<PAGE>
As filed with the Securities and Exchange Commission on January 21, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Form SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SHERWOOD BRANDS, INC.
(Exact name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
North Carolina 2060 56-1349259
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
6110 Executive Blvd.
Suite 1080
Rockville, Maryland 20852
(301) 881-9340
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
---------------
Uziel Frydman
President and Chief Executive Officer
Sherwood Brands, Inc.
6110 Executive Blvd.
Suite 1080
Rockville, Maryland 20852
(301) 881-9340
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies of all communications to:
GARY EPSTEIN, ESQ. ROBERT J. MITTMAN, ESQ.
Greenberg Traurig Hoffman Tenzer Greenblatt LLP
Lipoff Rosen & Quentel, P.A. The Chrysler Building
1221 Brickell Avenue 405 Lexington Avenue
Miami, Florida 33131 New York, New York 10174-0208
Telephone: (305) 579-0500 Telephone: (212) 885-5000
Facsimile: (305) 579-0717 Facsimile: (212) 885-5001
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Proposed
Maximum
Proposed Maximum Aggregate
Title of Each Class of Amount Offering Price Offering Amount of
Securities to be Registered to be Registered Per Security(1) Price(1) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, par value $0.01 per share(2).... 1,782,500 $5.95 $10,605,875 $3,128.73
- -----------------------------------------------------------------------------------------------------------------------------------
Warrants, each to purchase one share of Class A
Common Stock(2)....................................... 891,250 $ .10 $ 89,125 $ 26.29
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Common Stock, par value $0.01 per share,
issuable upon exercise of the Warrants(2)(3).......... 891,250 $7.50 $ 6,684,375 $1,971.89
- -----------------------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants(4)............................. 155,000 -- (5)
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Common Stock, par value $0.01 per share(6).... 155,000 $7.14 $ 1,106,700 $ 326.48
- -----------------------------------------------------------------------------------------------------------------------------------
Underwriter's Option Warrants(7)...................... 77,500 $.12 $ 9,300 $ 2.74
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Common Stock, par value $0.01 per share(8).... 77,500 $7.50 $ 581,250 $ 171.47
- -----------------------------------------------------------------------------------------------------------------------------------
Total............................................................................................................... $5,627.60
===================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Assumes the Underwriter's over-allotment option to purchase up to 232,500
additional shares of Class A Common Stock and/or 116,250 Warrants is
exercised in full.
(3) Pursuant to Rule 416, there are also being registered such indeterminable
additional shares of Class A Common stock as may become issuable upon
exercise of the Warrants pursuant to anti-dilution provisions contained
in the Warrants.
(4) To be issued to the Underwriter, as set forth in the Prospectus
comprising a portion of this Registration Statement under the caption
"Underwriting."
(5) Pursuant to Rule 457(g), no fee is being paid.
(6) Issuable upon exercise of the Underwriter's Warrants, together with such
indeterminate number of shares of Class A Common Stock as may be issuable
by reason of the anti-dilution provisions contained therein.
(7) Issuable upon exercise of the Underwriter's Warrants. (8) Issuable upon
the Underwriter's exercise of Option Warrants.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
<PAGE>
SHERWOOD BRANDS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form SB-2 Item Number and Caption Captions in Prospectus
- ---------------------------------------------------------- -----------------------------------------------------
<S> <C>
1. Front of Registration Statement and Outside Front Facing Page of Registration Statement; Cross
Cover Page of Prospectus Reference Sheet; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages of
Prospectus Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Risk Factors; Underwriting
6. Dilution Risk Factors; Dilution
7. Selling Security Holders *
8. Plan of Distribution Outside Front and Outside Back Cover Pages of
Prospectus; Underwriting
9. Legal Proceedings Business
10. Directors, Executive Officers, Promoters and Management
Control Persons
11. Security Ownership of Certain Beneficial Owners and Principal Shareholders
Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel *
14. Disclosure of Commission Position on *
Indemnification for Securities Act Liabilities
15. Organization Within Last Five Years *
16. Description of Business Prospectus Summary; Business
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis of Financial
Operation Condition and Results of Operations
18. Description of Property Business
19. Certain Relationships and Related Transactions Certain Transactions
20. Market for Common Equity and Related Stockholder Outside Front Cover Page of Prospectus; Description
Matters of Securities; Shares Eligible for Future Sale
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants on *
Accounting and Financial Disclosure
</TABLE>
- ---------------
* Not Applicable
<PAGE>
PRELIMINARY PROSPECTUS, DATED JANUARY, 21, 1998
SUBJECT TO COMPLETION
[LOGO]
SHERWOOD BRANDS, INC.
1,550,000 Shares of Class A Common Stock and Redeemable Warrants
To Purchase 775,000 Shares of Class A Common Stock
---------------
The Company is offering hereby 1,550,000 shares of Class A Common
Stock (the "Class A Common Stock") and redeemable warrants to purchase 775,000
shares of Class A Common Stock (the "Warrants"). The shares of Class A Common
Stock and Warrants will be separately transferable immediately upon issuance.
Each Warrant entitles the registered holder thereof to purchase one share of
Class A Common Stock at a price of $7.50, subject to adjustment in certain
circumstances, at any time commencing , 1999 through and including , 2003. The
Warrants are redeemable by the Company at any time commencing , 1999, upon
notice of not less than 30 days, at a price of $.10 per Warrant, provided that
the closing bid quotation of the Class A Common Stock on all 20 trading days
ending on the third day prior to the day on which the Company gives notice
(the "Call Date") has been at least 134% (currently $10.05, subject to
adjustment) of the then effective exercise price of the Warrants and the
Company obtains the written consent of the Underwriter to such redemption
prior to the Call Date. See "Description of Securities."
Prior to this offering there has been no public market for the Class
A Common Stock or Warrants and there can be no assurance that any such market
will develop. It is anticipated that the Class A Common Stock and Warrants
will be quoted on the Nasdaq SmallCap Market ("Nasdaq") under the symbols
"SHWD" and "SHWDW," respectively. The offering prices of the Class A Common
Stock and Warrants, and the exercise price of the Warrants, were determined
pursuant to negotiations between the Company and the Underwriter and do not
necessarily relate to the Company's book value or any other established
criteria of value. For a discussion of the factors considered in determining
the offering prices, see "Underwriting."
The Company's capital stock consists of Class A Common Stock and
Class B Common Stock (collectively, the "Common Stock"), which classes are
substantially identical, except that the Class A Common Stock is entitled to
one vote per share and the Class B Common Stock is entitled to seven votes per
share on all matters, including the election of directors. Upon the
consummation of this offering, Uziel Frydman, Chairman, President and Chief
Executive Officer of the Company, will beneficially own 1,000,000 shares of
Class A Common Stock and all of the 1,000,000 shares of Class B Common Stock
outstanding and will be able to control the Company. See "Principal
Stockholders" and "Description of Securities."
---------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO
CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
COMMENCING ON PAGE 8.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company(2)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ 5.95 $ .5355 $ 5.4145
- ------------------------------------------------------------------------------------------------------------------------
Per Warrant................................ $ .10 $ .009 $ .091
- ------------------------------------------------------------------------------------------------------------------------
Total(3)................................... $9,300,000 $837,000 $8,463,000
========================================================================================================================
</TABLE>
(1) The Company has agreed to pay to the Underwriter a 3% nonaccountable
expense allowance, to sell to the Underwriter warrants (the
"Underwriter's Warrants") to purchase up to 155,000 shares of Class A
Common Stock and/or 77,500 Warrants and to retain the Underwriter as a
financial consultant. The Company has also agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, including the
Underwriter's nonaccountable expense allowance in the amount of $279,000
($320,850 if the Underwriter's over-allotment option is exercised in
full), estimated at $600,000.
(3) The controlling shareholder of the Company has granted to the Underwriter
an option, exercisable within 45 days from the date of this Prospectus,
to purchase up to 232,500 additional shares of Class A Common Stock and
the Company has granted to the Underwriter an option, exercisable within
45 days from the date of this Prospectus, to purchase up to 116,250
additional Warrants on the same terms as set forth above, solely for the
purpose of covering over-allotments, if any. If the Underwriter's
over-allotment option is exercised in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$10,695,000, $962,550 and $8,473,230, respectively, and the proceeds to
the selling shareholder will be $1,217,370. See "Underwriting."
-------------------
The shares of Class A Common Stock and Warrants are being offered,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriter and subject to approval of certain legal matters by counsel and to
certain other conditions. The Underwriter reserves the right to withdraw,
cancel or modify this offering and to reject any order in whole or in part It
is expected that delivery of certificates representing the shares of Class A
Common Stock and Warrants will be made against payment therefor at the offices
of the Underwriter, 7 Hanover Square, New York, New York 10004, on or about ,
1998.
------------------------
PARAGON CAPITAL CORPORATION
The date of this Prospectus is , 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS ON
NASDAQ, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE, WHICH STABILIZE, MAINTAIN
OR OTHERWISE AFFECT THE PRICES OF THE CLASS A COMMON STOCK AND WARRANTS.
SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF CLASS A COMMON STOCK AND WARRANTS IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. Unless otherwise indicated, all share
and per share data and information in this Prospectus (i) gives retroactive
effect to a recapitalization (the "Recapitalization") effected in December
1997, pursuant to which all of the outstanding shares of common stock of the
Company were converted to 1,150,000 shares of Class A Common Stock and
1,000,000 shares of Class B Common Stock and (ii) assumes no exercise of the
Underwriter's over-allotment option to purchase up to 232,500 additional
shares of Class A Common Stock from Mr. Uziel Frydman, the Company's Chairman,
President and Chief Executive Officer, and/or 116,250 additional Warrants from
the Company. See "Underwriting."
The Company
The Company manufactures, markets and distributes a diverse line of
brand name candies, cookies, chocolates and other food products. The Company's
principal products are COWS(TM) butter toffee candies, demitasse(R) biscuits,
RUGER(R) wafers and ELANA(R) Belgian chocolates. The Company also markets SOUP
DU JOUR(TM) soups, SOUR FRUIT BURST(TM) fruit-filled hard candies, as well as
holiday specialty products, such as PIRATE'S GOLD COINS(TM) milk chocolates
for Christmas and TOKENS OF LOVE(TM) milk chocolates for Valentine's Day. The
Company's marketing strategy, including its packaging of products designed to
maximize freshness, taste and visual appeal, emphasizes highly distinctive,
premium quality products that are sold at prices that compare favorably to
those of competitive products.
Sales of candy and cookie products in the United States have increased
significantly in recent years. According to the United States Department of
Commerce, manufacturers' domestic shipments of confectionery products (excluding
chewing gum) have grown steadily from approximately $9 billion in 1990 to $12.1
billion in 1996. The Chocolate Manufacturers Association/National Confectioners
Association has estimated that retail sales of confectionery products in the
United States in 1996 were more than $21 billion, and industry trade reports
project continued growth in these markets into the next century. Despite such
growth, the United States ranks only tenth in per capita candy consumption among
industrialized nations. The Company believes that these expanding markets
present attractive growth opportunities for its business, and is focusing its
strategy on introducing new products in these market categories as well as
achieving greater brand recognition and market penetration for all of the
Company's products.
The Company sells its products primarily to mass merchandisers and
other retail customers; vending companies; gourmet distributors; and grocery
and drug store chains, convenience stores, specialty shops and wholesalers.
Sales to mass merchandisers have accounted for a significant portion of the
Company's revenues. These customers include K-Mart, Dollar General and 99
Cents Only stores. The Company believes that the visibility of its products in
vending channels enhances market acceptance and consumer appeal of the
Company's products in other distribution channels. The Company engages
independent food brokers in various regions throughout the United States and
Canada for marketing to retail and wholesale customers.
The Company currently purchases most of its finished products from
third-party manufacturers located in Europe and South America. In April 1996,
the Company acquired a 70,000 square foot manufacturing facility in Chase
City, Virginia in order to reduce its dependence on foreign manufacturers. The
Company modernized and equipped the facility and commenced production of its
demitasse biscuit products in February 1997. The Company also recently
completed the installation of equipment designed to manufacture candy
products, is currently formulating a product and anticipates that it will
begin to manufacture this product by February 1998.
During the twelve months following the consummation of the offering,
the Company intends to continue its shift in operations from importing
finished products to manufacturing products at its Chase City facility. The
Company intends to use a significant portion of the proceeds of this offering
to purchase and install equipment necessary to manufacture additional
products. The Company has improved its operating margins for demitasse
biscuits for the year ended July 31, 1997 and the three months ended October
31, 1997, and believes that it is positioned to improve operating margins by
manufacturing additional products at its Chase City facility. There can be no
assurance that the Company will be successful in manufacturing additional
products at its Chase City facility or improving its operating margins.
3
<PAGE>
Despite its relatively limited capital resources, the Company has
achieved increased levels of revenues for the year ended July 31, 1997. The
Company intends to use a significant portion of the proceeds of this offering to
expand its marketing and sales efforts, primarily by aggressively advertising
its brand name products. The Company's strategy is to (i) capitalize on the
popularity of its existing products by developing new products and brand
extensions, (ii) expand its manufacturing operations by adding products and by
developing private label and contract manufacturing capabilities, and (iii)
pursue opportunities by making selective acquisitions of products or businesses
which management believes will enhance the Company's growth prospects.
The Company was organized under the laws of the State of North
Carolina in December 1982 under the name Sherwood Foods, Inc. The Company's
principal executive offices are located at 6110 Executive Blvd., Suite 1080,
Rockville, Maryland 20852, and its telephone number is (301) 881-9340. Unless
the context otherwise requires, references in this Prospectus to the "Company"
include its wholly-owned subsidiaries, Sherwood Brands, LLC ("Sherwood LLC")
and Sherwood Brands Overseas, Inc. ("Sherwood Overseas"). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
4
<PAGE>
The Offering
<TABLE>
<CAPTION>
<S> <C>
Securities offered................................. 1,550,000 shares of Class A Common Stock and Warrants to
purchase 775,000 shares of Class A Common Stock. See
"Description of Securities."
Common Stock to be outstanding after this offering(1):
Class A Common Stock(2)..................... 2,700,000 shares
Class B Common Stock........................ 1,000,000 shares
Warrants to be outstanding after this offering(3).. 775,000 Warrants
Exercise terms............................ Exercisable at any time commencing , 1999, each to
purchase one share of Class A Common Stock at a price of
$7.50, subject to adjustment in certain circumstances. See
"Description of Securities - Redeemable Warrants."
Expiration date........................... , 2003
Redemption................................ Redeemable by the Company, at any time commencing
__________________, 1999 upon notice of not less than 30
days, at a price of $.10 per Warrant, provided that the
closing bid quotation of the Class A Common Stock on all
20 trading days ending on the third day prior to the day
on which the Company gives notice (the "Call Date") has
been at least 134% (currently $10.05, subject to
adjustment) of the then effective exercise price of the
Warrants and the Company obtains the written consent of
the Underwriter to such redemption prior to the Call Date.
See "Description of Securities - Redeemable Warrants." Use
of Proceeds........................... The Company intends
to use the net proceeds of this offering for the purchase
of capital equipment; potential acquisitions; repayment of
indebtedness; sales, marketing and promotion; and for
working capital and general corporate purposes. See "Use
of Proceeds." Risk Factors..............................
The securities offered hereby are speculative and involve
a high degree of risk and immediate substantial dilution
and should not be purchased by investors who cannot afford
the loss of their entire investment. See "Risk Factors"
and "Dilution." Proposed Nasdaq symbols...................
Class A Common Stock - "SHWD"
Warrants - "SHWDW"
</TABLE>
- -----------------
(1) The rights of holders of the two classes of Common Stock are identical,
except that (i) the Class A Common Stock is entitled to one vote per
share and the Class B Common Stock is entitled to seven votes per share
on all matters, including the election of directors, and (ii) the Class B
Common Stock automatically converts into Class A Common Stock on a share
for share basis upon transfer to an unaffiliated party. Uziel Frydman,
Chairman, President and Chief Executive Officer of the Company holds all
of the outstanding shares of Class B Common Stock. See "Principal
Stockholders" and "Description of Securities."
5
<PAGE>
(2) Does not include: (i) 775,000 shares of Class A Common Stock reserved for
issuance upon exercise of the Warrants; (ii) an aggregate of 232,500
shares of Class A Common Stock reserved for issuance upon exercise of the
Underwriter's Warrants and the warrants included therein; (iii) 140,000
shares of Class A Common Stock reserved for issuance upon exercise of
outstanding options granted under the Company's 1998 Stock Option Plan
(the "Option Plan"); and (iv) 210,000 shares of Class A Common Stock
reserved for issuance upon exercise of options available for future grant
under the Option Plan. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Management -- 1998 Stock
Option Plan," "Description of Securities" and "Underwriting."
(3) Does not include any of the warrants referred to in footnote 2 above.
6
<PAGE>
Summary Financial Information
The summary financial information set forth below is derived from and
should be read in conjunction with the financial statements, including the
notes thereto, appearing elsewhere in this Prospectus.
Statement Of Operations Data:
<TABLE>
<CAPTION>
Years ended July 31, Three Months ended October 31,
-------------------- ------------------------------
(in thousands, except share data)
1996 1997 1996 1997
---- -------- ---- ----
<S> <C> <C> <C> <C>
Net sales................................. $14,638 $17,424 $5,275 $5,272
Cost of sales...................... 10,864 12,570 4,106 3,466
Gross profit.............................. 3,773 4,853 1,168 1,806
Selling, general and administrative
expenses............................. 2,342 2,680 576 681
Pre-production costs(1)................... 212 769 522 54
Salaries and related expenses............. 937 1,180 246 272
Income (loss) from operations............. 281 222 (177) 798
Net income (loss)(2)...................... 270 303 (172) 516
Net income (loss) per share............... .13 .14 (.08) .24
Supplemental net income per share(3)...... .12 .21
Number of shares outstanding ............. 2,150,000 2,150,000 2,150,000 2,150,000
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
October 31, 1997
Actual As Adjusted(4)
------ --------------
<S> <C> <C>
Working capital................................ $2,515,688 $9,432,294
Total assets................................... 9,370,120 15,286,726
Total liabilities.............................. 7,161,242 5,493,848
Shareholders' equity........................... 2,208,878 9,792,878
</TABLE>
- ---------------------
(1) Represents costs associated with commencing manufacturing operations at
the Chase City facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) Includes non-recurring income, net of legal expenses, recorded in
connection with an insurance litigation settlement (the "Insurance
Settlement") of $223,605, $364,028 and $40,634 in the fiscal years ended
July 31, 1996 and 1997 and the three months ended October 31, 1997,
respectively. See Note 4 to Notes to Consolidated Financial Statements.
(3) Supplemental net income per share for the year ended July 31, 1997 and
the three months ended October 31, 1997 is based upon the weighted number
of shares of Common Stock used in the calculation of net income per share
increased by the sale of 280,234 shares, the proceeds of which would be
necessary to reduce borrowings by $1,667,394. See Consolidated Financial
Statements - Summary of Accounting Principles.
(4) Gives effect to the sale of the shares of Class A Common Stock and Warrants
offered hereby and the application of the estimated net proceeds therefrom.
See "Use of Proceeds."
7
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high
degree of risk. Prospective investors should carefully consider the following
risk factors before making an investment decision.
Limited Historical Profitability; Recent Decline in Revenues; Future
Operating Results. Although the Company has achieved increased levels of
revenues for the year ended July 31, 1997, the Company has historically
achieved limited profitability. Revenues for the three months ended October
31, 1997 declined by approximately $2,700 from the three months ended October
31, 1996. The Company's operating expenses for the year ended July 31, 1997
increased and can be expected to continue to increase in connection with any
expansion activities undertaken by the Company, including those relating to
advertising and product manufacturing. Accordingly, the Company's
profitability will depend on the Company's ability to improve its operating
margins and increase revenues from operations. Unanticipated expenses,
unfavorable currency exchange rates, increased price competition and adverse
changes in economic conditions could have a material adverse effect on the
Company's operating results. There can be no assurance that the Company will
achieve significantly increased levels of revenues or that its future
operations will be profitable. See "Business" and Consolidated Financial
Statements.
Dependence on Limited Product Line; Uncertainty of Market Acceptance.
To date, a substantial portion of the Company's revenues have been derived
from a limited number of products, a decline in the sale of which would have a
material adverse effect on the Company. For the year ended July 31, 1997,
domestic sales of seven products accounted for approximately 84.5% of the
Company's revenues, with COWS butter toffee candies, RUGER wafers, demitasse
biscuits and chocolate products (four products in the aggregate) accounting
for approximately 30.8%, 20.9%, 17.7%, and 15.1%, respectively, of the
Company's revenues. Sales of chocolate products declined approximately
$120,000 or 14% during the three months ended October 31, 1997. The Company
recently introduced additional products and product line extensions and
intends to add other products to extend its line. Achieving market acceptance
for new products requires substantial marketing and sales efforts and the
expenditure of significant funds to create customer and consumer awareness of
and demand for new products. There can be no assurance that recent or future
additions to the Company's product line will achieve market acceptance or
result in significantly increased levels of revenues, or that market
acceptance of or revenues from the Company's existing products will increase
significantly or remain at present levels. See "Business - Products."
Shift in Operations; Limited Manufacturing Experience; Uncertainty of
Business Plans. During the twelve months following the consummation of this
offering, the Company intends to continue its shift in operations from
importing finished products to manufacturing products at its Chase City
facility. The Company commenced production of demitasse biscuits in February
1997, plans to commence production of a candy product in February 1998 and
intends to use a significant portion of the proceeds of this offering to
purchase capital equipment necessary to manufacture additional products. The
Company has limited manufacturing experience and currently has limited
financial, operational and management resources to undertake extensive
manufacturing operations. Expansion of the Company's manufacturing operations
will require substantial resources and will be dependent upon the Company's
ability to successfully equip its facility, achieve manufacturing
efficiencies, expand capacity on a timely and cost effective basis and
successfully monitor operations (including controlling costs and maintaining
effective inventory and quality controls). The Company's efforts are subject
to all of the risks inherent in the establishment of new manufacturing
operations and the manufacture of new products, including unanticipated
delays, expenses, technical problems and difficulties, as well as the possible
insufficiency of funds to fully implement the Company's strategy, which could
result in abandonment or material change in product commercialization. The
Company's success also will be largely dependent upon its products satisfying
targeted cost, price and quality specifications. There can be no assurance
that the Company's business plans will be successfully implemented, that the
Company's products will satisfy anticipated price or quality objectives, that
unanticipated technical or other problems will not occur which would result in
increased costs or material delays or that new manufacturing operations will
not result in increased competition and a decline in revenues from existing
operations. The Company's manufacturing operations will also be dependent on
the Company's ability to protect its equipment from fire, flood, vandalism and
similar events. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business - Manufacturing."
