY REGISTERED OR CERTIFIED
U.S. MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS FOR NOTICES
DESCRIBED IN THIS AGREEMENT, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN
SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER
MANNER PERMITTED BY LAW); AND
(iv) WAIVES THE RIGHT TO TRIAL BY JURY IN ANY RELATED
LITIGATION.
<PAGE> 81
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed and delivered this Agreement as of the date first
above written.
ATTEST: B.B. WALKER COMPANY
By DOROTHY W. CRAVEN By KENT T. ANDERSON
Dorothy W. Craven Kent T. Anderson, President
[Corporate Seal]
Address for Notices:
414 East Dixie Lane
Asheboro, NC 27203
Attn: Kent T. Anderson
Telephone: (910) 625-8107
Facsimile: (910) 625-8158
with a copy to:
Smith Helms Mulliss & Moore, L.L.P.
300 North Greene Street
Suite 1400
Greensboro, NC 27401
Attn: James A. Medford, Esquire
Telephone: (910) 378-5200
Facsimile: (910) 379-9558
MELLON BANK, N.A.
By ROGER D. ATTIX
Roger D. Attix, Vice President
Address for Notices:
Mellon Bank Center
1735 Market Street
6th Floor
Philadelphia, PA 19103
Attn: Roger D. Attix
Telephone: (215) 553-2164
Facsimile: (215) 553-0201
with a copy to:
Reed Smith Shaw & McClay
2500 One Liberty Place
Philadelphia, PA 19103
Attn: Ben Burke Howell, Esquire
Telephone: (215) 851-8100
Facsimile: (215) 851-1420
<PAGE> 1
Exhibit (4)(c)(2)
REVOLVING CREDIT NOTE
$ 20,000,000.00 Philadelphia, Pennsylvania
August 15, 1995
FOR VALUE RECEIVED, the undersigned, B.B. WALKER COMPANY, a Delaware
corporation (the "BORROWER"), promises to pay to the order of MELLON BANK,
N.A. (the "LENDER") on or before the Revolving Credit Maturity Date, and at
such earlier dates as may be required by the Agreement (as defined below), (i)
the principal sum of Twenty Million Dollars ($20,000,000.00) or (ii) the
aggregate unpaid principal amount of all Revolving Credit Loans made by the
Lender to the Borrower from time to time pursuant to the Agreement. The
Borrower further promises to pay to the order of the Lender interest on the
unpaid principal amount hereof from time to time outstanding at the rate or
rates per annum determined pursuant to the Agreement, payable on the dates set
forth in the Agreement.
This Note is the "Revolving Credit Note" referred to in, and is entitled
to the benefits of, the Credit Agreement, dated as of August 15, 1995, by and
among the Borrower and the Lender (as the same may be amended, modified or
supplemented from time to time, the "AGREEMENT"), which among other things
provides for the acceleration of the maturity hereof upon occurrence of
certain events and for prepayments in certain circumstances and upon certain
terms and conditions. Terms defined in the Agreement and not otherwise
defined in this Note have the same meanings herein as specified in the
Agreement.
This Note is secured by and is entitled to the benefits of the Liens
granted by the Security Documents referred to in the Agreement.
The Borrower hereby expressly waives presentment, demand, notice, protest
and all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note and the Agreement, and an
action for amounts due hereunder or thereunder shall immediately accrue.
This Note shall be governed by and construed and enforced in accordance
with the laws of the Commonwealth of Pennsylvania, without regard to
principles of choice of law.
B.B. WALKER COMPANY
KENT T. ANDERSON
--------------------------
Kent T. Anderson
President
<PAGE> 1
Exhibit (4)(c)(3)
TERM LOAN NOTE
$ 3,000,000.00 Philadelphia, Pennsylvania
August 15, 1995
FOR VALUE RECEIVED, the undersigned, B.B. WALKER COMPANY, a Delaware
corporation (the "BORROWER"), promises to pay to the order of MELLON BANK,
N.A. (the "LENDER") on or before the Term Loan Maturity Date, and at such
earlier dates as may be required by the Agreement (as defined below), the
principal sum of Three Million Dollars ($3,000,000.00). The Borrower further
promises to pay to the order of the Lender interest on the unpaid principal
amount hereof from time to time outstanding at the rate or rates per annum
determined pursuant to the Agreement, payable on the dates set forth in the
Agreement.
This Note is the "Term Loan Note" referred to in, and is entitled to the
benefits of, the Credit Agreement, dated as of August 15, 1995, by and among
the Borrower and the Lender (as the same may be amended, modified or
supplemented from time to time, the "AGREEMENT"), which among other things
provides for the acceleration of the maturity hereof upon occurrence of
certain events and for prepayments in certain circumstances and upon certain
terms and conditions. Terms defined in the Agreement and not otherwise
defined in this Note have the same meanings herein as specified in the
Agreement.
This Note is secured by and is entitled to the benefits of the Liens
granted by the Security Documents referred to in the Agreement.
The Borrower hereby expressly waives presentment, demand, notice, protest
and all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note and the Agreement, and an
action for amounts due hereunder or thereunder shall immediately accrue.
This Note shall be governed by and construed and enforced in accordance
with the laws of the Commonwealth of Pennsylvania, without regard to
principles of choice of law.
B.B. WALKER COMPANY
KENT T. ANDERSON
--------------------------
Kent T. Anderson
President
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