8
<PAGE>
Dependence on Third-Party Manufacturers and Suppliers. The Company
has limited manufacturing capabilities and is currently dependent on third
parties for the manufacture of all of its products except demitasse biscuits.
For the fiscal year ended July 31, 1997, five manufacturers accounted for
approximately 66.8% of product purchases sold domestically, with the producers
of COWS butter toffee candies, RUGER wafers and chocolate products (four
products in the aggregate) accounting for approximately 30.8%, 20.9% and
15.1%, respectively, of product purchases. The Company relies on a sole
manufacturer for each of its products. The Company does not maintain
agreements with the manufacturers of COWS butter toffee candies, RUGER wafers
and certain other manufacturers and, accordingly, such manufacturers could
terminate their relationships at any time and compete directly against the
Company. Failure by any such manufacturer to continue to supply finished
products to the Company on commercially reasonable terms, or at all, in the
absence of readily available alternative sources, would have a material
adverse effect on the Company. The Company is dependent on the ability of its
manufacturers to adhere to the Company's product, price and quality
specifications and scheduling requirements. The Company's operations require
it to have production orders in place in advance of shipment to the Company's
warehouses (product deliveries typically take 60 days). Any delay by
manufacturers in supplying finished products to the Company would adversely
affect the Company's ability to deliver products on a timely and competitive
basis. In addition, raw materials necessary for the manufacture of the
Company's products at its Chase City facility, including flour, sugar,
shortening, butter and flavorings, are purchased from third-party suppliers.
The Company does not maintain agreements with any such suppliers and is
subject to risks of periodic price fluctuations, shortages and delays. The
Company anticipates that it will become increasingly dependent on third
parties for necessary raw materials used in the manufacture of its products,
and a material interruption in the availability or significant price increases
for raw materials would have a material adverse effect on the Company's
operating margins. See "Business - Suppliers."
Risks Relating to Foreign Manufacturing. The Company has been and
will continue to be subject to risks associated with the manufacture of
products in foreign countries, primarily in Austria, Belgium and Argentina.
Such risks include material shipping delays, fluctuations in foreign currency
exchange rates, customs duties, tariffs and import quotas and international
political, regulatory and economic developments. The Company assumes the risk
of loss, damage or destruction of products when shipped by a manufacturer,
although the Company maintains cargo insurance on such shipments. Because the
Company pays for certain of its products manufactured outside the United
States in foreign currencies, any weakening of the United States dollar in
relation to relevant foreign currencies, as occurred in 1995, could result in
significantly increased costs to the Company. The Company incurred a net loss
of $22,984 for the year ended July 31, 1995 primarily as a result of
unfavorable currency exchange rates. In addition, certain products
manufactured overseas are subject to import duties. The Company currently pays
a 7% import duty on its chocolate products. Deliveries of products from the
Company's foreign manufacturers could also be delayed or restricted by the
future imposition of quotas, and there can be no assurance that the Company
would be able to obtain quality products at favorable prices from domestic or
other suppliers whose quotas have not been exceeded by the supply of products
to existing customers. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business - Suppliers" and Note 2 to
Notes to Consolidated Financial Statements.
Dependence on Significant Customers. The Company is dependent on a
limited number of customers for a significant portion of its revenues. For the
year ended July 31, 1997 and the three months ended October 31, 1997, five
customers accounted for approximately 20.5% and 21.2%, respectively, of the
Company's revenues, with the Company's three largest customers, Dollar
General, Dollar Tree and K-Mart, accounting for approximately 6.5%, 4.9% and
4.1%, respectively, of the Company's revenues for the year ended July 31,
1997. The Company does not maintain agreements with its customers and sells
products pursuant to purchase orders placed from time to time in the ordinary
course of business. The loss of a significant customer could have an adverse
effect on the Company. See "Business - Customers."
9
<PAGE>
Competition. The Company faces significant competition in the
marketing and sale of its products. The Company's products compete for
consumer recognition and shelf space with candies, cakes, cookies, chocolates
and other food products which have achieved international, national, regional
and local brand recognition and consumer loyalty. These products are marketed
by companies (which may include the Company's suppliers) with significantly
greater financial, manufacturing, marketing, distribution, personnel and other
resources than the Company. Certain of such competitors, such as Hershey Food
Corporation, M&M Mars, Inc., Nestle, S.A., Nabisco, Inc., Keebler Company and
Sunshine Biscuits, Inc., dominate the markets for candy and cookie products,
and have substantial promotional budgets which enable them to implement
extensive advertising campaigns. The food industry is characterized by
frequent introductions of new products, accompanied by substantial promotional
campaigns. While the Company believes that its existing products compete
favorably and that increased marketing and sales efforts will result in
increased product recognition and market penetration, there can be no
assurance that the Company will be able to continue to compete successfully.
See "Business - Competition."
Consumer Preferences and Industry Factors. The markets for candy and
cookie products are affected by changes in consumer tastes and preferences and
nutritional and health-related concerns. The Company could be subject to
increased competition from companies whose products or marketing strategies
address these concerns. In addition, the markets for the Company's products
may be subject to national, regional and local economic conditions which
affect discretionary spending, demographic trends and product life cycles,
whereby product sales increase from their introductory stage through their
maturity and then reach a stage of decline over time. See "Business."
Dependence on Trademarks. The Company holds United States trademark
registrations for the "ELANA," "RUGER" and "demitasse" names, has filed for
trademark registrations for certain other names, including "COWS," and uses
other names for which it has not applied for registration. The Company
believes that its rights in these names is a significant part of the Company's
business and that its ability to create demand for its products is dependent
to a large extent on its ability to exploit these trademarks. There can be no
assurance as to the breadth or degree of protection which trademarks may
afford the Company or that any trademark applications will result in
registered trademarks or that trademarks will not be invalidated if
challenged. The Company is not aware of any infringement claims or other
challenges to the Company's rights to use these marks. Other than Canadian
registrations for the "ELANA" and "RUGER" names, the Company does not hold any
international trademarks. See "Business - Trademarks."
Risks Associated with Expansion and Acquisitions. The Company's
expansion plans could place a significant strain on its management,
administrative, operational, financial and other resources. The Company plans
to increase its manufacturing capacity, add new products to its line, expand
its advertising, marketing and promotional activities, expand its work force
and expand its presence in new and existing geographic markets. To
successfully manage growth, the Company will be required to implement and
improve its operating, inventory, management and accounts receivable systems
and train and manage its employees. The Company has limited experience in
effectuating rapid expansion and in managing new operations, and there can be
no assurance that the Company will be able to successfully expand its
operations or manage growth. For the year ended July 31, 1997 and the three
months ended October 31, 1997, sales of the Company's products in foreign
markets accounted for 10.8% and 11.6%, respectively of the Company's revenues.
Expansion of the Company's sales activities in foreign markets could subject
the Company to shipping delays, increased credit risks, currency fluctuations
and other international factors, including increased competition from its
suppliers. The Company may seek to pursue opportunities by making selective
acquisitions of products or businesses which the Company believes will enhance
its growth prospects. As of the date of this Prospectus, the Company has no
plans, agreements, commitments, understandings or arrangements with respect to
any such acquisition. There can be no assurance that the Company will
ultimately effect any acquisition or that it will be able to successfully
integrate into its operations any product or business which it may acquire.
Any inability to do so, particularly in instances in where the Company has
made significant capital investments, could have a material adverse effect on
the Company.
10
<PAGE>
The Company may determine, depending upon the opportunities available
to it, to seek additional debt or equity financing to fund the cost of
continuing expansion. To the extent that the Company finances an acquisition
with equity securities, any such issuance of equity securities would result in
dilution to the interests of the Company's stockholders. Additionally, to the
extent that the Company incurs indebtedness or issues debt securities in
connection with any acquisition or facility expansion, the Company will be
subject to risks associated with incurring substantial indebtedness, including
the risks that interest rates may fluctuate and cash flow may be insufficient
to pay principal and interest on any such indebtedness. See "Use of Proceeds."
Possible Fluctuations in Operating Results; Seasonality. The
Company's operating results may be subject to fluctuations as a result of new
product introductions, the timing of significant operating expenses and
customer orders, pricing and seasonality. The Company's sales typically
increase toward the end of the calendar year, principally due to the holiday
season. Unanticipated events, including delays in product shipments past the
time of peak sales or significant decreases in sales during such period, could
have an adverse effect on the Company's operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Allocation of Proceeds to Repay Indebtedness; Loan Covenants and
Security Interests; Personal Guarantee. In order to finance the Company's
operations, the Company has incurred significant indebtedness. Of the Company's
total indebtedness of $3,792,328 outstanding at October 31, 1997, $1,044,589 was
outstanding under a working capital line of credit with First Union National
Bank of Maryland (the "Bank"); an aggregate of $2,080,345 was outstanding under
two industrial revenue bonds ("IRBs") and two county development authority
subordinated notes ("Subordinated Notes"); and $667,394 was outstanding under a
note payable to Ilana Frydman (the "Related Party Note"), the wife of Uziel
Frydman, Chairman, President and Chief Executive Officer of the Company. The
Company intends to use a portion of the proceeds of this offering to repay
$1,000,000 to the Bank (and to use the increased borrowing availability for
future expansion) and the entire amount outstanding on the Related Party Note to
Ms. Frydman, which proceeds will not be available for other corporate purposes.
The Company's line of credit with the Bank is secured by substantially all of
the assets of Sherwood LLC and Sherwood Overseas. The principal amount of the
IRBs are backed by irrevocable letters of credit issued by Central Fidelity Bank
of Virginia ("Fidelity") and are collateralized by a first deed of trust and
security interest in the Company's real and personal property at the Chase City
facility. In addition to certain financial covenants, the Company's financing
arrangements prohibit the Company, without the consent of the lender, from
incurring additional indebtedness, which could limit the Company's ability to
implement its proposed expansion. In the event of a violation by the Company of
its loan covenants or other default by the Company on its obligations, the
Company's lenders could elect to declare the Company's indebtedness to be
immediately due and payable and foreclose on the Company's assets. As of the
date of this Prospectus, the Company is in compliance with all of the terms of
its financing agreements and intends to seek all necessary consents from its
lenders, including in connection with this offering and the repayment of the
entire amount outstanding on the Related Party Note. There can be no assurance
that the Company will be able to comply with the terms of its financing
agreements in the future.
Uziel Frydman, President and Chief Executive Officer of the Company,
has personally guaranteed the repayment of indebtedness owing to the Bank and to
Fidelity. Neither Mr. Frydman nor any other person has any obligations to make
personal guarantees available to the Company in the future. There can be no
assurance that personal guarantees will be available to the Company or that the
absence of personal guarantees will not adversely affect the Company's ability
to borrow in the future. See "Use of Proceeds" and "Certain Transactions."
Government Regulation. The Company is subject to extensive regulation
by the United States Food and Drug Administration, the United States
Department of Agriculture and by other state and local authorities in
jurisdictions in which the Company's products are manufactured or sold. Among
other things, such regulation governs the importation, manufacturing,
packaging, storage, distribution and labeling of the Company's products, as
well as sanitary conditions and public health and safety. Applicable statutes
and regulations governing the Company's products include "standards of
identity" for the content of specific types of products, nutritional labeling
and serving size requirements and general "Good Manufacturing Practices" with
respect to manufacturing processes. The Company's Chase City facility and
products are subject to periodic inspection by federal, state and local
authorities. The Company believes that it is in compliance with all
governmental laws and regulations and maintains all permits and licenses
required for its operations. Nevertheless, there can be no assurance that the
Company will continue to be in compliance with current laws and regulations or
that the Company will be able to comply with any future laws and regulations
and licensing requirements. Failure by the Company to comply with applicable
laws and regulations could subject the Company to civil remedies, including
fines, injunctions, recalls or seizures, as well as potential criminal
sanctions. See "Business - Government Regulation."
11
<PAGE>
Product Liability and Insurance. As a manufacturer and marketer of
food products, the Company is subject to product liability claims from
consumers. The Company maintains product liability insurance with limits of
$2,000,000 in the aggregate and $1,000,000 per occurrence (with excess
coverage of $3,000,000), which it believes is adequate for the types of
products currently offered by the Company. There can be no assurance, however,
that such insurance will be sufficient to cover potential claims or that
adequate levels of coverage will be available in the future at a reasonable
cost. In the event of a partially or completely uninsured successful claim
against the Company, the Company's financial condition and reputation would be
materially affected. See "Business - Insurance."
Significant Capital Requirements; Possible Need for Additional
Financing. The food manufacturing and distribution business is capital
intensive. The Company is dependent on the proceeds of this offering to
implement its expansion plans. Based on currently proposed plans and
assumptions relating to its operations, the Company believes that the proceeds
of this offering, together with projected cash flow from operations and
available cash resources, including its line of credit, will be sufficient to
satisfy its contemplated cash requirements for at least twelve months
following the consummation of this offering. In the event that the Company's
plans change, its assumptions change or prove to be inaccurate or if the
proceeds of this offering or cash flow prove to be insufficient to implement
the Company's proposed expansion, the Company may be required to obtain
additional financing sooner than anticipated. There can be no assurance that
additional financing will be available to the Company on commercially
reasonable terms, or at all, or that the proceeds of this offering will be
adequate for all of the Company's requirements, particularly the capital
requirements associated with the Company's anticipated increased product
manufacturing activities. See "Use of Proceeds."
Dependence on Key Personnel; Limited Management Personnel. The
success of the Company is dependent on the personal efforts of Uziel Frydman,
its Chairman, President and Chief Executive Officer, Amir Frydman, its Vice
President of Marketing, and Anat Schwartz, its Vice President of Finance and
Secretary. Although the Company intends to enter into employment agreements
with each of these officers prior to the consummation of this offering, the
loss or interruption of the services of such individuals could have a material
adverse effect on the Company's business and prospects. The Company maintains
"key-man" insurance in the amount of $1 million on the life of Mr. Uziel
Frydman. The success of the Company will also be dependent upon its ability to
hire and retain additional qualified management, marketing and other
personnel, including a qualified Chief Financial Officer. The Company
currently has limited management and other personnel. None of such personnel
has experience in managing the affairs of a publicly-held company. Competition
for qualified personnel in the food industry is intense, and there can be no
assurance that the Company will be able to hire or retain additional qualified
personnel. Failure to hire and retain additional qualified personnel could
adversely affect the Company's ability to expand its operations. See
"Management."
Benefits to Related Parties. The Company intends to use $667,394
(approximately 8.8% of the estimated net proceeds of this offering) to repay
the Related Party Note issued to Ilana Frydman, the wife of Uziel Frydman,
President and Chief Executive Officer of the Company. The Company also intends
to use $1,000,000 of the proceeds of this offering to reduce amounts
outstanding under its line of credit with the Bank, which will reduce Mr.
Frydman's potential liability under his personal guarantee. The Company also
will seek to release Mr. Frydman from this personal guarantee following this
offering. See "Use of Proceeds" and "Certain Transactions."
Concentration of Ownership. Upon the consummation of this offering, Mr.
Uziel Frydman, President and Chief Executive Officer of the Company, will own
1,000,000 shares of Class A Common Stock (767,500 shares if the Underwriter's
over-allotment option is exercised in full) and 1,000,000 shares of Class B
Common Stock, representing, in the aggregate, approximately 54% of the
outstanding Common Stock of the Company and 75% of the voting control of the
Company (52% and 73%, respectively, if the Underwriter's overallotment option is
exercised in full and assuming no exercise of the Warrants). Accordingly, Mr.
Frydman will be able to direct the election of all of the Company's directors,
increase the authorized capital, dissolve, merge or sell the assets of the
Company, and generally direct the affairs of the Company. See "Management" and
"Principal Stockholders."
12
<PAGE>
Anti-Takeover Effects of Preferred Stock. The Company's Articles of
Incorporation authorize the Company's Board of Directors to issue up to
5,000,000 shares of "blank check" preferred stock (the "Preferred Stock")
without shareholder approval, in one or more series and to fix the dividend
rights, terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, and any other rights, preferences, privileges, and
restrictions applicable to each new series of Preferred Stock. The issuance of
shares of Preferred Stock in the future could, among other things, adversely
affect the voting power of the holders of Common Stock and, under certain
circumstances, could make it difficult for a third party to gain control of
the Company, prevent or substantially delay a change in control, discourage
bids for the Common Stock at a premium, or otherwise adversely affect the
market price of the Common Stock. Although the Company has no current plans to
issue any shares of Preferred Stock or designate any series of Preferred
Stock, there can be no assurance that the Board will not decide to do so in
the future. See "Description of Securities -- Capital Stock -- Preferred
Stock."
No Dividends. The Company has never paid any cash dividends on its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. The payment of cash dividends is prohibited by the terms of the
Company's financing agreements with the Bank and Fidelity. See "Dividend
Policy."
Dilution. This offering involves an immediate and substantial dilution
of $3.30 per share (or 55.5%) between the net tangible book value per share of
Common Stock after this offering and the initial public offering price per share
in this offering. See "Dilution."
Shares Eligible for Future Sale. Upon consummation of this offering,
the Company will have 3,700,000 shares of Common Stock outstanding (assuming no
exercise of the Warrants), of which the 1,550,000 shares of Class A Common Stock
offered hereby will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"). All of the remaining 2,150,000 shares of Common Stock outstanding are
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act and will become eligible for sale, pursuant to Rule
144, commencing on various dates commencing 90 days following the date of this
Prospectus, subject to contractual restrictions described below. The holders of
all of such shares have agreed not to sell such shares for a period of 18 months
from the date of this Prospectus without the Underwriter's prior written
consent. No prediction can be made as to the effect, if any, that sales of
shares of Class A Common Stock or even the availability of such shares for sale
will have on the market prices prevailing from time to time. The possibility
that substantial amounts of Class A Common Stock may be sold in the public
market may adversely affect the prevailing market price for the Class A Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities. See "Shares Eligible for Future Sale" and
"Underwriting."
No Assurance of Public Market; Possible Volatility of Market Price of
Class A Common Stock and Warrants; Underwriter's Potential Influence on the
Market. Prior to this offering, there has been no public trading market for
the Common Stock or Warrants. There can be no assurance that a regular trading
market for the Class A Common Stock or Warrants will develop after this
offering or that, if developed, it will be sustained. Moreover, the initial
public offering prices of the Class A Common Stock and the Warrants and the
exercise price of the Warrants have been determined by negotiations between
the Company and the Underwriter. The market prices of the Company's securities
following this offering may be highly volatile as has been the case with the
securities of other emerging companies. Factors such as the Company's
operating results, announcements by the Company or its competitors and various
factors affecting the food industry generally may have a significant impact on
the market price of the Company's securities. In addition, in recent years,
the stock market has experienced a high level of price and volume volatility
and market prices for the stock of many companies have experienced wide price
fluctuations which have not necessarily been related to the operating
performance of such companies. Although it has no obligation to do so, the
Underwriter intends to make a market in the Class A Common Stock and Warrants
and may otherwise effect transactions in the Class A Common Stock and
Warrants. If the Underwriter makes a market in the Class A Common Stock or
Warrants, such activities may exert a dominating influence on the market and
such activity may be discontinued at any time. The prices and liquidity of the
Class A Common Stock and Warrants may be significantly affected to the extent,
if any, that the Underwriter participates in such market. See "Underwriting."
13
<PAGE>
Possible Delisting of Securities from Nasdaq System; Risks Relating
to Low-Priced Stocks. It is currently anticipated that the Class A Common
Stock and Warrants will be eligible for listing on Nasdaq. In order to
continue to be listed on Nasdaq, the Company must maintain $2,000,000 in net
tangible assets, a $1,000,000 market value of the public float, two
market-makers and a minimum bid price of $1.00 per share. Failure to meet
these maintenance criteria may result in the delisting of the Company's
securities from Nasdaq, and trading in the Company's securities would
thereafter be conducted in the non-Nasdaq over-the-counter market. As a result
of such delisting, an investor could find it more difficult to dispose of the
Company's securities. In addition, if the Class A Common Stock were to become
delisted from trading on Nasdaq and the trading price of the Class A Common
Stock were to fall below $5.00 per share on the date the Company's securities
were delisted, trading in such securities would also be subject to the
requirements of certain rules promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules
require the delivery, prior to any penny stock transaction, of a disclosure
schedule explaining the penny stock market and the risks associated therewith,
and impose various sales practice requirements on broker-dealers who sell
penny stocks to persons other than established customers and accredited
investors (generally institutions). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. The additional burdens imposed upon broker-dealers by such requirements
may discourage broker-dealers from effecting transactions in the Company's
securities, which could severely limit the market price and liquidity of such
securities and the ability of purchasers in this offering to sell their
securities of the Company in the secondary market.
Potential Adverse Effect of Warrant Redemption. The Warrants are
subject to redemption by the Company at any time commencing , 1999 upon notice
of not less than 30 days, at a price of $.10 per Warrant, provided that the
closing bid quotation of the Class A Common Stock on all 20 trading days
ending on the third day prior to the day on which the Company gives notice has
been at least 134% (currently $10.05, subject to adjustment) of the then
effective exercise price of the Warrants and the Company obtains the written
consent of the Underwriter to such redemption prior to the Call Date.
Redemption of the Warrants could force the holders to exercise the Warrants
and pay the exercise price at a time when it may be disadvantageous for the
holders to do so, to sell the Warrants at the then current market price when
they might otherwise wish to hold the Warrants, or to accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants at the time of redemption. See "Description of Securities -
Redeemable Warrants. "
Possible Inability to Exercise Warrants. The Company intends to
qualify the sale of the securities offered hereby in a limited number of
states. Although certain exemptions in the securities laws of certain states
might permit the Warrants to be transferred to purchasers in states other than
those in which the Warrants are initially qualified, the Company will be
prevented from issuing Class A Common Stock in such states upon the exercise
of the Warrants unless an exemption from qualification is available or unless
the issuance of Class A Common Stock upon exercise of the Warrants is
qualified. The Company may decide not to seek or may not be able to obtain
qualification of the issuance of such Class A Common Stock in all of the
states in which the ultimate purchasers of the Warrants reside. In such a
case, the Warrants held by purchasers will expire and have no value if such
Warrants cannot be sold. Accordingly, the market for the Warrants may be
limited because of these restrictions. Further, a current prospectus covering
the Class A Common Stock issuable upon exercise of the Warrants must be in
effect before the Company may accept Warrant exercises. There can be no
assurance the Company will be able to have a current prospectus in effect when
this Prospectus is no longer current, notwithstanding the Company's commitment
to use its best efforts to do so. See "Description of Securities Redeemable
Warrants."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,550,000 shares
of Class A Common Stock and 775,000 Warrants offered hereby (after deducting
underwriting discounts and commissions and other expenses of the offering) are
estimated to be $7,584,000 ($7,594,230 if the Underwriter's over-allotment
option with respect to the Warrants is exercised in full). The Company expects
to use the net proceeds over the next 12 months approximately as follows:
<TABLE>
<CAPTION>
Approximate Approximate
Application of Proceeds Dollar Amount Percentage of Net Proceeds
- ----------------------- ------------- --------------------------
<S> <C> <C>
Purchase of capital equipment(1) .......................... $2,000,000 26.4%
Acquisitions(2) .......................................... 2,000,000 26.4
Repayment of indebtedness (3) 1,700,000 22.4
Sales, marketing and promotion(4) 800,000 10.5
Working capital........................................ 1,084,000 14.3
---------- -----
Total....................................................... $7,584,000 100.0%
========== =====
</TABLE>
(1) Represents anticipated costs associated with the purchase and
installation of capital equipment required for the manufacture of
additional products at the Chase City facility and the salaries for up
to ten additional personnel. The Company may seek to finance a portion
of the cost of such equipment. There can be no assurance that the
Company will be able to obtain satisfactory equipment financing
arrangements. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" and "Business Manufacturing."
(2) Represents anticipated costs to acquire products or businesses which
the Company believes will enhance its growth prospects. As of the date
of this Prospectus, the Company has no plans, agreements, commitments,
understandings or arrangements with respect to any acquisition. See
"Business."
(3) Consists of the repayment of (i) $1,000,000 to the Bank and (ii) up to
$700,000 ($667,394 plus accrued interest) to Ilana Frydman, the wife of
Uziel Frydman, Chairman, President and Chief Executive Officer of the
Company. The Company intends to reduce amounts outstanding under its
line of credit with the Bank, permitting it to utilize the full
borrowing availability under the line of credit. Borrowings under the
line of credit vary daily based on the Company's working capital
requirements. At October 31, 1997 and December 31, 1997, approximately
$1,044,589 and $819,588, respectively, was outstanding under the line
of credit. Interest accrues on advances made under the line of credit
at the prime rate established by the Bank (8.5% at October 31, 1997).
The line of credit expires on November 30, 1998. Advances under the
line of credit have been used to finance increased levels of
inventories and accounts receivable. The Company also intends to repay
the remaining outstanding principal and accrued interest at the rate of
9% per annum under a promissory note payable to Ilana Frydman. Such
indebtedness is due on demand after October 31, 1998. See "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations" and "Certain Transactions."
(4) Represents amounts to be used in connection with sales, marketing and
promotional activities, including advertising in trade journals,
preparation of sales literature and participation at trade shows. See
"Business - Advertising, Marketing and Promotion."
(5) Working capital may be used, among other things, to pay for
inventories, rent, trade payables, professional fees and other
expenses.
If the Underwriter exercises its over-allotment option in full with
respect to the Warrants, the Company will realize additional net proceeds of
$10,230 which will be added to working capital. The Company will not realize
any additional net proceeds if the Underwriter exercises its over-allotment
option with respect to the Class A Common Stock.
15
<PAGE>
Based on currently proposed plans and assumptions relating to its
operations, the Company believes that the proceeds of this offering, together
with projected cash flow from operations and available cash resources,
including its line of credit, will be sufficient to satisfy its contemplated
cash requirements for at least twelve months following the consummation of
this offering. In the event that the Company's plans change (due to changes in
market conditions, competitive factors or new or different business
opportunities that may become available in the future), its assumptions change
or prove to be inaccurate or if the proceeds of this offering or cash flow
prove to be insufficient to implement the Company's proposed expansion
strategy (due to unanticipated expenses, operating difficulties or otherwise),
the Company may find it necessary to reallocate a portion of the proceeds
within the above-described categories, use proceeds for other purposes, seek
additional financing or curtail its expansion activities. There can be no
assurance that additional financing, if required, will be available to the
Company on commercially reasonable terms, or at all.
Proceeds not immediately required for the purposes described above
will be invested principally in United States government securities,
short-term certificates of deposit, money market funds or other short-term
interest bearing investments.
16
<PAGE>
DILUTION
The difference between the initial public offering price per share
and the adjusted net tangible book value per share of Common Stock after this
offering constitutes the dilution to investors in this offering. Net tangible
book value per share of Common Stock on any given date is determined by
dividing the net tangible book value of the Company (total tangible assets
less total liabilities) on that date, by the number of shares of Common Stock
(including shares of Class A Common Stock issuable upon conversion of
outstanding shares of Class B Common Stock) outstanding on that date.
As of October 31, 1997, the net tangible book value of the Company
was $2,208,878 or $1.03 per share of Common Stock. After giving effect to the
sale of the 1,550,000 shares of Class A Common Stock and 775,000 Warrants
being offered hereby (after payment of underwriting discounts and commissions
and estimated expenses of this offering) the net tangible book value of the
Company as of October 31, 1997 would have been $9,792,878 or $2.65 per share,
representing an immediate increase in net tangible book value of $1.62 per
share of Common Stock to existing shareholders and an immediate dilution of
$3.30 per share (or 55.5%) to new investors. The following table illustrates
this dilution to new investors on a per share basis:
Public offering price..................................... $5.95
Net tangible book value before this offering.......... $1.03
Increase attributable to this offering................ 1.62
----
Net tangible book value after this offering............... 2.65
----
Dilution to investors in this offering.................... $3.30
=====
The following table sets forth, with respect to existing shareholders
and new investors in this offering, a comparison of the number of shares of
Class A Common Stock issued by the Company (including shares issuable upon
conversion of the outstanding Class B Common Stock), the percentage of
ownership of such shares, the total cash consideration paid, the percentage of
total cash consideration paid and the average price per share.
<TABLE>
<CAPTION>
Total Cash Average Price
Shares Purchased Consideration Paid Per Share
-------------------- --------------------- -------------
Number Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Existing shareholders............... 2,150,000 58.1% $ 268,500 2.8% $ .13
New investors....................... 1,550,000 41.9 9,222,500 97.2 5.95
--------- ---- --------- ----
Total............................ 3,700,000 100.0% $ 9,491,000 100.0%
========= ====== ============ ======
</TABLE>
The above table assumes no exercise of the Underwriter's
over-allotment option. If such option is exercised in full, the new investors
will have paid $10,605,875 for 1,782,500 shares of Class A Common Stock,
representing approximately 97.53% of the total consideration for 48.2% of the
total number of shares of Common Stock outstanding.
In addition, the table assumes no exercise of other outstanding stock
options or warrants. As of the date of this Prospectus, there are also
outstanding stock options granted under the Option Plan to purchase an
aggregate of 140,000 shares of Common Stock at an exercise price of $5.95 per
share. To the extent that these options and warrants are exercised, there will
be further ownership dilution to new investors. See "Management -- 1998 Stock
Option Plan," "Description of Securities" and "Underwriting."
17
<PAGE>
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock,
and the Company's Board of Directors does not intend to declare or pay any
dividends on its Common Stock in the foreseeable future. The Board of
Directors currently intends to retain all available earnings (if any)
generated by the Company's operations for the development and growth of its
business. The declaration in the future of any cash or stock dividends on the
Common Stock will be at the discretion of the Board and will depend upon a
variety of factors, including the earnings, capital requirements and financial
position of the Company and general economic conditions at the time in
question. The payment of cash dividends on the Common Stock currently is
limited or prohibited by the terms of the Company's financing agreements with
the Bank and Fidelity and under the Subordinated Notes. See "Description of
Securities -- Capital Stock."
CAPITALIZATION
The following table sets forth the capitalization of the Company as
of October 31, 1997, on an actual basis after giving effect to the
Recapitalization and as adjusted to give effect to the sale of the 1,550,000
shares of Class A Common Stock and 775,000 Warrants offered hereby and the
anticipated application of the estimated net proceeds therefrom:
<TABLE>
<CAPTION>
October 31, 1997
Actual As Adjusted
------ -----------
<S> <C> <C>
Long term debt(excluding current portion)............ $2,513,979 $1,846,585
Shareholders' equity(1):
Class A Common Stock, $.01 par value, 30,000,000
shares authorized, 1,150,000 shares issued and
outstanding and 2,700,000 shares issued and
outstanding (as adjusted)(2)....................... 11,500 27,000
Class B Common Stock, $.01 par value, 5,000,000
shares authorized, 1,000,000 shares issued and
outstanding (actual and as adjusted) .............. 10,000 10,000
Preferred Stock, $.01 par value, issuable in
series: 5,000,000 shares authorized: no shares
issued and outstanding, actual and as adjusted..... - -
Additional paid-in capital........................... 247,000 7,815,500
Accumulated earnings................................. 1,940,378 1,940,378
---------- -----------
Total shareholders' equity........................ 2,208,878 9,792,878
---------- -----------
Total capitalization............................ $4,722,857 $11,639,463
========== ===========
</TABLE>
- ------------------------
(1) Gives effect to the Recapitalization.
(2) Does not include (i) 775,000 shares of Class A Common Stock reserved for
issuance upon exercise of the Warrants; (ii) an aggregate of 232,500
shares of Class A Common Stock reserved for issuance upon exercise of the
Underwriter's Warrants and the warrants included therein; (iii) 140,000
shares of Class A Common Stock reserved for issuance upon exercise of
outstanding options granted under the Company's Option Plan; and (iv)
210,000 shares of Class A Common Stock reserved for issuance upon
exercise of options available for future grant under the Option Plan. See
"Management -- 1998 Stock Option Plan," "Description of Securities" and
"Underwriting."
18
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical financial
data of the Company as of and for the dates indicated. The selected financial
data as of July 31, 1996 and 1997 and for the years then ended have been
derived from the Company's financial statements on a consolidated basis set
forth elsewhere in this Prospectus that have been audited by BDO Seidman, LLP,
independent auditors. The selected financial data for the three months ended
October 31, 1996 and 1997 are derived from the Company's unaudited financial
statements for such periods set forth elsewhere in this Prospectus, which
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a proper statement of the results for such period. The results
of operations for the three months ended October 31, 1997 are not necessarily
indicative of results of operations to be expected for any future quarter or
the next fiscal year ended July 31, 1998. The financial data set forth below
is qualified by reference to and should be read in conjunction with the
Company's financial statements, related notes and other financial information
contained in this Prospectus, as well as "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Statement Of Operations Data:
<TABLE>
<CAPTION>
Years ended July 31, Three Months ended October 31,
-------------------- ------------------------------
(In thousands, except share data)
1996 1997 1996 1997
---- -------- ---- ----
<S> <C> <C> <C> <C>
Net sales................................. $14,638 $17,424 $5,275 $5,272
Cost of sales...................... 10,864 12,570 4,106 3,466
Gross profit.............................. 3,773 4,853 1,168 1,806
Selling, general and administrative
expenses.................................. 2,342 2,680 576 681
Pre-production costs(1)................... 212 769 522 54
Salaries and related expenses............. 937 1,180 246 272
Income (loss) from operations............. 281 222 (177) 798
Net income (loss)(2)...................... 270 303 (172) 516
Net income (loss) per share............... .13 .14 (.08) .24
Supplemental net income per share(3)...... .12 .21
Number of shares outstanding ............. 2,150,000 2,150,000 2,150,000 2,150,000
</TABLE>
Balance Sheet Data:
October 31, 1997
----------------
Working capital................................ $2,515,688
Total assets................................... 9,370,120
Total liabilities.............................. 7,161,242
Shareholders' equity........................... 2,208,878
- ---------------------
(1) Represents costs associated with commencing manufacturing operations at
the Chase City facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) Includes non-recurring income, net of legal expenses, recorded in
connection with an insurance litigation settlement (the "Insurance
Settlement") of $223,605, $364,028 and $40,634 in the fiscal years ended
July 31, 1996 and 1997 and the three months ended October 31, 1997,
respectively. See Note 4 to Notes to Consolidated Financial Statements.
(3) Supplemental net income per share for the year ended July 31, 1997 and
the three months ended October 31, 1997 is based upon the weighted number
of shares of Common Stock used in the calculation of net income per share
increased by the sale of 280,234 shares, the proceeds of which would be
necessary to reduce borrowings by $1,667,394. See Consolidated Financial
Statements - Summary of Accounting Principles.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The Company's Consolidated Financial Statements include the
operations of the Company as the surviving corporation of a merger and
subsequent restructuring of the Company's affiliated entities in July 1997.
The transaction was treated like a pooling of interests for accounting
purposes and, accordingly, the Company's Consolidated Financial Statements
include the results of operations and financial position of the affiliated
entities for all periods presented. The Company's manufacturing operations are
segregated from its domestic and overseas marketing and distribution
operations, which are conducted through its direct and indirect wholly-owned
subsidiaries, Sherwood LLC and Sherwood Overseas, respectively. See Note 1 to
Notes to Consolidated Financial Statements.
The Company currently purchases most of its finished products from
third-party manufacturers located in Europe and South America. In April 1996,
the Company acquired a 70,000 square foot manufacturing facility in Chase
City, Virginia in order to reduce its dependence on foreign manufacturers. The
Company modernized and equipped the facility and commenced production of its
demitasse biscuit products in February 1997. The Company also recently
completed the installation of equipment designed to manufacture candy
products, is currently formulating a product and anticipates that it will
begin to manufacture this product by February 1998.
During the twelve months following the consummation of the offering,
the Company intends to continue its shift in operations from importing finished
products to manufacturing products at its Chase City facility. The Company
intends to use up to $2,000,000 of the proceeds of this offering to purchase and
install equipment necessary to manufacture additional products. The Company
expects to capitalize equipment purchases. The Company anticipates increases in
salary expense beyond its current level of expenditures as new products are
manufactured and additional personnel are required. The Company also intends to
use up to $2,000,000 of the proceeds of this offering to acquire products or
businesses which the Company believes will enhance its growth prospects. In
connection with any possible acquisition, the Company may acquire complementary
products, facilities or equipment which may be used to manufacture newly
acquired products. There can be no assurance that the Company will be successful
in manufacturing additional products at its Chase City facility, improving its
operating margins or consummating acquisitions of products or businesses.
For the fiscal years ended July 31, 1996 and 1997 and the three
months ended October 31, 1997, the Company incurred pre-production costs of
$212,089, $769,585 and $54,124, respectively, representing expenses associated
with commencing manufacturing operations at the Chase City facility, including
the cost of parts and labor. See Note 16 to Notes to Consolidated Financial
Statements.
The Company recorded non-recurring income from the Insurance
Settlement of $223,605, $364,028 and $40,634 in the fiscal years ended July
31, 1996 and 1997, and the three months ended October 31, 1997, respectively.
See Note 4 to Notes to Consolidated Financial Statements.
At October 31, 1997, the Company has available net operating loss
carryforwards of approximately $950,000 which are available through 2012.
These net operating loss carryforwards are available to offset consolidated
taxable income generated in future periods. The Company has a net deferred tax
asset of approximately $62,000 at July 31, 1997, due to the net operating loss
carryforwards. See Note 10 to Notes to Consolidated Financial Statements.
20
<PAGE>
Results of Operations
The following table below sets forth, for the periods indicated,
certain of the Company's income and expense items as approximate percentages
of net sales:
<TABLE>
<CAPTION>
Years ended July 31, Three Months ended October 31,
-------------------- ------------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 74.2 72.1 77.8 65.7
Gross profit.............................. 25.8 27.8 22.1 34.3
Selling, general and administrative
expenses ................................. 16.0 15.4 10.9 12.9
Pre-production costs...................... 1.4 4.4 9.9 1.0
Salaries and related expenses............. 6.4 6.8 4.7 5.2
Income (loss) from operations............. 1.9 1.3 (3.3) 15.1
Net income (loss)......................... 1.8 1.7 (3.3) 9.8
</TABLE>
Three Months Ended October 31, 1997 Compared to Three Months Ended October 31,
1996
Sales: Net sales for the three months ended October 31, 1997 and
1996 were $5,272,474 and $5,275,204, respectively. Sales of candy products in
the United States increased approximately $399,000, or 25%, for the period,
reflecting an increase in sales of candy products (particularly COWS) as well
as seasonal products with the introduction of seasonal candy items. Sales of
cookie products in the United States decreased approximately $51,000, or 2.6%,
reflecting a 8% decrease in sales of RUGER wafers, partially offset by an 11%
increase in sales of demitasse biscuits. The decrease in RUGER sales was
primarily due to timing differences in order deliveries. Sales of chocolate
products in the United States decreased approximately $120,000, or 13.8%, due
to a two-month delay in connection with the development of new product sizes
and graphic design and other packaging improvements. For the three months
ended October 31, 1997, domestic and foreign sales were approximately
$4,660,000 and $612,000, or 88.4% and 11.6%, respectively, of the Company's
sales.
Gross Profit: Gross profit increased to $1,806,468 from $1,168,301
and, as a percentage of net sales, from 22.1% to 34.3%. The increases were
primarily attributable to lower costs associated with manufacturing demitasse
biscuits at the Chase City facility and also to favorable currency exchange
rates.
Operating Expenses: Operating expenses consist of selling, general
and administrative expenses, pre-production costs, and salaries and related
expenses. Selling, general and administrative expenses for the three months
ended October 31, 1997 were $681,035, compared to $576,972 for the prior
comparable period. This increase was primarily due to increased advertising
expenditures and commissions paid to food and candy brokers. Pre-production
costs decreased to $54,124 for the three months ended October 31, 1997 from
$522,632 for the prior comparable period. This decline was a result of the
Company having incurred most of the costs associated with the start-up of
manufacturing operations at the Chase City facility during the prior period.
Salaries and related expenses increased to $272,489 for the three months ended
October 31, 1997 from $246,469 for the prior comparable period. This increase
was primarily due to an increase in personnel at the Chase City facility.
Income from Operations: Income from operations for the three months
ended October 31, 1997 was $798,820, compared to a loss of $177,772 for the
same period one year earlier. The increase was due primarily to an increase in
gross profit of approximately $638,000 and a decrease in pre-production costs
of approximately $469,000, partially offset by an increase in selling, general
and administrative expenses of $104,063.
21
<PAGE>
Other Income (expense): Other expense decreased from $83,217 for the
three months ended October 31, 1996 to $16,415 for the three months ended
October 31, 1997. The decrease was primarily due to income of $40,634,
recorded, net of legal expenses, as part of the Insurance Settlement.
Income Taxes: The Company's provision (benefit) for taxes on income
for the three months ended October 31, 1997 and 1996 was $266,000 and
($88,600), respectively. The Company's effective tax rate is lower than the
statutory rate due primarily to the untaxed income of Sherwood Overseas, which
is not subject to U.S. income tax. Sherwood Overseas makes annual royalty
payments to the Company of 7% of net sales for the use of its brand names. See
Note 10 to Notes to Consolidated Financial Statements.
Net Income: Net income was $516,405 for the three months ended
October 31, 1997 compared to a loss of $172,389 for the prior comparable
period. This improvement was due primarily to the increase in gross margins as
described above and a reduction in pre-production costs.
Fiscal Year Ended July 31, 1997 Compared to Fiscal Year Ended July 31, 1996
Sales: Net sales for fiscal 1997 increased $2,785,747, or 19.0%, to
$17,424,243, as compared to $14,638,496 for fiscal 1996. The increase in sales
was due to significant growth in sales volume in all product categories,
particularly increases in domestic sales of cookie products, which increased
approximately $1,699,000, or 29%, and candy products, which increased
approximately $904,000 or 19%. For the year ended July 31, 1997, domestic
and foreign sales were approximately $15,549,000 and $1,875,000 or 89.2% and
10.8%, respectively, of the Company's sales.
Gross Profit: Gross profit for fiscal 1997 increased to $4,853,637
from $3,773,714 and, as a percentage of net sales, from 25.8% to 27.8%. The
increase was primarily attributable to lower costs associated with
manufacturing demitasse biscuits at the Chase City facility and favorable
currency exchange rates.
Operating Expenses: Selling, general and administrative expenses for
fiscal 1997 increased 14.4%, from $2,342,330 to $2,680,897, but decreased as a
percentage of sales from 16.0% to 15.4%. The decrease in selling, general and
administrative expenses as a percentage of sales was primarily due to focused
advertising programs that reduced expenditures and higher volumes of direct
sales for which no commissions were paid. Pre-production costs of $769,585 and
$212,089 in fiscal 1997 and 1996, respectively, represent expenses associated
with the start-up of manufacturing operations at the Company's Chase City
facility. Salaries and related expenses increased from $937,893 in fiscal 1996
to $1,180,522 in fiscal 1997. The increase was due to the staged hiring over
the course of the year of a new plant manager and 40 new employees at the
Chase City facility.
Income from Operations: Income from operations decreased from
$281,402 in fiscal 1996 to $222,633 in fiscal 1997, due primarily to the
additional pre-production costs associated with the manufacturing facility,
which were incurred in fiscal 1997.
Other Income (expense): Other income increased approximately $43,000,
from $61,003 in fiscal 1996 to $103,747 in fiscal 1997. This increase was due
primarily to a $140,000 increase in income recorded from the Insurance
Settlement, which was offset by an increase in interest expense of
approximately $84,000 associated with two IRBs.
Income Taxes: The Company's provision for taxes on income was less
than the statutory income tax rates in each of fiscal 1997 and 1996, due
primarily to the untaxed income from Sherwood Overseas. The provision for
taxes on income for the fiscal years ended July 31, 1997 and 1996 was $23,100
and $71,700, respectively.
Net Income: Net income for the year increased to $303,280 compared to
$270,705 for the prior fiscal year, a 12.0% increase from the prior fiscal
year. This increase was due largely to the increase in gross profit and the
Insurance Settlement as described above.
22
<PAGE>
Liquidity and Capital Resources
The Company's primary cash requirements have been to fund the
purchase, manufacture and commercialization of its products. The Company has
historically financed its operations and expansion with a combination of cash
flow from operations and borrowings, primarily from banks and a related-party
loan. The Company's working capital at July 31, 1997 and October 31, 1997 was
$2,219,735 and $2,515,688, respectively.
Net cash used in operating activities was $658,172 for the year ended
July 31, 1997, compared to net cash provided by operating activities of
$135,370 for the year ended July 31, 1996. The decrease in cash provided by
operating activities was due primarily to an increase in inventory in
anticipation of an increase in volume of fall and holiday orders. Net cash
provided by operations was $1,054,976 for the three months ended October 31,
1997, compared to net cash used in operations of $171,868 for the prior
comparable period. The increase in cash provided by operating activities was
primarily attributable to a decrease in inventory, an increase in accounts
payable and receipt of cash from the Insurance Settlement.
Net cash used in investing activities for the years ended July 31,
1996 and 1997 were $1,649,386 and $816,196, respectively. Capital expenditures
were made in connection with commencing manufacturing operations at the Chase
City facility.
Net cash provided by financing activities was $1,218,553 for the year
ended July 31, 1997, compared to $1,763,278 for the year ended July 31, 1996.
Net cash provided by financing activities for fiscal 1997 and 1996 reflects
borrowings under the line of credit with the Bank and the Related Party Note
to use as working capital and additional long-term debt borrowings to fund the
purchase and modernization of the Chase City facility. Net cash used in
financing activities was $856,683 for the three months ended October 31, 1997,
compared to net cash provided by financing activities of $345,851 for the
comparable period in 1996. This change reflects the payments of principal and
interest due under the Bank line of credit and the Related Party Note. At
October 31, 1997, the Company had cash and cash equivalents of $812,402.
In November 1996, the Company entered into a loan agreement with the
Bank which provides for borrowings under a line of credit of up to $4,000,000.
Advances under the line of credit are based on a borrowing formula equal to
the lesser of (i) $2,000,000 or (ii) 80% of domestic accounts receivable plus
70% of domestically-owned inventory (subject to certain limitations) less the
aggregate amount of outstanding letters of credit. Interest accrues on such
advances at the Bank's prime lending rate (8.5% at October 31, 1997) and is
payable monthly. The loan agreement expires in November 1998. At October 31,
1997 and December 31, 1997, approximately $1,044,589 and $819,588,
respectively, was outstanding under the line of credit. Up to $2,000,000 of
the line of credit is available for letters of credit for use in connection
with the Company's product purchases. Amounts drawn on the letters of credit
are included in the Company's accounts payable.
The Company intends to use $1,000,000 of the proceeds of this
offering to reduce amounts outstanding under the line of credit. The Company
expects to use the increased borrowing availability to fund working capital
needs. The line of credit is secured by Sherwood LLC's and Sherwood Overseas'
cash and cash equivalents, receivables and inventory, and is also personally
guaranteed by Uziel Frydman, the Company's Chairman, President and Chief
Executive Officer. In addition to financial covenants requiring, among other
things, a minimum tangible net worth (as defined in the loan agreement) of
$2,000,000, the Company's loan agreement with the Bank limits or prohibits the
Company, without the Bank's consent, from incurring additional indebtedness,
which could, under certain circumstances, limit the Company's ability to
expand its operations.
In June 1996 and May 1997, the Company borrowed $935,000 and
$580,000, respectively, from Industrial Development Authority of Mecklenburg
County ("IDAMC") for the acquisition and improvement of the Chase City
facility and the purchase and installation of new production equipment,
financed through the issuance of two series of IRBs (Series 1996 and Series
1997). The IRBs are backed by irrevocable letters of credit issued by
Fidelity. Advances on the letters of credit (which expire June 2006 and 2002,
respectively) are, in turn, secured by the Company's Chase City facility and
all other real and personal property of the Company and personally guaranteed
by Uziel Frydman, the Company's Chairman, President and Chief Executive
Officer, pursuant to a reimbursement agreement ("Reimbursement Agreement")
between Fidelity and the Company.
23
<PAGE>
Under the Reimbursement Agreement, the Company makes monthly interest
and sinking fund payments to Fidelity. Interest is calculated at the rate of
10% per annum. The sinking fund payments for the Series 1996 IRBs are based
upon a 15 year straight line amortization of $640,000 advanced for the
purchase of the Chase City facility and a 7 year straight line amortization
for approximately $295,000 advanced for manufacturing equipment. Annual
payments to the sinking fund for the Series 1997 IRBs are due June 1 each year
in the following amounts: $85,000 in 1998, $105,000 in 1999 and $130,000 in
each of 2000, 2001 and 2002. The total monthly payments vary from month to
month and are subject to variable market tax exempt interest rates (3.95% at
July 31, 1997). The terms of the Reimbursement Agreement require, among other
things that the Company maintain certain financial ratios and adhere to
certain covenants, including, without Fidelity's permission, borrowing
additional funds, merging or consolidating, amending its Articles of
Incorporation and repaying subordinated debt.
As part of the financing for the acquisition of the Chase City
facility, in May and June, 1996, the Company borrowed $400,000 to finance
equipment from IDAMC and $250,000 for working capital from the Lake Country
Development Corporation ("LCDC"), respectively, evidenced by the Subordinated
Notes. The IDAMC Subordinated Note has a five year term, amortized over a ten
year period at an interest rate of 7% per annum, payable in monthly
installments of $4,644 in principal and interest with a balloon payment of
$239,193 due June 2001. The LCDC Subordinated Note is pari passu with the
IDAMC Subordinated Note in terms of security, and has a five year term bearing
interest at 5.25% per annum, payable in monthly installments of interest only
for the first nine payments and thereafter payable in equal monthly payments
of $5,480 in principal and interest until June 2001. The IDAMC Subordinated
Note is secured by the Company's equipment and the LCDC Subordinated Note is
secured by the real property, fixtures and equipment located at the Chase City
facility. The Subordinated Notes limit the Company's capital expenditures,
prohibit a change in ownership greater than 50% and require the Company to
create 50 full-time jobs at the Chase City facility within two years of the
date of the Subordinated Notes. Both loans are personally guaranteed by Uziel
Frydman, the Company's Chairman, President and Chief Executive Officer.
In 1991, the Company issued the Related Party Note to Ilana Frydman,
an employee of the Company and the wife of Uziel Frydman, the Chairman,
President, and Chief Executive Officer of the Company, in the principal amount
of $1,500,000. The Related Party Note accrues interest at 9% and is due upon
demand after July 31, 1998. As of October 31, 1997, the outstanding principal
and interest on the Related Party Note was $667,394. The Related Party Note is
secured by cash and cash equivalents and is subordinated to the Company's
other indebtedness. The Company intends to seeks consent to repay the Related
Party Note and intends to use a portion of the net proceeds of this offering
to pay all of the remaining principal and interest on the Related Party Note.
See "Certain Transactions."
The Company's inventory consists of raw materials for production of
demitasse biscuits at its Chase City facility and finished products imported
from third-party manufacturers. The Company maintains inventory in its Chase
City facility as well as bonded public warehouses and takes a physical
inventory on a quarterly basis. The Company averaged over 90 days of inventory
in fiscal 1997. The average time from order to delivery of imported inventory
was approximately 60 days in fiscal 1997. Inventory turns were approximately
3.34 in fiscal 1996, as compared to approximately 3.98 in fiscal 1997, and
1.07 (or 4.28 on an annualized basis) for the three months ended October 31,
1997. This increase in inventory turns is attributable to an increase in
volume of sales.
The Company's accounts receivable, less allowance for doubtful
accounts, at October 31, 1997 were $2,969,369, as compared to $2,101,950 at
July 31, 1997. As of October 31, 1997, accounts 90 or more days past due were
less than 2% of aggregate accounts receivable. Trade accounts receivable
averaged approximately 44 days in fiscal 1997, as compared to approximately 53
days for fiscal 1996, and approximately 44 days for three months ended October
31, 1997. Bad debt accounted for less than 1% of the Company's revenues for
fiscal 1996 and 1997.
As of the date of this Prospectus, the Company has no material
commitments for capital expenditures. The Company intends to use up to
$2,000,000 of the net proceeds of this offering for the purchase and
installation of capital equipment required to manufacture additional products
at the Company's Chase City facility and salaries for additional personnel.
The Company may seek to finance a portion of the cost of such equipment. The
Company also intends to use up to $2,000,000 of the net proceeds of this
offering to pursue opportunities for possible acquisitions of products or
businesses which management believes will enhance the Company's growth
prospects. Based on currently proposed plans and assumptions relating to its
operations, the Company believes that the proceeds of this offering, together
with projected cash flow from operations and available cash resources,
including its line of credit, will be sufficient to satisfy its contemplated
cash requirements for at least twelve months following the consummation of
this offering.
24
<PAGE>
Foreign Currency Fluctuations
The Company currently purchases most of its products from foreign
manufactures under terms that provide for the payment of goods in foreign
currency approximately 60 to 90 days from the invoice date. Purchases of COWS
butter toffee candies and other candies from manufacturers located in
Argentina are paid in U.S. dollars. Purchases of RUGER wafers and ELANA
Belgian chocolates products are purchased from manufacturers located in
Austria and Belgium, respectively, and are paid for in local currencies. These
goods are recorded at cost in equivalent U.S. dollars at the exchange rate in
effect on the invoice date. The difference between the recorded cost and the
amount required for payment is reflected as a realized foreign currency
transaction gain or loss. Prior year fluctuations in gross margin were
attributable in large part to the decline in value of the U.S. dollar. In
prior years, the Company has hedged its exposure to foreign currency rate
changes by purchasing forward contracts based upon analysis of foreign current
markets. The Company may hedge against currency fluctuations in the future.
All sales of the Company's products in foreign markets are made in U.S.
dollars, except for a portion of Canadian sales which are in Canadian dollars.
See Note 2 to Notes to Consolidated Financial Statements.
Seasonality
The Company's sales typically increase toward the end of the calendar
year, principally due to the holiday season. Unanticipated events, including
delays in product shipments past the time of peak sales or significant
decreases in sales during such period, could have an adverse effect on the
Company's operating results.
Inflation
Inflation has not had a significant impact on the Company's results
of operations for the periods presented.
Year 2000 Computer Issue
The Company has assessed the issues associated with the programming
code in its existing computer systems with respect to a two digit year value
as the year 2000 approaches and believes that addressing such issues is not a
material event or uncertainty that would cause reported financial information
not to be indicative of future operating results or financial condition.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"). SFAS 123 will begin to affect the
Company in 1998 with the establishment of the 1998 Stock Option Plan. The
Company will adopt only the disclosure provisions of SFAS 123 and account for
stock-based compensation using the intrinsic value method set forth in APB
Opinion 25. See "Management - 1998 Stock Option Plan."
In March 1997, the Financial Accounting Standards Board issued
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 provides a different method of calculating earnings per share than is
currently used in APB Opinion 15. SFAS 128 provides for the calculation of
basic and diluted earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to common shareholders
by the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of securities that
could share in the earnings of an entity, similar to existing fully diluted
earnings per share. The Company believes adopting SFAS 128 will not have a
material effect on its calculation of earnings per share. The Company will
adopt the provisions for computing earnings per share set forth in SFAS 128
for the quarter ended January 31, 1998.
25
<PAGE>
BUSINESS
General
The Company manufactures, markets and distributes a diverse line of
brand name candies, cookies, chocolates and other food products. The Company's
principal products are COWS(TM) butter toffee candies, demitasse(R) biscuits,
RUGER(R) wafers and ELANA(R) Belgian chocolates. The Company also markets SOUP
DU JOUR(TM) soups, SOUR FRUIT BURST(TM) fruit-filled hard candies, as well as
certain holiday specialty products, such as PIRATE'S GOLD COINS(TM) milk
chocolates for Christmas and TOKENS OF LOVE(TM) milk chocolates for
Valentine's Day. The Company's marketing strategy, including its packaging of
products designed to maximize freshness, taste and visual appeal, emphasizes
highly distinctive, premium quality products that are sold at prices that
compare favorably to those of competitive products.
Market Overview
Sales of candy and cookie products in the United States have
increased significantly in recent years. According to the United States
Department of Commerce, manufacturers' domestic shipments of confectionery
products (excluding chewing gum) have grown steadily from approximately $9
billion in 1990 to $12.1 billion in 1996. The Chocolate Manufacturers
Association/National Confectioners Association has estimated that total retail
sales of confectionery products in the United States in 1996 were more than
$21 billion, and industry trade reports project continued growth in these
markets into the next century. Despite such growth, the United States ranks
only tenth in per capita candy consumption among the industrialized nations.
The Company believes that these expanding markets present attractive growth
opportunities for its business, and is focusing its strategy on introducing
new products in these market categories as well as achieving greater brand
recognition and market penetration for all of the Company's products.
The markets for candy and cookie products are dominated by a number
of large, well capitalized corporations. In the candy market, these companies
include Hershey Food Corporation, M&M Mars and Nestle S.A. The cookie and
biscuit market is dominated by Nabisco, Inc., Keebler Company and Sunshine
Biscuits, Inc. In addition to domestic manufacturers, foreign candy and cookie
companies, such as Lindt of Switzerland, Bahlsen KG, and Storck, have
established their products in this market. The Company believes that the
remainder of the market is otherwise highly fragmented, with numerous
manufacturers and hundreds of products and distribution channels, such as mass
merchandisers, vending companies and gourmet distributors. Management believes
that the Company's experience in these markets and distribution channels,
coupled with its expanded manufacturing capabilities, positions the Company to
capitalize on the growth opportunities in these markets.
26
<PAGE>
Products
The table below sets forth, for the periods indicated, the
approximate revenues (in thousands) and percentages of revenues derived from
United States sales of the Company's products in the following categories:
<TABLE>
<CAPTION>
Year Ended July 31, Three months ended October 31,
------------------- ------------------------------
Product Category 1996 1997 1996 1997
- ---------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CANDY............... $4,668 34.7% $5,572 35.0% $1,583 32.9% $1,982 40.8%
COOKIES............. 5,942 44.2 7,641 48.0 1,965 40.8 1,914 39.4
CHOCOLATE........... 2,115 15.7 2,308 14.5 872 18.1 752 15.5
OTHER............... 728 5.4 398 2.5 392 8.2 211 4.3
------- ---- ------ ----- ------ ----- ------ -----
Total(1)............ $13,453 100.0% $15,919 100.0% $4,812 100.0% $4,859 100.0%
======= ====== ======= ====== ====== ====== ====== =====
</TABLE>
(1) Includes intercompany sales to Sherwood Overseas of approximately
$352,000, $370,000, $186,000 and $199,000 for the years ended July 31, 1996
and 1997 and the three months ended October 31, 1996 and 1997, respectively.
The following is a brief description of the Company's products by
category:
Candy
COWS(TM): COWS is a line of butter toffee candy offering both a soft
and chewy toffee and a dairy butter and cream hard candy. COWS butter toffee
candies are made with real dairy butter and cream and are sold in 7 oz. bags,
in tubs, and in bulk, and are packed in foil fresh packs to preserve freshness
and extend shelf life. COWS butter toffee candies are also packaged as gift
items in decorative tins and milk jars.
COWPOKES(TM) Lollipops: Cowpokes lollipops is a new product first
introduced in the fall of 1997. Cowpokes are an extension of the COWS line and
are made with a hard dairy butter and cream candy on the outside and a soft,
chewy butter toffee on the inside. Cowpokes are available in 7.3 oz. bags and
are also distributed in 60-count check-stand display cartons for single-item
sales.
SOUR FRUIT BURST(TM) Hard Candies: SOUR FRUIT BURST is a line of
fruit-filled hard candies in a variety of flavors sold in 3 oz. and 12 oz. bags
and distributed in a variety of packages.
Cookies
RUGER(R) Wafers: RUGER wafers is a line of wafer cookie available in
three flavors: chocolate, vanilla, and strawberry and in two sugar free
varieties. RUGER wafers are offered in a 7oz. grocery size as well as a 21/8
oz. size in two different shapes in order to assure a proper fit in vending
machines slots. The RUGER wafer cookie formula designed by the Company
utilizes an aeration process which gives RUGER wafers its very light and
delicate filling. RUGER wafers are distributed in a mylar packaging material
that resists sunlight and humidity and is designed to preserve freshness and
extend shelf life.
Demitasse(R) Biscuits: Demitasse is a line of tea biscuits offered in
a variety of flavors including the traditional tea biscuit, "Petit Beurre"
(with real butter), Cinnamon Honey, Coconut and Chocolate. The demitasse
biscuit line is certified kosher by the Orthodox Union.
Chocolate
ELANA(R) Belgian Chocolates: ELANA Belgian chocolate bars are sold in
a variety of flavors, including Mint, Caramel, Mocca, Truffle, White Truffle,
Honey Almond, Crispers, and Almonds, and are offered in two sizes (25 grams
and 45 grams) for retail stores and vending, and also in a variety of package
combinations.
27
<PAGE>
Countdown to Christmas (TM) Chocolate Calendars: Countdown to
Christmas chocolate calendars are recently introduced advent calendars made
with 24 milk-chocolate candies behind numbered doors. The calendar is marketed
domestically for the Christmas holiday season.
PIRATE'S GOLD COINS (TM) Foil-Wrapped Chocolate Coins: Pirate's Gold
Coins is a milk chocolate candy product designed in coin shapes and wrapped in
embossed gold foil. They are offered in two sizes of mesh bags, 2lb. 10oz.
tubs and in bulk, and marketed primarily for the Christmas holiday season.
TOKENS OF LOVE(TM) Chocolate Candies: Tokens of Love is a line of
milk chocolate candy product in token shapes, wrapped in foil and containing
removable/resusable stickers with expressions of love and friendship. They are
offered in two sizes of mesh bags and in bulk, and marketed primarily for
Valentine's Day.
Other
SOUP DU JOUR(TM) Soups: SOUP DU JOUR Soups is a line of instant
powdered soups offered in five different varieties, Chicken Noodle, Spring
Vegetable, French Onion, Minestrone and Mushroom, sold in single-serving
packets, 3-packet boxes and distributed in a variety of larger size packages.
Suppliers
The Company currently purchases most of its finished products from
third-party manufacturers located in Argentina, Austria and Belgium. For the
fiscal year ended July 31, 1997, five manufacturers accounted for
approximately 66.8% of product purchases sold domestically, with the producers
of COWS butter toffee candies, RUGER wafers, and chocolate products accounting
for approximately 30.8%, 20.9% and 15.1%, respectively, of product purchases.
The Company's products are manufactured to specific recipe and design
specifications developed by the Company. The Company's operations require it
to have production orders in place in advance of shipment to the Company's
warehouses (product deliveries typically take 60 days). Each of the Company's
foreign suppliers generally delivers finished products free on board to a
freight forwarder, cargo consolidator or directly to a seaport for transport
by steamship. The Company assumes the risk of loss, damage or destruction of
products, although the Company maintains cargo insurance. The products are
transported to United States seaports and then by rail and truck to one of six
regional warehouses used by the Company.
The Company has entered into agreements with the manufacturers of
ELANA(R) Belgian chocolates, PIRATE'S GOLD COINS(TM) milk chocolates and SOUP
DU JOUR(TM) soups. Generally, under these agreements, the supplier may not
export into the United States, and in certain cases, other countries, any
products similar to those produced for the Company. The agreements require the
Company to purchase annual minimum volumes at specific prices (which minimums
are subject to a reduction and, ultimately, a suspension, in the event of
certain price increases by the supplier). The Company currently exceeds these
purchase requirements. The Company's supplier agreements require the supplier
to maintain product liability insurance with the Company as an additional
named insured and are generally terminable on short notice.
In addition, raw materials necessary for the manufacture of the
Company's products at its Chase City facility, including flour, sugar,
shortening, butter and flavorings, are purchased from numerous third-party
suppliers. The Company anticipates that it will become increasingly dependent
on these suppliers for necessary raw materials used in the manufacture of its
products.
Customers
The Company sells its products primarily to mass merchandisers and
other retail customers; vending companies; gourmet distributors; and grocery
and drug store chains, convenience stores, specialty shops and wholesalers.
Domestic sales to mass merchandisers, vending companies and gourmet
distributors accounted for approximately 36.18%, 16.84% and 13.86%,
respectively, of the Company's revenues for the year ended July 31, 1997. The
Company's mass merchandiser customers include Dollar General, K-Mart and 99
Cents Only Stores.
28
<PAGE>
Vending companies are the Company's second largest customer category.
ELANA Belgian chocolates, RUGER wafers, COWS butter toffee candies and SOUR
FRUIT BURST are available in vending machines as well as through traditional
outlets. The Company believes that the visibility of its products in vending
channels enhances market acceptance and consumer appeal of the Company's
products in other distribution channels.
The Company sells its products to numerous gourmet distributors
throughout the United States. These distributors in turn sell products to a
wide base of gourmet stores. The Company believes that it has been able to
penetrate this market segment because of its ability to satisfy consumer
demand for premium quality products at prices that are attractive to these
distributors. For the same reason, the Company also believes that gift basket
producers are a natural extension of the gourmet market.
Distribution
The Company distributes its products throughout the United States and
internationally. The Company's principal market outside the United States is
Canada, which accounts for approximately 67% of the Company's international
sales. For the year ended July 31, 1997 and the three months ended October 31,
1997, sales of the Company's products in foreign markets accounted for
approximately 10.8% and 11.6%, respectively of the Company's revenues. The
Company has recently introduced its products in certain countries in the Far
East, South America and the Caribbean, and management intends to continue to
expand its international marketing efforts by selling products to distributors
in these geographic markets. In each country, the Company targets distributors
that purchase large quantities of products for mass distribution.
The Company engages independent food and candy brokers in various
regions throughout the United States for marketing to retail customers. These
brokers account for a majority of the Company's sales. Food and candy brokers
are paid on a commission basis (typically 5%) and are generally responsible in
their respective geographic markets for identifying customers, soliciting
customer orders and inspecting merchandise on store shelves. As of the date of
this Prospectus, the Company had arrangements with approximately 50 food and
candy broker organizations. Such arrangements prohibit the brokers from
selling competing products. The Company believes the use of food and candy
brokers, which typically specialize in specific products and have knowledge of
and contracts in particular markets, enhances the quality and scope of the
Company's sales operations and permits the Company to limit the significant
costs associated with creating and maintaining a direct distribution network.
The Company's executive officers and three regional sales managers work with
brokers on an individual basis and are responsible for managing the broker
network, identifying opportunities and developing sales in their respective
territories.
The Company uses six regional bonded public warehouses that
specialize in food and confectionery storage. These warehouses are selected
based on proximity to the Company's customers, the ability to provide prompt
customer service and efficient and economic delivery. The Company generally
sells its products pursuant to customer purchase orders and fills these orders
from inventory generally within one to two days of receipt. Because orders are
filled shortly after receipt, backlog is not material to the Company's
business.
Substantially all of the Company's products are delivered by common carrier.
Manufacturing
The Company produces demitasse biscuits at its Chase City facility.
The facility consists of a brick building with over 70,000 square feet
(including a 1,750 square foot office) situated on approximately ten acres in
Chase City, Virginia. The facility is accessible to a major seaport and rail
lines. The facility is equipped with state-of-the-art equipment for the
manufacture and packaging of cookie and candy products. The facility, which
currently operates one daily shift, operates at approximately 25% of its
productive capacity for the demitasse product. The facility is certified
kosher by the Orthodox Union.
The Company's Vice President, Manufacturing Operations, is
responsible for the operations at the facility. The Company currently employs
technical and production personnel who have working knowledge of the technical
and operational aspects of the Company's production equipment. The Company
also employs personnel responsible for conducting quality control testing at
the facility via on-site laboratory analysis and quality assurance
inspections. The inspectors evaluate the Company's products on the basis of
subjective factors such as taste and appearance. The Company monitors the
efficiency of the production equipment continuously and the facility is
climate controlled.
29
<PAGE>
The Company intends to use up to $2,000,000 of the proceeds of this
offering for the purchase and installation of capital equipment required for
the manufacture of additional products at the Chase City facility. The Company
also recently completed the installation of equipment designed to manufacture
candy products, is currently formulating a product and currently anticipates
that it will begin to manufacture this product by February 1998. The Company
expects to hire up to ten additional personnel during the twelve months
following this offering to operate this equipment. The Company will seek to
expand its manufacturing operations by adding products and by developing
private label and contract manufacturing capabilities. The Company will be
required to hire additional personnel as it expands it operations.
Marketing, Sales and Advertising
The Company believes that product recognition by retail and wholesale
customers, consumers and food brokers is a important factor in the marketing of
the Company's products. Accordingly, the Company promotes its products and brand
names through the use of attractive promotional materials, including full-color
product brochures and newspaper inserts, advertising in trade magazines targeted
to the mass merchandisers, vending industry, gourmet trade and gift basket
markets, and participation in trade shows. For the year ended July 31, 1997 and
the three months ended October 31, 1997, the Company spent $450,446 and $90,078,
respectively, on advertising. The Company intends to use up to $800,000 of the
proceeds of this offering to expand its marketing and sales efforts primarily by
aggressively advertising its brand name products.
The Company also promotes its products through sales discounts and
advertising allowances. The level of promotional programs is generally highest
during the initial introduction of a product. As distribution of the new
product increases, the Company gradually shifts from promotion to direct
advertising to reinforce trade and consumer repeat purchasing. Management
believes that these promotional programs have shortened the time periods
necessary to achieve market penetration of its products. The Company intends
to continue to develop and implement marketing and advertising programs to
increase brand recognition of its products and to emphasize favorable pricing
compared to competing products. The Company also promotes its products through
payments of slotting allowances. Slotting allowances enable the Company to
obtain shelf space for its products. Payment of slotting allowances does not
assure that a product will continue to be carried beyond an initial period.
Competition
The Company faces significant competition in the marketing and sale
of its products. The Company's products compete for consumer recognition and
shelf space with candies, cakes, cookies, chocolates and other food products
which have achieved international, national, regional and local brand
recognition and consumer loyalty. These products are marketed by companies
(which may include the Company's suppliers) with significantly greater
financial, manufacturing, marketing, distribution, personnel and other
resources than the Company. Certain of such competitors, such as Hershey Food
Corporation, M&M Mars, Inc., Nestle, S.A., Nabisco, Inc., Keebler Company and
Sunshine Biscuits, Inc., dominate the markets for candy and cookie products,
and have substantial promotional budgets which enable them to implement
extensive advertising campaigns. The food industry is characterized by
frequent introductions of new products, accompanied by substantial promotional
campaigns. Competitive factors in these markets include brand identity,
product quality, taste and price.
Trademarks
The Company holds United States trademark registrations for the
"ELANA," "RUGER" and "demitasse" names, has filed for trademark registrations
for certain other names, including "COWS," and uses other names for which it
has not applied for registration. The Company believes that its rights in
these names is a significant part of the Company's business and that its
ability to create demand for its products is dependent to a large extent on
its ability to exploit these trademarks. There can be no assurance as to the
breadth or degree of protection which trademarks may afford the Company or
that any trademark applications will result in registered trademarks or that
trademarks will not be invalidated if challenged. The Company is not aware of
any infringement claims or other challenges to the Company's rights to use
these marks. Other than Canadian registrations for the "ELANA" and "RUGER"
names, the Company does not hold any international trademarks.
30
<PAGE>
Government Regulation
The Company is subject to extensive regulation by the United States
Food and Drug Administration, the United States Department of Agriculture and
by other state and local authorities in jurisdictions in which the Company's
products are manufactured or sold. Among other things, such regulation governs
the importation, manufacturing, packaging, storage, distribution and labeling
of the Company's products, as well as sanitary conditions and public health
and safety. Applicable statutes and regulations governing the Company's
products include "standards of identity" for the content of specific types of
products, nutritional labeling and serving size requirements and general "Good
Manufacturing Practices" with respect to manufacturing processes. The
Company's Chase City facility and products are subject to periodic inspection
by federal, state and local authorities. The Company believes that it is in
compliance with all governmental laws and regulations and maintains all
permits and licenses required for its operations. Nevertheless, there can be
no assurance that the Company will continue to be in compliance with current
laws and regulations or that the Company will be able to comply with any
future laws and regulations and licensing requirements. Failure by the Company
to comply with applicable laws and regulations could subject the Company to
civil remedies, including fines, injunctions, recalls or seizures, as well as
potential criminal sanctions.
Insurance
The Company maintains product liability insurance with limits of
$2,000,000 in the aggregate and $1,000,000 per occurrence (with excess
coverage of $3,000,000), which it believes is adequate for the types of
products currently offered by the Company. There can be no assurance, however,
that such insurance will be sufficient to cover potential claims or that
adequate levels of coverage will be available in the future at a reasonable
cost. In the event of a partially or completely uninsured successful claim
against the Company, the Company's financial condition and reputation would be
materially affected.
Properties
The Company's corporate headquarters are located in 3,620 square feet
of leased office space located at 6110 Executive Boulevard, Rockville,
Maryland. This lease commenced on October 14, 1988 and expires November 30,
1998. The current annual rental is approximately $45,000.
The Company's 70,000 square foot manufacturing facility is located on
approximately 10 acres at 807 South Main Street, Chase City Virginia. The
Company acquired the real estate and building in April 1996.
Employees
As of October 31, 1997, the Company employed a total of 54 full-time
employees and no part-time employees, with 18 full-time employees employed at
the principal offices in Rockville, Maryland, 36 full-time employees employed
at the Chase City facility. The Company's employees are not represented by any
labor union.
The Company believes that its relations with its employees are good.
Legal Proceedings
The Company is from time to time involved in litigation incidental to
the conduct of its business. The Although the Company is not currently a party
to any legal proceedings, there can be no assurance that the Company will not
be a party to litigation in the ordinary course of business.
31
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following are the directors and executive officers of the
Company:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Uziel Frydman...................................... 61 Chairman, President and Chief Executive Officer
Anat Schwartz...................................... 37 Secretary and Vice President Finance
Amir Frydman....................................... 35 Director, Treasurer and Vice President Marketing and
Product Development
James F. Rogers.................................... 48 Vice President, Manufacturing Operations
Douglas A. Cummins................................. 55 Director
</TABLE>
Uziel Frydman has been the President and Chief Executive Officer of
the Company and each of its subsidiaries since inception. Mr. Frydman has
served as the Chairman of the Board of Directors of the Company since
December, 1997. Mr. Frydman served as Director of Marketing and Planning
Sciences at R.J. Reynolds Tobacco Company from 1977 to 1980, and prior to
that, as Manager, Planning and Operations Improvement at Lever Brothers
Company from 1971 to 1977. He also served as Projects Manager at Sperry &
Hutchinson Company and as an independent consultant to local governments in
Turkey, Burma and Sierra Leone from 1962 to 1965. Mr. Frydman was an adjunct
professor at the Graduate School of Business at Rutgers University from 1970
to 1975. Mr. Frydman earned a Masters of Business Administration, Management
Science degree from Case Western Reserve University in 1968 and a Bachelor of
Science degree in Civil Engineering from Technion Institute of Technology,
Haifa, Israel in 1960. Mr. Frydman is the father of Anat Schwartz and Amir
Frydman.
Anat Schwartz has been Secretary and Vice President, Finance of the
Company since January 1996 and Sherwood Brands, LLC (and its predecessors)
since 1988, and has been a director of Sherwood Brands Overseas, Inc. since
1993. Prior to joining the Company, in 1988, Ms. Schwartz served as Manager,
Loan Syndications and Asset Sales for the Bank of Montreal and from 1983 to
1988, as a Team Leader, Communications/Media Group, and Account Officer,
Southeastern United States. Ms. Schwartz earned a Masters of Business
Administration, Finance/Health Care degree from Bernard Baruch College in 1983
and a Bachelor of Arts degree from Wake Forest University in 1981.
Amir Frydman has been a director of the Company and has served as
Treasurer and Vice President, Marketing and Product Development since 1985.
Prior to joining the Company, Mr. Frydman was Commercial Branch Manager at
NCNB National Bank of Florida, from 1984 to 1985. Mr. Frydman earned a
Bachelor of Arts degree from the University of North Carolina in 1983.
James F. Rogers has been Vice President, Manufacturing Operations
since July 1996. Prior to joining the Company, from 1993 to June, 1996, Mr.
Rogers was Director of Operations for Mission Foods, Inc., a subsidiary of
Grama Corporation, where he was responsible for plant management. Prior to
that, from 1989, Mr. Rogers was a General Plant Manager for Sunshine Biscuits,
Inc.
Douglas A. Cummins has been a director of the Company since December
1997. In 1996, Mr. Cummins served as President and Chief Executive Officer of
the Ligget Group, a manufacturer and distributor of cigarettes. Prior to that,
from 1993 to 1996, Mr. Cummins served as President and Chief Executive Officer
of North Atlantic Trading Co, a cigarette paper manufacturer and distributor.
From 1990 to 1993, Mr. Cummins served as the President and Chief Executive
Officer of Decision Marketing, an advertising and consulting firm. From 1984 to
1990, Mr. Cummins served as the President and Chief Operating Officer of Salem
Carpet Mills, a carpet manufacturer, and from 1981 to 1984, served as President
of Stellar Group, a consulting firm. From 1973 to 1981, Mr. Cummins was Director
of Marketing International and Vice President Marketing, Foods at R.J. Reynolds
Industries. Mr. Cummins currently sits on the Boards of Gold Leaf Tobacco Corp.,
Q.E.P. Company, Inc., Smokey Mountain Products, Inc. and the Fort Ticonderoga
Association. Mr. Cummins earned a Masters of Business Administration degree from
Columbia University in 1966 and a Bachelor of Arts degree from Harvard
University in 1964.
32
<PAGE>
The Company's directors hold office until the next annual meeting of
the Company's shareholders and directors, respectively. The Company's officers
are elected annually by the Company's Board of Directors and serve at the
Board's discretion.
The Company intends to appoint two additional independent members to
its Board of Directors prior to the consummation of this offering. The Company
also intends to establish a Compensation Committee and an Audit Committee of
the Board of Directors prior to consummation of the offering.
The Company has also agreed, for a period of three years from the
date of this Prospectus, if so requested by the Underwriter, to nominate and
use its best efforts to elect a designee of the Underwriter as a director of
the Company, or, at the Underwriter's option, as a non-voting advisor to the
Company's Board of Directors. The Company's officers, directors and
shareholders have agreed to vote their shares of Common Stock in favor of such
designee. The Underwriter has not yet exercised its right to designate such a
person.
Executive Compensation
The following table sets forth compensation paid by the Company
during the fiscal years ended July 31, 1997, 1996 and 1995 to its Chief
Executive Officer and its other officer who received compensation in excess of
$100,000 for such fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------------
Other Annual
Name and Principal Position Fiscal Year Salary Bonus Compensation
--------------------------- ----------- ------ ----- ------------
<S> <C> <C> <C> <C>
Uziel Frydman, Chairman, President and 1997 $108,170 (1) (1)
Chief Executive Officer 1996 102,794
1995 101,642
Amir Frydman, Treasurer and Vice 1997 118,646 (1) (1)
President Marketing and Product 1996 106,059
Development 1995 97,971
</TABLE>
- ----------------------
(1) No bonuses or other compensation were received by the individuals named
above.
The Company did not grant any options to its executive officers during
the year ended July 31, 1997. See "Management -- 1998 Stock Option Plan."
33
<PAGE>
Key Man Life Insurance
The Company maintains a $1 million key man life insurance policy on
Uziel Frydman, the Company's Chairman, President and Chief Executive Officer.
Employment Agreements
The Company intends to enter into employment agreements with its
Messrs. Uziel Frydman and Amir Frydman and Ms. Anat Schwartz prior to the
consummation of this offering.
1998 Stock Option Plan
In January 1998, the Company's shareholders approved a stock option
plan (the "Option Plan") pursuant to which 350,000 shares of Class A Common
Stock have been reserved for issuance upon the exercise of options designated
as either (i) options intended to constitute incentive stock options ("ISOs")
under the Internal Revenue Code of 1986, as amended (the "Code") or (ii)
nonqualified options. ISOs may be granted under the Option Plan to officers
and employees of the Company. Non-qualified options may be granted to
consultants, directors (whether or not they are employees), employees or
officers of the Company.
The purpose of the Option Plan is to encourage stock ownership by
certain directors, officers and employees of the Company and other persons
instrumental to the success of the Company. The Option Plan is intended to
qualify under Rule 16b-3 under the Securities Exchange Act of 1934, and is
administered by the Board of Directors. The Board, within the limitations of
the Option Plan, determines the persons to whom options will be granted, the
number of shares to be covered by each option, whether the options granted are
intended to be ISOs, the duration and rate of exercise of each option, the
option purchase price per share and the manner of exercise, and the time,
manner and form of payment upon exercise of an option.
ISOs granted under the Option Plan may not be granted at a price less
than the fair market value of the Class A Common Stock on the date of grant
(or 110% of fair market value in the case of persons holding 10% or more of
the voting stock of the Company). The aggregate fair market value of shares
for which ISOs granted to any employee are exercisable for the first time by
such employee during any calendar year (under all stock option plans of the
Company and any related corporation) may not exceed $100,000. Non-qualified
options granted under the Option Plan may not be granted at a price less than
the fair market value of the Class A Common Stock on the date of grant.
Options granted under the Option Plan will expire not more than ten years from
the date of grant (five years in the case of ISOs granted to persons holding
10% or more of the voting stock of the Company). All options granted under the
Option Plan are not transferable during an optionee's lifetime but are
transferable at death by will or by the laws of descent and distribution. In
general, upon termination of employment of an optionee, all options granted to
such person which are not exercisable on the date of such termination
immediately terminate, and any options that are exercisable terminate 90 days
following termination of employment.
As of the date of this Prospectus, options to purchase 140,000 shares
of Class A Common Stock have been granted under the Option Plan at an exercise
price of $5.95 per share of which options to purchase 35,000 shares have been
granted to each of Uziel Frydman, Amir Frydman, Anat Schwartz, each and
executive officer of the Company, and to Ilana Frydman, the wife of Uziel
Frydman and an employee of the Company. These options are exercisable as to
one-third of the shares covered thereby on the first, second and third
anniversaries of the date of such grant.
Employee Benefit Plan
Effective August 1, 1997, the Company established a 401(k) and profit
sharing plan (the "Plan"). The Plan provides that the Company may elect in its
sole discretion to make contributions and/or distributions of up to 15% of
employee compensation. As of the date of this Prospectus, the Company has not
made any contributions or distributions under the Plan.
34
<PAGE>
Exculpatory Provisions and Indemnification
As authorized by the North Carolina Business Corporations Act (the
"NCBCA"), the Company's Amended and Restated Articles of Incorporation provide
that no director or officer of the Company shall be personally liable to the
Company or its shareholders for damages for breach of any duty owed to the
Company or its shareholders, except for liability for any breach of duty based
upon an act or omission that the director or officer at the time of the breach
knew or believed to be clearly in conflict with the best interests of the
corporation. In addition, the Company intends to enter into agreements to
indemnify its directors and executive officers prior to the consummation of this
offering. The Company also intends to obtain directors and officers liability
insurance naming the Underwriter as an additional insured prior to the
consummation of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted for directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
35
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information, immediately prior
to the consummation of this offering and as adjusted to reflect the sale by
the Company of the 1,550,000 shares offered hereby (based on information
obtained from the persons named below), relating to the beneficial ownership
of shares of Class A Common Stock by: (i) each person or entity who is known
by the Company to own beneficially five percent or more of the outstanding
Class A Common Stock, (ii) each of the Company's directors and (iii) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Percentage of Shares Beneficially Owned
Amount and Nature of -----------------------------------------
Name and Address(1) Beneficial Ownership(2) Before Offering After Offering
------------------- ----------------------- --------------- --------------
<S> <C> <C> <C> <C>
Uziel Frydman(3) ........................... 2,000,000(3) 93.0% 54.1%(3)
Anat Schwartz (4) ....................... 75,000 3.5 2.0
Amir Frydman (5) ........................ 75,000 3.5 2.0
Douglas Cummins.......................... 0 0 0
All directors and executive officers as a
group (5 persons)(3)(4)(5) .............. 2,150,000 100.0% 58.1%
</TABLE>
- ----------------------
* Less than 1%
(1) Unless otherwise indicated, the address for each named individual or
group is in care of Sherwood Brands, Inc., 6110 Executive Blvd., Suite
1080, Rockville, Maryland 20852.
(2) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. A person is deemed to
be the beneficial owner of securities that can be acquired by such
person within 60 days from the date of this Prospectus upon the exercise
of options, warrants or convertible securities. Each beneficial owner's
percentage ownership is determined by assuming that options, warrants or
convertible securities that are held by such person (but not those held
by any other person) and which are exercisable within 60 days of the
date of this Prospectus have been exercised and converted.
(3) Includes 1,000,000 shares of Class A Common Stock and 1,000,000 shares
of Class B Common Stock. Since each share of Class B Common Stock
entitles the holder to seven votes per share on all matters submitted to
a vote of shareholders, Mr. Frydman will retain 75% of the voting
control of the Company. If the over-allotment option is exercised in
full, Mr. Frydman will own 1,767,500 shares of Common Stock, or 48% of
the outstanding shares of Common Stock and will retain 73% of the voting
control of the Company. Does not include 35,000 shares of Common Stock
issuable upon the exercise of options issued under the Option Plan at a
price of $5.95 per share.
(4) Does not include 35,000 shares of Common Stock issuable upon exercise of
options granted under the Option Plan at a price of $5.95 per share.
(5) Does not include 35,000 shares of Common Stock issuable upon exercise of
options granted under the Option Plan at a price of $5.95 per share.
CERTAIN TRANSACTIONS
Uziel Frydman, President and Chief Executive Officer of the Company,
has personally guaranteed the repayment of all of the Company's indebtedness.
The Company will seek to release Mr. Frydman from his personal guarantee to
the Bank following this offering.
In 1991, the Company issued the Related Party Note to Ilana Frydman,
an employee of the Company and the wife of Uziel Frydman, the Chairman,
President, and Chief Executive Officer of the Company, in the principal amount
of $1,500,000. The Related Party Note accrues interest at 9% and is due upon
demand after July 31, 1998. As of October 31, 1997, the outstanding principal
and interest on the Related Party Note was $667,394. The Company intends to
use a portion of the net proceeds of this offering to pay all of the remaining
principal and interest on the Related Party Note.
36
<PAGE>
Any future transactions will be on terms no less favorable to the
Company than could be obtained from unaffiliated parties and will be approved
by a majority of the independent and disinterested members of the Board of
Directors, outside the presence of any interested directors and, to the extent
deemed appropriate by the Board of Directors, the Company will obtain
shareholder approval or fairness opinions in connection with any such
transaction.
DESCRIPTION OF SECURITIES
Capital Stock
General
The Company is authorized to issue 30,000,000 shares of Class A
Common Stock, par value $.01 per share, 5,000,000 shares of Class B Common
Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock, par
value $.01 per share. As of the date of this Prospectus, there are 1,150,000
shares of Class A Common Stock and 1,000,000 shares of Class B Common Stock
outstanding.
Class A Common Stock
The holders of Class A Common Stock are entitled to one vote per
share on all matters submitted to a vote of the shareholders, including the
election of directors, and, subject to preferences that may be applicable to
any Preferred Stock outstanding at the time, are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of liquidation
or dissolution of the Company, the holders of Class A Common Stock are
entitled to receive all assets available for distribution to the shareholders,
subject to any preferential rights of any Preferred Stock then outstanding.
The holders of Class A Common Stock have no preemptive or other subscription
rights, and there are no conversion rights or redemption or sinking fund
provisions with respect to the Class A Common Stock. All outstanding shares of
Class A Common Stock are, and the shares of Class A Common Stock offered
hereby upon issuance and sale will be, fully paid and non-assessable. The
rights, preferences and privileges of the holders of Class A Common Stock are
subject to, and may be adversely affected by, the right of the holders of any
shares of Preferred Stock which the Company may designate in the future.
Class B Common Stock
The shares of Class A Common Stock and Class B Common Stock are
identical in all respects, except that each share of the Class B Common Stock
entitles the holder to seven votes on each matter submitted to a vote of the
shareholders. Except as required by applicable law, holders of the Class A
Common Stock and Class B Common Stock will vote together as a single class on
all matters submitted to a vote of the shareholders. Neither the Class A
Common Stock nor the Class B Common Stock has cumulative voting rights.
Class B Common Stock will be convertible into Class A Common Stock,
in whole or in part, at any time and from time to time at the option of the
holder commencing 180 days after the consummation of this offering, on the
basis of one share of Class A Common Stock for each share of Class B Common
Stock converted. Each share of Class B Common Stock will also automatically
convert into one share of Class A Common Stock upon transfer to a
non-affiliate of the holder or the Company. Each share of Class B Common Stock
will also automatically convert into one share of Class A Common Stock if, on
the record date for any meeting of the shareholders, the number of shares of
Class B Common Stock then outstanding is less than 10% of the aggregate number
of shares of Class A Common Stock and Class B Common Stock then outstanding.
37
<PAGE>
Preferred Stock
The authorized but undesignated shares of Preferred Stock may be
issued from time to time in one or more series upon authorization by the
Company's Board of Directors. The Board of Directors, without further approval
of the shareholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, and other rights, preferences, privileges and restrictions
applicable to each series of Preferred Stock. The issuance of Preferred Stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes could, among other things, adversely affect the voting
power of the holders of Common Stock and, under certain circumstances, make it
more difficult for a third party to gain control of the Company, prevent or
substantially delay a change of control, discourage bids for the Company's
Common Stock at a premium or otherwise adversely affect the market price of
the Common Stock. The Company has no current plans to issue any Preferred Stock.
Redeemable Warrants
Each Warrant offered hereby entitles the registered holder thereof
(the "Warrant Holders") to purchase one share of Class A Common Stock at a
price of $7.50, subject to adjustment in certain circumstances, at any time
from the date that is thirteen months after the date hereof and until 5:00
p.m., Eastern Time on , 2002. The Warrants will be separately transferable
immediately upon issuance.
The Warrants are redeemable by the Company at any time commencing ,
1999, upon notice of not less than 30 days, at a price of $.10 per Warrant,
provided that the closing bid quotation of the Class A Common Stock on all 20
trading days ending on the third day prior to the day on which the Company
gives notice (the "Call Date") has been at least 134% (currently $10.05,
subject to adjustment) of the then effective exercise price of the Warrants
and the Company obtains the written consent of the Underwriter to such
redemption prior to the Call Date. The Warrant Holders shall have the right to
exercise their Warrants until the close of business on the date fixed for
redemption. The Warrants will be issued in registered form under a warrant
agreement by and among the Company, Continental Stock Transfer & Trust
Company, as warrant agent, and the Underwriter (the "Warrant Agreement"). The
exercise price and number of shares of Class A Common Stock or other
securities issuable on exercise of the Warrants are subject to adjustment in
certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company.
However, the Warrants are not subject to adjustment for issuances of Class A
Common Stock at prices below the exercise price of the Warrants. Reference is
made to the Warrant Agreement (which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part) for a complete
description of the terms and conditions therein (the description herein
contained being qualified in its entirety by reference thereto).
The Warrants may be exercised upon surrender of the Warrant
certificate during the exercise period at the offices of the warrant agent,
with the exercise form on the reverse side of the Warrant certificate
completed and executed as indicated, accompanied by full payment of the
exercise price (by certified check or bank draft payable to the Company) to
the warrant agent for the number of Warrants being exercised. The Warrant
Holders do not have the rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the
Company has declared effective a current registration statement with the
Commission covering the shares of Class A Common Stock issuable upon exercise
of such Warrant and such shares have been registered or qualified or deemed to
be exempt from registration or qualification under the securities laws of the
state of residence of the holder of such Warrant. The Company will use its
best efforts to have all such shares so registered or qualified on or before
the exercise date and to maintain a current prospectus relating thereto until
the expiration of the Warrants, subject to the terms of the Warrant Agreement.
While it is the Company's intention to do so, there can be no assurance that
it will be able to do so.
No fractional shares will be issued upon exercise of the Warrants.
However, if a Warrant Holder exercises all Warrants then owned of record by
him, the Company will pay to such Warrant Holder, in lieu of the issuance of
any fractional share which is otherwise issuable, an amount in cash based on
the market value of the Class A Common Stock on the last trading day prior to
the exercise date.
North Carolina Anti-Takeover Statutes
The Company's Certificate of Incorporation and Bylaws include
provisions which may have the effect of discouraging non-negotiated takeover
attempts by delaying or preventing changes in control of management of the
Company. These provisions include, in addition to the provision for Preferred
Stock, no cumulative voting and a denial of the ability of shareholders to
call special meetings of shareholders.
38
<PAGE>
North Carolina has enacted legislation that may deter or frustrate
takeovers of corporations. The North Carolina Control Share Acquisition Act
applies to public companies incorporated in North Carolina that meet certain
additional requirements, including (i) over 40% of the corporation's assets
located in North Carolina, (ii) over 10% of its shareholders residing in North
Carolina or over 10% of its shares held by residents of North Carolina, and
(iii) over 40% of its employees are North Carolina residents. This Act
generally provides that shares acquired in excess of certain specified
thresholds will not possess any voting rights unless such voting rights are
approved by a majority vote of a corporation's disinterested shareholders. The
North Carolina Shareholder Protection Act applies to North Carolina
corporations and generally requires 95% approval by disinterested directors or
shareholders of certain specified "multi-staged" takeover transactions between
a corporation and holders of more than 20% of the outstanding voting shares of
the corporation (or their affiliates).
Transfer Agent and Warrant Agent
The transfer agent for the Class A Common Stock and the warrant agent
for the Warrants is Continental Stock Transfer & Trust Company, 2 Broadway,
New York, New York 10004.
Reports to Shareholders
The Company intends to file a registration statement with the
Securities and Exchange Commission to register its Class A Common Stock and
Warrants under the provisions of Section 12(g) of the Exchange Act prior to
the date of this Prospectus and has agreed with the Underwriter that it will
use its best efforts to continue to maintain such registration. Such
registration will require the Company to comply with periodic reporting, proxy
solicitation and certain other requirements of the Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have
2,700,000 shares of Class A Common Stock outstanding (assuming no exercise of
the Warrants) and 1,000,000 shares of Class B Common Stock outstanding. All
1,550,000 of the shares of Class A Common Stock being offered hereby will be
immediately tradable without restriction or further registration under the
Securities Act. The remaining 1,150,000 shares of Class A Common Stock and
1,000,000 shares of Class B Common Stock outstanding are deemed to be
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act, in that such shares were acquired by the
shareholders of the Company in transactions not involving a public offering,
and, as such, may only be sold pursuant to a registration statement under the
Securities Act, in compliance with the exemption provisions of Rule 144, or
pursuant to another exemption under the Securities Act. The 2,150,000
restricted shares of Common Stock (Class A and Class B inclusive) will become
eligible for sale under Rule 144, subject to the volume limitations prescribed
by the Rule, on various dates commencing 90 days following the date of this
Prospectus. The Company and its current shareholders have agreed not to sell
or otherwise dispose of any securities of the Company beneficially owned by
them for a period of 18 months from the date of this Prospectus, without the
prior written consent of the Underwriter and, that for an additional period of
12 months thereafter, all sales of Common Stock of the Company shall be made
only in accordance with limitations of Rule 144 applicable to affiliates'
sales of restricted shares. See "Underwriting."
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated with an affiliate), who
has owned restricted shares of Common Stock beneficially for at least one year
is entitled to sell, within any three-month period, a number of shares that
does not exceed the greater of 1% of the total number of outstanding shares of
the same class or, if the common stock is quoted on the Nasdaq, the average
weekly trading volume during the four calendar weeks preceding the sale. A
person who has not been an affiliate of the Company for a least three months
immediately preceding the sale and who has beneficially owned shares of Common
Stock for at least two years is entitled to sell such shares under Rule 144
without regard to any of the limitations described above.
Prior to this offering, there has been no market for the Class A
Common Stock or Warrants and no prediction can be made as to the effect, if
any, that public sales of shares of Class A Common Stock or the availability
of such shares for sale will have on the market prices of the Class A Common
Stock and the Warrants prevailing from time to time. Nevertheless, the
possibility that substantial amounts of Class A Common Stock may be sold in
the public market may adversely affect prevailing market prices for the Class
A Common Stock and the Warrants and could impair the Company's ability in the
future to raise additional capital through the sale of its equity securities.
39
<PAGE>
UNDERWRITING
Paragon Capital Corporation (the "Underwriter") has agreed, subject
to the terms and conditions contained in the Underwriting Agreement, to
purchase the 1,550,000 shares of Class A Common Stock and 775,000 Warrants
offered hereby from the Company. The Underwriter is committed to purchase and
pay for all of the shares of Class A Common Stock and Warrants offered hereby
if any of such securities are purchased. The shares of Class A Common Stock
and Warrants are being offered by the Underwriter, subject to prior sale,
when, as and if delivered to and accepted by the Underwriter and subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
shares of Class A Common Stock and Warrants to the public at the public
offering prices set forth on the cover page of this Prospectus. The
Underwriter may allow to certain dealers who are members of the National
Association of Securities Dealers, Inc. (the "NASD") concessions, not in
excess of $ per share of Class A Common Stock and $ per Warrant, of which not
in excess of $ per share of Class A Common Stock and $ per Warrant may be
reallowed to other dealers who are members of the NASD.
The Company has granted to the Underwriter an option, exercisable for
45 days from the date of this Prospectus, to purchase up to 116,250 additional
Warrants and Mr. Uziel Frydman has granted to the Underwriter an option,
exercisable for 45 days from the date of this Prospectus, to purchase up to
232,500 shares of Class A Common Stock at the public offering prices set forth
on the cover page of this Prospectus, less the underwriting discounts and
commissions. The Underwriter may exercise these options in whole or, from time
to time, in part, solely for the purpose of covering over-allotments, if any,
made in connection with the sale of the shares of Class A Common Stock and/or
Warrants offered hereby.
The Company has agreed to pay the Underwriter a nonaccountable
expense allowance of 3% of the gross proceeds of this offering, of which
$50,000 has been paid as of the date of this Prospectus. The Company has also
agreed to pay all expenses in connection with qualifying the shares of Class A
Common Stock and Warrants offered hereby for sale under the laws of such
states as the Underwriter may designate, including expenses of counsel
retained for such purpose by the Underwriter.
The Company has agreed to sell to the Underwriter and its designees
for an aggregate of $100, warrants (the "Underwriter's Warrants") to purchase
up to 155,000 shares of Class A Common Stock at an exercise price of $7.14 per
share (120% of the public offering price per share) and up to 77,500 Warrants
(each exercisable to purchase one share of Class A Common Stock at a price of
$7.50 per share) at an exercise price of $.12 per Warrant (120% of the public
offering price per Warrant). The Underwriter's Warrants may not be sold,
transferred, assigned or hypothecated for one year from the date of this
Prospectus, except to the officers and partners of the Underwriter and members
of the selling group and are exercisable at any time and from time to time, in
whole or in part, during the five-year period commencing on the date of this
Prospectus (the "Warrant Exercise Term"). During the Warrant Exercise Term,
the holders of the Underwriter's Warrants are given, at nominal cost, the
opportunity to profit from a rise in the market price of the Class A Common
Stock. To the extent that the Underwriter's Warrants are exercised, dilution
to the interests of the Company's shareholders will occur. Further, the terms
upon which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of the Underwriter's Warrants can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company
than those provided in the Underwriter's Warrants. Any profit realized by the
Underwriter on the sale of the Underwriter's Warrants, the underlying shares
of Class A Common Stock or the underlying warrants, or the shares of Class A
Common Stock issuable upon exercise of such underlying warrants may be deemed
additional underwriting compensation. The Company has agreed, at the request
of the holders of a majority of the Underwriter's Warrants, at the Company's
expense, to register the Underwriter's Warrants, the shares of Class A Common
Stock and warrants underlying the Underwriter's Warrants, and the shares of
Class A Common Stock issuable upon exercise of the underlying warrants under
the Securities Act on one occasion during the Warrant Exercise Term and to
include the Underwriter's Warrants and all such underlying securities in any
appropriate registration statement which is filed by the Company during the
seven years following the date of this Prospectus.
40
<PAGE>
The Company has also agreed, for a period of three years from the
date of this Prospectus, if so requested by the Underwriter, to nominate and
use its best efforts to elect a designee of the Underwriter as a director of
the Company, or, at the Underwriter's option, as a non-voting advisor to the
Company's Board of Directors. The Company's officers, directors and
shareholders have agreed to vote their shares of Class A Common Stock in favor
of such designee. The Underwriter has not yet exercised its right to designate
such a person.
In addition, the Company has agreed to enter into a consulting
agreement to retain the Underwriter as a financial consultant for a period of
two years from the consummation of this offering at an annual fee of $48,000
per year, with the fee for the first year payable in advance upon completion
of this offering, with the remaining $48,000 payable monthly in $2,000
installments, commencing on the first day of the month following the date of
this Prospectus. The consulting agreement will not require the consultant to
devote a specific amount of time to the performance of its duties thereunder.
In the event that the Underwriter originates a financing or a merger,
acquisition, joint venture or other transaction to which the Company is a
party, the Underwriter will be entitled to receive a finder's fee in
consideration for origination of such transaction.
The Company has agreed, in connection with the exercise of the
Warrants pursuant to solicitation (commencing one year from the date of this
Prospectus), to pay to the Underwriter a fee of 5% of the exercise price for
each Warrant exercised; provided, however, that the Underwriter will not be
entitled to receive such compensation in Warrant exercise transactions in
which (i) the market price of Class A Common Stock at the time of exercise is
lower than the exercise price of the Warrants; (ii) the Warrants are held in
any discretionary account; (iii) disclosure of compensation arrangements is
not made, in addition to the disclosure provided in this Prospectus, in
documents provided to holders of Warrants at the time of exercise; (iv) the
exercise of the Warrants is unsolicited by the Underwriter; or (v) the
solicitation of exercise of the Warrants was in violation of Regulation M.
The Company and all of its current shareholders, officers and
directors have agreed not to sell or otherwise dispose of any securities of
the Company beneficially owned by them for a period of 18 months from the date
of this Prospectus, without the prior written consent of the Underwriter. In
addition, the current shareholders, officers and directors have agreed that
for an additional period of 12 months thereafter, all sales of Common Stock of
the Company shall be made only in accordance with limitations of Rule 144
applicable to affiliates' sales of restricted shares, unless waived by the
Underwriter.
The Underwriter has advised the Company that it does not expect sales
made to discretionary accounts to exceed 1% of the securities offered hereby.
The Company has agreed to indemnify the Underwriter against certain
civil liabilities, including liabilities under the Securities Act.
Prior to this offering, there has been no public trading market for
the Class A Common Stock or Warrants. Consequently, the initial public
offering price of the Class A Common Stock and Warrants and the exercise price
of the Warrants have been determined by negotiations between the Company and
the Underwriter. Among the factors considered in determining these prices were
the Company's financial condition and prospects, market prices of similar
securities of comparable publicly-traded companies and the general condition
of the securities market.
In order to facilitate the offering, the Underwriter may engage in
transactions that stabilize, maintain or otherwise affect the prices of the
Class A Common Stock and Warrants. Specifically, the Underwriter may
over-allot in connection with the offering, creating a short position in the
Class A Common Stock and Warrants for its own account. In addition, to cover
over-allotments or to stabilize the price of the Class A Common Stock and
Warrants, the Underwriter may bid for, and purchase shares of Class A Common
Stock and Warrants in the open market. The Underwriter may also reclaim
selling concessions allowed to a dealer for distributing the Common Stock and
Warrants in the offering, if the Underwriter repurchases previously
distributed Class A Common Stock and Warrants in transactions to cover short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Class A Common Stock and
Warrants above independent market levels. The Underwriter is not required to
engage in these activities, and may end any of these activities at any time.
41
<PAGE>
LEGAL MATTERS
The legality of the securities offered by this Prospectus will be
passed upon for the Company by Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
P.A., Miami, Florida. Tenzer Greenblatt LLP, New York, New York, has acted as
counsel to the Underwriter in connection with this offering.
EXPERTS
The financial statements of the Company included in this Prospectus
have been audited by BDO Seidman, LLP independent auditors as stated in their
report appearing herein and have been included herein in reliance upon the
report of said firm given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on
Form SB-2 (the "Registration Statement") under the Securities Act with respect
to the securities offered by this Prospectus. This Prospectus, filed as a part
of such Registration Statement, does not contain all of the information set
forth in, or annexed as exhibits to, the Registration Statement, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and this
offering, reference is made to the Registration Statement, including the
exhibits filed therewith, which may be inspected without charge at the Office of
the Commission, 450 Fifth Street, N.W., Washington D.C. 20549; and at the
following regional offices: Midwest Regional Office, Northwestern Atrium Center,
500 West Madison, Suite 1400, Chicago, Illinois 60661-2511, and the Northeast
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of the Registration Statement may be obtained from the Commission at its
principal office upon payment of prescribed fees. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete and, where the contract or other document has been filed as
an exhibit to the Registration Statement, each statement is qualified in all
respects by reference to the applicable document filed with the Commission. The
Commission maintains an Internet web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The address of that site is
http://www.sec.gov.
Upon consummation of this offering, the Company will become subject
to the reporting requirements of the Securities Exchange Act of 1934, as
amended and, in accordance therewith, will file reports, proxy statements and
other information with the Securities and Exchange Commission. The Company
intends to furnish its shareholders with annual reports containing audited
financial statements and such other periodic reports as the Company deems
appropriate or as may be required by law.
42
<PAGE>
INDEX TO FINANCIAL STATEMENTS
SHERWOOD BRANDS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report....................................................................... F-2
Consolidated Financial Statements:
Consolidated balance sheets at July 31, 1996, 1997 and October 31, 1997 (unaudited)........... F-3
Consolidated statements of operations for the years ended July 31, 1996, 1997 and the
three months ended October 31, 1996 and 1997 (unaudited)................................... F-5
Consolidated statements of stockholder's equity for the years ended July 31, 1996, 1997 and
the three months ended October 31, 1997 (unaudited)........................................ F-6
Consolidated statements of cash flows for the years ended July 31, 1996, 1997 and the
three months ended October 31, 1996 and 1997 (unaudited)................................... F-7
Summary of Accounting Policies................................................................ F-9
Notes to consolidated financial statements.................................................... F-12
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
Shareholder
Sherwood Brands, Inc.
and Subsidiaries
Rockville, Maryland
We have audited the accompanying consolidated balance sheets of Sherwood
Brands, Inc. and Subsidiaries as of July 31, 1997 and 1996 and the related
consolidated statements of operations and retained earnings, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sherwood
Brands, Inc. and Subsidiaries at July 31, 1997 and 1996 and the results of its
operations and cash flows for the years then ended, in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
Washington, D.C.
October 7, 1997,
Except for Note 18,
the date of which
is December 12, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
July 31, October 31,
-------------------------- ------------
1996 1997 1997
(unaudited)
- -------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C>
Current assets
Cash and cash equivalents (Note 6) $ 869,924 $ 614,109 $ 812,402
Accounts receivable, less allowance of
$21,900 and $23,400 and $27,800 (Note 6) 2,109,995 2,101,950 2,969,369
Insurance settlement receivable (Note 4) 262,574 262,574 -
Inventory (Notes 3 and 6) 2,892,510 3,412,962 3,037,058
Other current assets 98 46,062 64,822
Deferred taxes on income (Note 10) - 170,700 170,700
- -------------------------------------------------------------------------------------------------------------------
Total current assets 6,135,101 6,608,357 7,054,351
- -------------------------------------------------------------------------------------------------------------------
Net property and equipment
(Notes 5, 7, 8 and 9) 1,644,322 2,335,556 2,299,522
- -------------------------------------------------------------------------------------------------------------------
Deposits 22,738 19,447 16,247
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 7,802,161 $ 8,963,360 $ 9,370,120
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-3
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
July 31, October 31,
-------------------------- ------------
1996 1997 1997
(unaudited)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Liabilities and Stockholder's Equity
Current liabilities
Line of credit (Note 6) $ 744,589 $ 1,644,589 $ 1,044,589
Current portion of long-term debt (Note 8) 15,000 145,000 145,000
Current portion of subordinated debt (Note 9) 46,447 85,757 88,760
Accounts payable (Note 2) 2,796,169 2,124,764 2,742,104
Accrued expenses 100,233 198,012 243,517
Income taxes payable 36,000 190,500 274,693
Deferred taxes on income (Note 10) 88,000 - -
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,826,438 4,388,622 4,538,663
- -------------------------------------------------------------------------------------------------------------------
Long-term debt (Note 8) 920,000 1,355,000 1,355,000
Subordinated debt (Note 9) 601,242 515,485 491,585
Deferred taxes on income (Note 10) 1,000 108,600 108,600
Due to related parties (Note 11) 1,064,288 903,180 667,394
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 6,412,968 7,270,887 7,161,242
- -------------------------------------------------------------------------------------------------------------------
Commitments (Note 12)
Stockholder's equity (Notes 1 and 18)
Preferred Stock, $.01 par value, 5,000,000
shares authorized; no shares issued
or outstanding - - -
Common Stock, Class A, $.01 par value,
30,000,000 shares authorized, 1,150,000
shares issued and outstanding 11,500 11,500 11,500
Common Stock, Class B, $.01 par value,
5,000,000 shares authorized, 1,000,000
shares issued and outstanding 10,000 10,000 10,000
Additional paid-in capital 247,000 247,000 247,000
Retained earnings 1,120,693 1,423,973 1,940,378
- -------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 1,389,193 1,692,473 2,208,878
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 7,802,161 $ 8,963,360 $ 9,370,120
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting polices and
notes to consolidated financial statements.
F-4
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three months
Years ended July 31, ended October 31,
---------------------------- ---------------------
1996 1997 1996 1997
- -------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Net sales $ 14,638,496 $ 17,424,243 $ 5,275,204 $ 5,272,474
- -------------------------------------------------------------------------------------------------------------------
Cost of sales 10,864,782 12,570,606 4,106,903 3,466,006
- -------------------------------------------------------------------------------------------------------------------
Gross profit 3,773,714 4,853,637 1,168,301 1,806,468
- -------------------------------------------------------------------------------------------------------------------
Selling, general and
administrative expenses 2,342,330 2,680,897 576,972 681,035
Pre-production costs
(Note 16) 212,089 769,585 522,632 54,124
Salaries and related
expenses 937,893 1,180,522 246,469 272,489
- -------------------------------------------------------------------------------------------------------------------
Total operating expenses 3,492,312 4,631,004 1,346,073 1,007,648
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from
operations 281,402 222,633 (177,772) 798,820
- -------------------------------------------------------------------------------------------------------------------
Other income (expense)
Interest income 26,023 26,073 4,558 3,126
Interest expense (189,961) (273,511) (41,043) (67,298)
Insurance claim, net (Note 4) 223,605 364,028 (35,082) 40,634
Other (expense) income 1,336 (12,843) (11,650) 7,123
- -------------------------------------------------------------------------------------------------------------------
Total other income (expense) 61,003 103,747 (83,217) (16,415)
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before provision
(benefit) for taxes
on income 342,405 326,380 (260,989) 782,405
Provision (benefit) for taxes
on income (Note 10) 71,700 23,100 (88,600) 266,000
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 270,705 $ 303,280 $ (172,389) $ 516,405
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) per
common share $ .13 $ .14 $ (.08) $ .24
- -------------------------------------------------------------------------------------------------------------------
Weighted average common
shares outstanding 2,150,000 2,150,000 2,150,000 2,150,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes
to consolidated financial statements.
F-5
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Consolidated Statements of Stockholder's Equity
<TABLE>
<CAPTION>
Common Stock
--------------------------------------
Class A Class B Additional
---------------- ---------------- Paid-in Retained
Shares Amount Shares Amount Capital Earnings Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, at August 1, 1996 1,150,000 $ 11,500 1,000,000 $10,000 $ 247,000 $ 849,988 $ 1,118,488
- ----------------------------------------------------------------------------------------------------------------------
Net income - - - - - 270,705 270,705
- -----------------------------------------------------------------------------------------------------------------------
Balance, at July 31, 1996 1,150,000 11,500 1,000,000 10,000 247,000 1,120,693 1,389,193
- -----------------------------------------------------------------------------------------------------------------------
Net income - - - - - 303,280 303,280
- -----------------------------------------------------------------------------------------------------------------------
Balance, at July 31, 1997 1,150,000 11,500 1,000,000 10,000 247,000 1,423,973 1,692,473
- -----------------------------------------------------------------------------------------------------------------------
Net income, three months ended
October 31, 1997 (unaudited) - - - - - 516,405 516,405
- -----------------------------------------------------------------------------------------------------------------------
Balance, at October 31, 1997
(unaudited) 1,150,000 $ 11,500 1,000,000 $10,000 $ 247,000 $1,940,378 $ 2,208,878
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-6
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months
Years Ended July 31, Ended October 31,
------------------------ -----------------------
1996 1997 1996 1997
- -------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities
Net income (loss) $ 270,705 $ 303,280 $ (172,389) $ 516,405
Adjustments to reconcile net
income to net cash provided
by (used in) operating activities
Depreciation expense 55,338 121,557 27,400 36,034
Deferred income taxes 146,700 (151,100) - -
Unrealized (gain) loss on
foreign currency exchange 22,077 (84,519) 2,504 (29,957)
Loss on disposal of fixed asset - 3,405 - -
Provision for inventory allowance - (18,192) - -
Provision for doubtful accounts 33,933 72,606 65 4,356
Write-off of accounts receivable (31,015) (71,084) - -
(Increase) decrease in assets
Accounts receivable (203,071) 6,523 (647,140) (871,775)
Inventory 730,122 (502,260) (546,807) 375,904
Insurance settlement receivable (262,574) - - 262,574
Other current assets 42,289 (45,964) (92,223) 46,062
Other assets (14,178) 3,291 - (61,622)
Increase (decrease) in liabilities
Accounts payable (749,677) (586,886) 1,084,960 647,297
Accrued expenses 25,419 97,779 260,362 45,505
Accrued interest to related parties 33,302 38,892
Income taxes payable 36,000 154,500 (88,600) 84,193
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by
operating activities 135,370 (658,172) (171,868) 1,054,976
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures (1,649,386) (816,196) (243,043) -
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,649,386) (816,196) (243,043) -
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Borrowings on line of credit 4,083,986 2,300,000 1,000,000 -
Repayments on line of credit (4,103,397) (1,400,000) (650,000) (600,000)
Proceeds from issuance of long-term debt 1,585,000 580,000 - -
Payments on debt (2,311) (61,447) (7,014) (20,897)
Borrowings from related parties 200,000 - 2,865 125,000
Payments to related parties - (200,000) (360,786)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months
Years Ended July 31, Ended October 31,
---------------------- -----------------------
1996 1997 1996 1997
- -------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Net cash provided by financing
activities $ 1,763,278 $ 1,218,553 $ 345,851 $ (856,683)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 249,262 (255,815) (69,060) 198,293
Cash and cash equivalents, at beginning
of period 620,662 869,924 869,924 614,109
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at end
of period $ 869,924 $ 614,109 $ 800,864 $ 812,402
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes
to consolidated financial statements.
F-8
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Summary of Accounting Policies
(Information as of October 31, 1997 and for the three
months ended October 31, 1996 and 1997 is unaudited)
Basis of The consolidated financial statements include the
Presentation accounts of Sherwood Brands, Inc. and its
wholly-owned subsidiaries, Sherwood Brands, LLC
and Sherwood Brands Overseas, Inc. ("Overseas")
(collectively, the "Company"). All material
inter-company transactions and balances have been
eliminated in consolidation. Subsequent to July
31, 1997, Sherwood Foods, Inc. changed its name to
Sherwood Brands, Inc. (See Note 1).
Organization and Sherwood Brands, Inc. (formerly Sherwood Foods,
Description of Inc.) was incorporated in December 1982 in the
Business state of North Carolina. Sherwood Brands, Inc.
manufactures its own line of confectionery
products, Demitasse(R) biscuits and is developing
and installing a new product line of candies.
Sherwood Brands, Inc. was inactive from 1987 until
April 1996, when it acquired the building and
equipment for its manufacturing plant.
Sherwood Brands, Inc. is the owner of Sherwood
Brands, LLC, a Maryland limited liability company.
Sherwood Brands, LLC markets and distributes its
own lines of confectionery products in the United
States.
Overseas (a wholly-owned subsidiary of Sherwood
Brands, LLC) was incorporated in July 1993 in the
Bahamas to market and distribute the Sherwood
lines of confectionery products internationally.
Sherwood Brands, LLC and Overseas purchase
confectionery products from Sherwood Brands, Inc.
as well as third party suppliers.
Interim The financial information as of October 31, 1997
Financial and for the three months ended October 31, 1996
Information and 1997 is unaudited. In the opinion of
management, such information contains all
adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of
the results for such periods. Results for interim
periods are not necessarily indicative of results
to be expected for an entire year.
F-9
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Summary of Accounting Policies
(Information as of October 31, 1997 and for the three
months ended October 31, 1996 and 1997 is unaudited)
Cash Equivalents For purposes of the statement of cash flows, the
Company considers highly liquid investments with
maturities at original date of acquisition of
three months or less to be cash equivalents.
Inventory Inventory consists of raw materials and
finished goods and is stated at the lower of
cost or market. Cost is determined by the FIFO
(first-in, first-out) method.
Property and Property and equipment are stated at cost.
Equipment Depreciation is computed using accelerated and
straight-line methods over the estimated useful
lives of the individual assets which range from
five to twenty years for machinery and equipment
to thirty years for the building.
Revenue Sales are recognized upon shipment of products.
Recognition
Income Taxes Income taxes are calculated using the liability
method specified by Statement of Financial
Accounting Standards No. 109, "Accounting for
Income Taxes."
Use of Estimates The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts
of assets and liabilities and disclosures of
contingent assets and liabilities at the date of
the financial statements and reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Financial Financial instruments of the Company include
Instruments long-term debt. Based upon current borrowing rates
available to the Company, estimated fair values of
these financial instruments approximate their
recorded amounts.
F-10
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Summary of Accounting Policies
(Information as of October 31, 1997 and for the three
months ended October 31, 1996 and 1997 is unaudited)
Recent In October 1995, the Financial Accounting
Accounting Standards Board issued Statements of Financial
Pronouncements Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"). SFAS 123
will begin to affect the Company in fiscal 1998
with the establishment of the 1998 Stock Option
Plan. The Company will adopt only the disclosure
provisions of SFAS 123 for stock issued to
employees and will account for such stock-based
compensation using the intrinsic value method set
forth in APB Opinion 25.
In March 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS
128"). SFAS 128 provides a different method of
calculating earnings per share than is currently
used in APB Opinion 15. SFAS 128 provides for the
calculation of basic and diluted earnings per
share. Basic earnings per share includes no
dilution and is computed by dividing income
available to common stockholders by the weighted
average number of common shares outstanding for
the period. Diluted earnings per share reflects
the potential dilution of securities that could
share in the earnings of an entity, similar to
existing fully diluted earnings per share. The
Company believes adopting SFAS 128 will not have a
material effect on its calculation of earnings per
share. The Company will adopt the provisions for
computing earnings per share set forth in SFAS 128
for its quarter ending, January 1998.
Net Income (Loss) Net income (loss) per common share is computed
per Common based on the weighted average number of common
Share shares outstanding, after giving effect to the
stock split as described in Note 18.
Supplementary proforma net income per share for
the years ended July 31, 1996 and 1997 and the
three months ended October 31, 1996 and 1997 of
$.11, $.12, $(.07) and $.21, respectively, is
based upon the weighted number of shares of common
stock used in the calculation of earnings per
share increased by the sale of 280,234 shares
assuming an initial offering price of $5.95, the
proceeds of which would be necessary to reduce
borrowings of $1,667,394.
F-11
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of October 31, 1997 and for the three
months ended October 31, 1996 and 1997 is unaudited)
1. Merger Effective July 25, 1997, Sherwood Brands, Inc.
merged into Sherwood Foods, Inc. with Sherwood
Foods, Inc. being the surviving corporation.
Sherwood Foods, Inc. subsequently changed its name
to Sherwood Brands, Inc. Since both corporations
were owned 100% by the sole shareholder, the
transaction is treated like a pooling and all
accounts have been combined retroactively for all
periods presented. Sherwood Brands, Inc.,
previously a December 31 year end, changed its
fiscal year end to July 31.
2. Foreign The Company purchases products from foreign
Currency manufacturers under terms that provide for the
Transactions payment of goods in foreign currency approximately
60 to 90 days from the invoice date. The goods are
recorded at cost in equivalent United States
dollars at the exchange rate in effect on the
invoice date. The difference between the recorded
cost and the amount required for payment is
reflected as a realized foreign currency
transaction gain or loss. Based on exchange rates
in effect at July 31, 1996 and 1997 and October
31, 1996 and 1997, a provision for unrealized
foreign currency transaction loss (gain) of
$22,077, ($84,519), $2,504 and ($29,957),
respectively, on the future payment of open
invoices is included in the financial statements
as cost of goods sold.
3. Inventory Inventory consists of the following:
<TABLE>
<CAPTION>
July 31, October 31,
------------------------------- -----------
1996 1997 1997
------------------------------------------------------------------------------
<S> <C> <C> <C>
Raw materials $ - $ 184,921 $ 200,927
Work in progress - - 15,800
Finished goods 2,892,510 3,228,041 2,820,331
------------------------------------------------------------------------------
$ 2,892,510 $ 3,412,962 $ 3,037,058
------------------------------------------------------------------------------
</TABLE>
4. Insurance In 1991, the Company filed suit against its
Settlement insurance company for reimbursement of legal costs
Receivable related to a vendor dispute. In 1996 the Company
recorded a receivable of $262,574 in anticipation
of settlement. In February 1997, the Company was
awarded a partial payment from the insurance
company for $464,026, net of approximately
$100,000 in legal fees, per the terms of the
settlement agreement.
F-12
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of October 31, 1997 and for the three
months ended October 31, 1996 and 1997 is unaudited)
The Company was further involved in a dispute with
the insurance company relating to reimbursement of
additional legal costs. During the three month
period ended October 31, 1997, the Company
received the full amount as recorded from the
insurance company as payment of the amounts due.
5. Property and Property and equipment consists of the following:
Equipment
<TABLE>
<CAPTION>
July 31, October 31,
----------------------------- -----------
1996 1997 1997
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 65,000 65,000 $ 65,000
Building 635,000 635,000 635,000
Machinery and
equipment 1,013,340 1,826,131 1,826,131
Furniture and fixtures 13,933 13,933 13,933
Vehicles 139,564 139,564 139,564
--------------------------------------------------------------------------------------
Accumulated depreciation (222,515) (344,072) (380,106)
--------------------------------------------------------------------------------------
Total $ 1,644,322 $ 2,335,556 $ 2,299,522
--------------------------------------------------------------------------------------
</TABLE>
Depreciation expense for the years ended July 31,
1996 and 1997 and the three months ended October
31, 1996 and 1997 was $55,338, $121,557, $27,400
and $36,034, respectively.
6. Line of Credit Sherwood Brands, LLC has a $4,000,000 line of
credit available for issuance of letters of
credit, of which up to $2,000,000 is available for
cash draws to finance inventory and accounts
receivable. Interest is payable monthly at the
prime rate (8.5% at July 31, 1997 and October 31,
1997). During July 31, 1996 and 1997, and October
31, 1997, Sherwood Brands, LLC incurred and paid
approximately $88,000, $92,000 and $27,000 of
interest expense, respectively. The balance
outstanding on the line of credit is secured by
Sherwood Brands, LLC's cash and cash equivalents,
receivables and inventory, and is also guaranteed
by Sherwood Brands, LLC's sole stockholder.
Outstanding letters of credit approximated
$1,397,000 and $1,820,000 at July 31, 1997 and
October 31, 1997, respectively .
F-13
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of October 31, 1997 and for the three
months ended October 31, 1996 and 1997 is unaudited)
--------------------------------------------------
Average short-term borrowings and the related
interest rates are as follows:
<TABLE>
<CAPTION>
Three
months
Years ended ended
July 31, October 31,
-------------------------- -----------
1996 1997 1997
--------------------------------------------------------------------------------------
Borrowings under revolving
<S> <C> <C> <C>
line of credit $ 744,589 $ 1,644,589 $ 1,044,589
Weighted average
interest rate 8.5% 8.5% 8.5%
Maximum month-end
balance during the
period $ 1,390,413 $ 1,644,589 $ 1,283,489
Average balance during
the period $ 708,416 $ 1,091,849 $ 1,360,180
--------------------------------------------------------------------------------------
</TABLE>
7. Letters of Sherwood Brands, Inc. has available an irrevocable
Credit letter of credit of $935,000 with a bank, to be
used for payments of principal portions of
Virginia Revenue Bonds in the event of Sherwood
Brands, Inc.'s default on payment. The letter is
collateralized by a first deed of trust and
security interest in Sherwood Brands, Inc.'s land,
building and equipment. The letter expires in
2006. The letter of credit agreement has a debt to
worth and a debt coverage requirement as well as a
limitation on dividends paid and on borrowings, as
well as a limitation on the requirement of
subordinated debt. Sherwood Brands, Inc. was in
compliance with all covenants as of July 31, 1997.
Sherwood Brands, Inc. also has available another
irrevocable letter of credit of $580,000 with a
bank, to be used for payment of principal portions
of Virginia Revenue Bonds in the event of Sherwood
Brands, Inc.'s default on payment. The letter is
collateralized by a first deed of trust in
Sherwood Brands, Inc.'s commercial property as
well as a lien on certain assets of Sherwood
Brands, Inc. The letter expires in 2002.
F-14
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of October 31, 1997 and for the three
months ended October 31, 1996 and 1997 is unaudited)
-------------------------------------------------
8. Long-term Long term debt consists of the following:
Debt
<TABLE>
<CAPTION>
July 31, October 31,
---------------------- -----------
1996 1997 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mecklenberg County, Virginia Variable Rate
Demand Revenue Bonds issued on June 1, 1996;
collateralized by an irrevocable letter of
credit (see Note 7); payable in varying
annual amounts; to be redeemed in whole by
June 1, 2006; interest at variable market tax
exempt rates (3.95% at July 31, 1997
and 3.875% at October 31, 1997). $ 935,000 $ 920,000 $ 920,000
Mecklenberg County, Virginia Revenue Bond
issued on May 15, 1997; collateralized by an
irrevocable letter of credit (See Note 7);
payable in varying annual amounts; to be
redeemed in whole by May 15, 2002; interest
at variable market tax exempt rates (3.95% at
July 31, 1997 and
3.875% at October 31, 1997). - 580,000 580,000
----------------------------------------------------------------------------------------
935,000 1,500,000 1,500,000
Less current maturities 15,000 145,000 145,000
----------------------------------------------------------------------------------------
Long-term portion $ 920,000 $ 1,355,000 $ 1,355,000
----------------------------------------------------------------------------------------
Scheduled maturities of long-term debt are as
follows:
July 31, 1997
---------------------------------------------------------------------------------------
1998 $ 145,000
1999 175,000
2000 205,000
2001 210,000
2002 215,000
Thereafter 550,000
---------------------------------------------------------------------------------------
$ 1,500,000
</TABLE>
F-15
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of October 31, 1997 and for the three
months ended October 31, 1996 and 1997 is unaudited)
-------------------------------------------------
9. Subordinated Subordinated debt consists of the following:
Debt
<TABLE>
<CAPTION>
July 31, October 31,
------------------- -----------
1996 1997 1997
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mecklenberg County, Virginia Industrial
Development Authority note; collaterallized
by second deed of trust on land, building and
equipment; payable in monthly installments of
$4,644, including interest of 7%, with a
final payment of $239,193 due
in June 2001. $ 397,689 $ 368,882 $ 361,376
Lake Country Development Corporation Note;
collateralized by second deed of trust on
land, building and equipment; payable in
monthly installments of $5,480, including
interest of 5.25% beginning on April 1, 1997
and payable in full on June 1, 2001. 250,000 232,360 218,969
-------------------------------------------------------------------------------------------
647,689 601,242 580,345
Less current maturities 46,447 85,757 88,760
-------------------------------------------------------------------------------------------
Long-term portion $ 601,242 $ 515,485 $ 491,585
-------------------------------------------------------------------------------------------
</TABLE>
Scheduled maturities of subordinated debt are
as follows:
July 31, 1997
------------------------------------------------
1998 $ 85,757
1999 90,941
2000 96,444
2001 328,100
------------------------------------------------
$601,242
------------------------------------------------
F-16
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of October 31, 1997 and for the three
months ended October 31, 1996 and 1997 is unaudited)
-------------------------------------------------
10. Income Taxes The provision for income taxes in the statement of
operations for the year ended July 31, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
July 31,
--------------------------
1996 1997
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax provision
Federal $(83,000) $ 162,600
State 8,000 11,600
--------------------------------------------------------------------------------------
Total current (75,000) 174,200
--------------------------------------------------------------------------------------
Deferred tax expense (credit) 146,700 (151,100)
--------------------------------------------------------------------------------------
Total taxes on income $ 71,700 $ 23,100
--------------------------------------------------------------------------------------
</TABLE>
The following summary reconciles taxes at the
federal statutory rate with actual taxes:
<TABLE>
<CAPTION>
July 31,
--------------------------
1996 1997
--------------------------------------------------------------------------------------
<S> <C> <C>
Income taxes at the statutory rate $116,000 $114,000
Increase (decrease) in taxes
resulting from:
Effect of untaxed income from
a foreign subsidiary (64,000) (80,500)
State and local taxes, net of
federal income tax benefit 3,000 4,000
Other 16,700 (14,400)
--------------------------------------------------------------------------------------
Total taxes on income $ 71,700 $ 23,100
--------------------------------------------------------------------------------------
</TABLE>
Deferred income taxes reflect the net tax
effects of temporary differences between the
carrying amounts of assets and liabilities for
financial reporting purposes and the amounts
used for income tax purposes. The principal
items giving rise to the Company's net deferred
tax assets and liabilities are as follows:
F-17
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of October 31, 1997 and for the three
months ended October 31, 1996 and 1997 is unaudited)
---------------------------------------------------
<TABLE>
<CAPTION>
July 31,
------------------------------
1996 1997
--------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Net operating loss $ 71,000 $ 363,400
Officer salary payable 5,000 14,600
Allowance for doubtful accounts 7,000 8,300
Inventory obsolescence reserve - 6,400
--------------------------------------------------------------------------------------
Total deferred tax assets 83,000 392,700
--------------------------------------------------------------------------------------
Deferred tax liabilities
Anticipated legal settlement (89,000) (89,000)
Accumulated depreciation (1,000) (108,600)
Accounts receivable service costs - (110,300)
Unrealized gain/loss of foreign
exchange contracts 7,000 (22,700)
Supplier credit receivable (31,000) -
Argentina duty receivable (58,000) -
--------------------------------------------------------------------------------------
Total deferred tax liabilities (172,000) (330,600)
--------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ (89,000) $ 62,100
--------------------------------------------------------------------------------------
Net current deferred tax asset
(liability) $ (88,000) $ 170,700
Net long-term deferred tax
liability $ (1,000) $ (108,600)
--------------------------------------------------------------------------------------
</TABLE>
At July 31, 1997, the Company has approximately
$950,000 of net operating loss carryforwards
that expire in years through 2012.
The Company's estimated effective tax rate for
the three months ended October 31, 1997 was
approximately 34%. This rate is lower than the
Federal and State statutory rates due to the
untaxed income of the Company's foreign
subsidiary (Overseas).
F-18
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of October 31, 1997 and for the three
months ended October 31, 1996 and 1997 is unaudited)
---------------------------------------------------
11. Related Party The Company's stockholder is a guarantor of the
Transactions Company's line of credit note payable and
long-term debt.
The Company has a note payable to a related
party in the amount of $1,064,288, $903,180 and
$667,394 at July 31, 1996 and 1997, and October
31, 1997, respectively. The note accrues
interest at 9% per year and is due upon demand,
but not prior to October 31, 1998.
12. Commitments The Company occupies office space under a
noncancelable operating lease expiring in
November 1998. The lease is subject to annual
increases based upon both certain
allocated operating costs and increases in the
Consumer Price Index. Future minimum rental
commitments under operating leases as of July
31, 1997 are as follows:
-------------------------------------------
1998 $ 42,549
1999 14,183
-------------------------------------------
$ 56,732
-------------------------------------------
13. Employee Benefit Effective January 1, 1987, the Company
Plans established a profit-sharing plan and a money
purchase pension plan covering all full-time
employees meeting the minimum age and service
requirements. Under the terms of the Money
Purchase Pension Plan, the Company contributed
5.7% of total wages in July 31, 1996 and 1997.
Contributions to the Profit-Sharing Plan are at
the discretion of the Company and were 3% and 5%
in July 31, 1996 and 1997, respectively. Total
expenses for the Money Purchase Pension Plan and
the Profit-Sharing Plan were $52,355 and $56,296,
respectively, for the years ended July 31, 1996
and 1997 and $16,144 and $-0- for the three
months ended October 31, 1996 and 1997,
respectively.
Effective August 1, 1997, the Company amended
the Money Purchase Pension Plan to a 401(k) and
Profit Sharing Plan ("401(k) Plan"). The Money
Purchase Pension Plan was terminated and the
assets were merged with the 401(k) Plan. All
participants in the Money Purchase Pension Plan
were fully vested in the 401(k) Plan as of
August 1, 1997.
F-19
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of October 31, 1997 and for the three
months ended October 31, 1996 and 1997 is unaudited)
---------------------------------------------------
14. Supplemental Cash paid for interest amounted to $230,310,
Cash Flows $224,055, $43,493, and $98,750 for the
Disclosure years ended July 31, 1996 and 1997 and the three
months ended October 31, 1996 and 1997,
respectively.
Cash paid for income taxes amounted to $13,082,
$19,622, $-0- and $167,007 for the years ended
July 31, 1996 and 1997 and the three months ended
October 31, 1996 and 1997, respectively.
15. Concentration The Company purchases some of its products from
of Credit five main vendors in Europe and South America.
Risk and The Company has a variety of customers, including
Export Sales mass merchandisers, drug stores and grocery
stores throughout the United States and abroad.
In July 31, 1996 and 1997, and October 31, 1997,
one customer comprised 5.0%, 6.5%, and 7.5% of
the Company's total sales, respectively.
Export sales for the years ended July 31, 1996
and 1997 and the three months ended October 31,
1996 and 1997 were $1,536,578, $1,874,875,
$649,469 and 612,446, respectively. The
majority of export sales are made to Canada.
16. Pre-Production During the years ended July 31, 1996 and 1997,
Costs and the three months ended October 31, 1996 and
1997, Sherwood Brands, Inc. incurred certain
costs relating to the development of its
production facilities for its Demitasse(R) and
candy product lines. Pre-production costs for the
years ended July 31, 1997 and 1996 and the three
months ended October 31, 1996 were charged to
operations when incurred and are included in
operating expenses. These costs consist of the
following:
<TABLE>
<CAPTION>
Three months
Years ended ended
July 31, October 31,
--------------------------- -------------------------
1996 1997 1996 1997
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Parts and supplies $ 1,517 $ 279,998 $ 264,130 $ 28,798
Assembly salaries - 166,386 72,488 20,474
Sub-contract labor 54,748 140,119 58,028 -
Other 155,824 183,082 127,986 4,852
--------------------------------------------------------------------------------------
Total pre-production
costs $ 212,089 $ 769,585 $ 522,632 $ 54,124
--------------------------------------------------------------------------------------
</TABLE>
F-20
<PAGE>
Sherwood Brands, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of October 31, 1997 and for the three
months ended October 31, 1996 and 1997 is unaudited)
17. Advertising Advertising costs, included in selling, general
Costs and administrative expenses, are expensed as
incurred and were $479,397, $450,446, $70,834 and
$90,078 for the years ended July 31, 1996 and
1997 and the three months ended October 31, 1996
and 1997, respectively.
18. Subsequent In October 1997, the shareholder authorized the
Events filing of a registration statement for an initial
public offering of the Company's common stock as
well as changing the Company's name from Sherwood
Foods, Inc. to Sherwood Brands, Inc.
Effective December 12, 1997, the Company
amended its articles of incorporation to
provide for a recapitalization of its common
stock. As a result of the recapitalization, two
new classes of common stock were authorized as
follows: 30 million shares of Class A Common
Stock, par value $.01, and 5 million shares of
Class B Common Stock, par value $.01. The
shares of Class A Common Stock and Class B
Common Stock are identical in all respects,
except that each share of Class B Common Stock
entitles the holder to seven votes on each
matter submitted to a vote of the shareholders.
In addition, the Company is authorized to issue
5 million shares of Preferred stock.
As a result of the recapitalization, all 251
issued and outstanding shares of common stock
were recapitalized and converted into 1,150,000
validly issued, fully paid and nonassessable
shares of Class A Common Stock reflecting a
conversion ratio of 4581.67331:1 and 1,000,000
validly issued, fully paid and nonassessable
shares of Class B Common Stock, reflecting a
conversion ratio of 3984.063745:1.
The change in the Company's common stock for
the stock split and the calculation of net
income (loss) per common share have been
retroactively adjusted to give effect to the
increases in authorized, issued and outstanding
shares of common stock for all periods
presented.
F-21
<PAGE>
====================================================================
No dealer, salesperson or other person has been authorized
to give any information or to make any representations not
contained in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having
been authorized by the Company or the Underwriter. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer
to buy, any security other than the securities offered by this
Prospectus, or an offer to sell or a solicitation of an offer to
buy any securities by anyone in any jurisdiction in which such
offer or solicitation is not authorized or is unlawful. The
delivery of this Prospectus shall not, under any circumstances,
create any implication that the information contained herein is
correct as of any time subsequent to the date hereof
---------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary............................... 3
Risk Factors..................................... 8
Use of Proceeds.................................. 15
Dilution......................................... 17
Dividend Policy.................................. 18
Capitalization................................... 18
Selected Financial Data.......................... 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 20
Business......................................... 26
Management....................................... 32
Principal Shareholders........................... 36
Certain Transactions............................. 36
Description of Securities........................ 37
Shares Eligible for Future Sale.................. 39
Underwriting..................................... 40
Legal Matters.................................... 42
Experts.......................................... 42
Additional Information........................... 42
Index to Financial Statements.................... F-1
Until , 1998, (25 days after the date of this Prospectus),
all dealers effecting transactions in the shares of Class A Common
Stock or Warrants offered hereby, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is
in addition to the obligation of dealers to deliver a Prospectus
when acting as underwriters and with respect to their unsold
allotments or subscriptions.
====================================================================
<PAGE>
====================================================================
Sherwood Brands, Inc.
[LOGO]
1,550,000 SHARES OF CLASS A COMMON STOCK
AND
REDEEMABLE WARRANTS TO PURCHASE
775,000 SHARES OF COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
Paragon Capital Corporation
[Paragon Logo]
, 1998
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 55-2-02 of the North Carolina Business Corporation Act (the
"NCBCA") enables a North Carolina corporation in its articles of incorporation
to eliminate or limit, with certain exceptions, the personal liability of a
director for monetary damages for breach of duty as a director. No such
provision is effective to eliminate or limit a director's liability for (i)
acts or omissions that the director at the time of the breach knew or believed
to be clearly in conflict with the best interests of the corporation, (ii)
improper distributions described in Section 55-8-33 of the NCBCA, (iii) any
transaction from which the director derived an improper personal benefit, or
(iv) acts or omissions occurring prior to the date the exculpatory provision
became effective. The Registrant's Restated and Amended Articles of
Incorporation limit the personal liability of its directors to the fullest
extent permitted by the NCBCA. This provision does not prevent the Registrant
or its shareholders from seeking equitable remedies, such as injunctive relief
or rescission. If equitable remedies are found not to be available to
shareholders in any particular case, however, shareholders may not have any
effective remedy against actions taken by directors that constitute negligence
or gross negligence.
Sections 55-8-50 through 55-8-58 of the NCBCA contain provisions
entitling the Registrant's directors and officers to indemnification from
judgments, settlements, penalties, fines, and reasonable expenses (including
attorney's fees) as the result of an action or proceeding in which they may be
involved by reason of having been a director or officer of the Registrant. The
Restated and Amended Articles of Incorporation also include provisions to the
effect that (subject to certain exceptions) the Registrant shall, to the
maximum extent permitted from time to time under the NCBCA, indemnify, and
upon request shall advance expenses to, any director or officer to the extent
that such indemnification and advancement of expenses is permitted under such
law, as may from time to time be in effect. In addition, the Registrant intends
to enter into indeminification agreements with its directors and officers prior
to the consummation of this offering.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to any charter provision, by-law, contract,
arrangement, statute or otherwise, the Registrant has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. See Item 28.
Additionally, Section 55-8-57 of the NCBCA authorizes a corporation
to purchase and maintain insurance on behalf of an individual who is or was a
director, officer, employee or agent of the corporation against certain
liabilities incurred by such persons, whether or not the corporation is
otherwise authorized by the NCBCA to indemnify such party. The Registrant's
directors and officers and the Underwriter, are currently covered under
directors' and officers' insurance policies maintained by the Registrant that
will indemnify such persons against certain liabilities arising from acts or
omissions in the discharge of their duties. Such insurance policies provide
$2.5 million coverage for liabilities, including liabilities for alleged
violation of securities laws.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Registrant in connection with
the issuance and distribution of the securities being registered (other than
underwriting discounts and commissions and the Underwriter's nonaccountable
expense allowance) are as follows:
Securities and Exchange Commission registration fee $ 5,619.37
NASD filing fee $ 5,000.00
Nasdaq listing fee $ 3,952.50
Underwriter's consulting fee $ 96,000.00
Printing and engraving expenses *
Legal fees and expenses *
Accounting fees and expenses *
Blue sky fees and expenses (including legal fees) *
Transfer agent, warrant agent and registrar fees and
expenses *
Miscellaneous *
------------
Total *
============
* To be filed by amendment.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 27. EXHIBITS.
Exhibit
Number Description
- ------- -----------
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation, as amended, of the Registrant.
3.2 Bylaws, as amended, of the Registrant.
4.1* Form of Registrant's Class A Common Stock Certificate
4.2* Form of Underwriter's Warrant Agreement, including Form of Warrant
Certificate.
4.3* Form of Public Warrant Agreement among the Registrant, Paragon
Capital Corporation, as Underwriter and Continental Stock Transfer &
Trust Company, as Warrant Agent.
4.4* Form of Registrant's Public Warrant Certificate
5.1* Opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.
10.1 Amended and Restated Reimbursement Agreement between Central Fidelity
National Bank and the Registrant, dated as of May 1, 1997.
10.2 Loan Agreement between Industrial Development Authority of
Mecklenburg County, Virginia and the Registrant, Dated as of May 1,
1997.
10.3 Irrevocable Letter of Credit dated May 15, 1997 issued on behalf of
the Registrant to the Trustee for the holders of Industrial Revenue
Bonds (Series 1997) issued by the Industrial Development Authority of
Mecklenburg County, Virginia.
10.4 Amended and Restated Credit Line Deed of Trust and Security
Agreement, among the Registrant and Trustees, for the benefit of
Central Fidelity National Bank dated May 1, 1997.
10.5 Pledge and Security Agreement between the Registrant and Central
Fidelity National Bank, dated as of May 1, 1997.
10.6 Guaranty between Uziel Frydman, the Registrant and Central Fidelity
National Bank, dated as of May 1, 1997.
10.7 Loan Agreement between Industrial Development Authority of
Mecklenburg County, Virginia and the Registrant, Dated as of June 1,
1996.
10.8 Irrevocable Letter of Credit dated June 20, 1996 issued on behalf of
the Registrant to the Trustee for the holders of Industrial Revenue
Bonds (Series 1996) issued by the Industrial Development Authority of
Mecklenburg County, Virginia.
10.9 Pledge and Security Agreement between the Registrant and Central
Fidelity National Bank, dated as of June 1, 1996.
10.10 Company Loan Agreement between the Industrial Development Authority
of Mecklenburg County, Virginia Loan Agreement through the Virginia
Small Business Financing Administration and the Registrant, dated as
of June 20, 1996.
10.11 Revolving Loan Fund Agreement between the Registrant and Lake Country
Development Corporation, $250,000 Promissory Note to Lake Country
Development Corporation, Guaranty of Note by the Registrant and Uziel
Frydman, and Deed of Trust between the Registrant and Trustee for
Lake Country Development Corporation, all dated May 15, 1996.
10.12 Loan Agreement, Promissory Note, and Security Agreement between the
Registrant and First Union National Bank, all dated November 29,
1996, and Guaranty between Uziel Frydman and First Union, dated
November 29, 1996.
10.13 Promissory Note issued to Ilana Frydman by the Registrant, dated August
28, 1991.
10.14 Lease, as amended, for the Registrant's Rockville offices, executed
November 30, 1992.
10.15* 1998 Stock Option Plan.
10.16* Form of Employment Agreement between Registrant and Uziel Frydman,
dated , 1998.
10.17* Form of Employment Agreement between Registrant and Anat Schwartz,
dated , 1998.
10.18* Form of Employment Agreement between Registrant and Amir Frydman, dated
, 1998.
21.1 Subsidiaries of the Registrant.
23.1 Consent of BDO Seidman, LLP, Independent Certified Public Accountants.
23.2* Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.
24.1 A power of attorney relating to the signing of amendments hereto is
incorporated in the signature pages of this Registration Statement.
27.1* Financial Data Schedule.
- ------
* To be filed by amendment.
II-2
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act.
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) include any additional or changed material information on the
plan of distribution;
(2) for determining liability under the Securities Act, treat each
such post-effective amendment as a new registration of the securities offered,
and the offering of such securities at that time to be initial bona fide
offering; and
(3) file a post-effective amendment to remove from registration any
of the securities that remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the standby under writing agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for the
purpose of determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this Registration Statement as of the time
the Securities and Exchange Commission declares it effective; and (3) that for
the purpose of determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of Prospectus as a new
Registration Statement for the securities offered in the Registration
Statement therein, and treat the offering of the securities at that time as
the initial bona fide offering of those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
city of Rockville, State of Maryland on January 21, 1998.
SHERWOOD BRANDS, INC.
By: /s/ Uziel Frydman
- -------------------------------
President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Uziel Frydman, Anat Schwartz and Amir
Schwartz, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities (until revoked in writing) to sign
any and all amendments (including pre-effective amendments and post-effective
amendments and amendments thereto) to this Registration Statement on Form SB-2
of Sherwood Brands, Inc. and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone or his substitute, may
lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signatures Title(s) Date
- ----------------------- ---------------------------------------------- ---------------------
<S> <C> <C>
/s/ Uziel Frydman President, Chief Executive Officer and Director January 21, 1998
---------------------- (principal executive officer)
Uziel Frydman
/s/ Anat Schwartz Executive Vice President, Secretary and Director January 21, 1998
---------------------- (principal financial and accounting officer)
Anat Schwartz
/s/ Amir Frydman Executive Vice President, Treasurer January 21, 1998
---------------------- and Director
Amir Frydman
/s/ Douglas A. Cummins Director January 21, 1998
----------------------
Douglas A. Cummins
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation, as amended, of the Registrant.
3.2 Bylaws, as amended, of the Registrant.
4.1* Form of Registrant's Class A Common Stock Certificate
4.2* Form of Underwriter's Warrant Agreement, including Form of Warrant
Certificate.
4.3* Form of Public Warrant Agreement among the Registrant, Paragon
Capital Corporation, as Underwriter and Continental Stock Transfer &
Trust Company, as Warrant Agent.
4.4* Form of Registrant's Public Warrant Certificate
5.1* Opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.
10.1 Amended and Restated Reimbursement Agreement between Central Fidelity
National Bank and the Registrant, dated as of May 1, 1997.
10.2 Loan Agreement between Industrial Development Authority of
Mecklenburg County, Virginia and the Registrant, Dated as of May 1,
1997.
10.3 Irrevocable Letter of Credit dated May 15, 1997 issued on behalf of
the Registrant to the Trustee for the holders of Industrial Revenue
Bonds (Series 1997) issued by the Industrial Development Authority of
Mecklenburg County, Virginia.
10.4 Amended and Restated Credit Line Deed of Trust and Security
Agreement, among the Registrant and Trustees, for the benefit of
Central Fidelity National Bank dated May 1, 1997.
10.5 Pledge and Security Agreement between the Registrant and Central
Fidelity National Bank, dated as of May 1, 1997.
10.6 Guaranty between Uziel Frydman, the Registrant and Central Fidelity
National Bank, dated as of May 1, 1997.
10.7 Loan Agreement between Industrial Development Authority of
Mecklenburg County, Virginia and the Registrant, Dated as of June 1,
1996.
10.8 Irrevocable Letter of Credit dated June 20, 1996 issued on behalf of
the Registrant to the Trustee for the holders of Industrial Revenue
Bonds (Series 1996) issued by the Industrial Development Authority of
Mecklenburg County, Virginia.
10.9 Pledge and Security Agreement between the Registrant and Central
Fidelity National Bank, dated as of June 1, 1996.
10.10 Company Loan Agreement between the Industrial Development Authority
of Mecklenburg County, Virginia Loan Agreement through the Virginia
Small Business Financing Administration and the Registrant, dated as
of June 20, 1996.
10.11 Revolving Loan Fund Agreement between the Registrant and Lake Country
Development Corporation, $250,000 Promissory Note to Lake Country
Development Corporation, Guaranty of Note by the Registrant and Uziel
Frydman, and Deed of Trust between the Registrant and Trustee for
Lake Country Development Corporation, all dated May 15, 1996.
10.12 Loan Agreement, Promissory Note, and Security Agreement between the
Registrant and First Union National Bank, all dated November 29,
1996, and Guaranty between Uziel Frydman and First Union, dated
November 29, 1996.
10.13 Promissory Note issued to Ilana Frydman by the Registrant, dated August
28, 1991.
10.14 Lease, as amended, for the Registrant's Rockville offices, executed
November 30, 1992.
10.15* 1998 Stock Option Plan.
10.16* Form of Employment Agreement between Registrant and Uziel Frydman,
dated , 1998.
10.17* Form of Employment Agreement between Registrant and Anat Schwartz,
dated , 1998.
10.18* Form of Employment Agreement between Registrant and Amir Frydman, dated
, 1998.
21.1 Subsidiaries of the Registrant.
23.1 Consent of BDO Seidman, LLP, Independent Certified Public Accountants.
23.2* Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.
24.1 A power of attorney relating to the signing of amendments hereto is
incorporated in the signature pages of this Registration Statement.
27.1* Financial Data Schedule.
________
* To be filed by amendment.
<PAGE>
SHERWOOD BRANDS, INC.
1,550,000 Shares of Class A Common Stock
(Par Value $.01 Per Share)
and
Warrants to Purchase 775,000 Shares of Class A Common Stock
UNDERWRITING AGREEMENT
Paragon Capital Corporation New York, New York
7 Hanover Square ___________, 1998
New York, New York 10004
Dear Sirs:
Sherwood Brands, Inc., a North Carolina corporation (the
"Company"), proposes to issue and sell to Paragon Capital Corporation (the
"Underwriter") an aggregate of one million five hundred and fifty thousand
(1,550,000) shares of Class A common stock of the Company, par value $.01 per
share (the "Offered Shares"), which Offered Shares are presently authorized but
unissued shares of the Class A common stock, par value $.01 per share
(individually, a "Class A Common Share" and collectively the "Class A Common
Shares"), of the Company, at a price of Five Dollars and Ninety-Five Cents
($5.95) per Offered Share, and seven hundred and seventy-five thousand (775,000)
Class A Common Share purchase warrants (the "Offered Warrants"), at a price of
Ten Cents ($.10) per Offered Warrant, entitling the holder of each Offered
Warrant to purchase, during the four (4) year period commencing ________, 1999,
one (1) Class A Common Share, at an exercise price of Seven Dollars and Fifty
Cents ($7.50) (subject to adjustment in certain circumstances). The Company
shall have the right to call each Offered Warrant for redemption upon not less
than thirty (30) days' written notice at any time at a redemption price of Ten
Cents ($.10) per Offered Warrant, provided that the closing bid quotation of the
Company's Class A Common Stock has been at least 134% of the effective exercise
price of the Offered Warrants for all twenty (20) trading days ending upon the
third day prior to the day on which notice of redemption is given. In addition,
the Underwriter, in order to cover over-allotments in the sale of the Offered
Shares and/or Offered Warrants, may purchase an aggregate of not more than two
hundred thirty-two thousand five hundred (232,500) Class A Common Shares (the
"Optional Shares") and/or one hundred sixteen thousand two hundred and fifty
(116,250) Class A Common Share purchase warrants (the "Optional Warrants")
entitling the holder of each Optional Warrant to purchase one (1) Class A Common
Share on the same terms as the Offered Warrants. The Offered Shares and the
Optional Shares are hereinafter collectively referred to as the "Shares"; and
the Offered Warrants and the Optional Warrants are
<PAGE>
hereinafter collectively referred to as the "Warrants." The Warrants will be
issued pursuant to a Warrant Agreement (the "Warrant Agreement") to be dated as
of the Closing Date (as hereinafter defined) by and among the Company, the
Underwriter and Continental Stock Transfer & Trust Company, as warrant agent
(the "Warrant Agent").
The Company also proposes to issue and sell to the Underwriter for its
own account and the accounts of its designees, warrants (the "Underwriter's
Warrants") to purchase an aggregate of one hundred fifty-five thousand (155,000)
Class A Common Shares (collectively, the "Underlying Shares") at an exercise
price of $7.14 per Underlying Share and up to 77,500 warrants (each exercisable
to purchase one Class A Common Share at a price of $7.14 per share) at an
exercise price of $.12 per warrant (collectively, the "Underwriter's Warrants"),
which sale will be consummated in accordance with the terms and conditions of
the form of Underwriter's Warrant filed as an exhibit to the Registration
Statement. The Underlying Shares and the Class A Common Shares issuable upon
exercise of the Warrants and the Underlying Warrants are hereinafter sometimes
referred to as the "Warrant Shares." The Class A Common Shares, the Warrants,
the Underwriter's Warrants, the Underlying Warrants and the Warrant Shares
(collectively, the "Securities") are more fully described in the Registration
Statement and the Prospectus, as defined below.
The Company hereby confirms its agreement with the Underwriter
as follows:
1. Purchase and Sale of Offered Shares and Offered Warrants.
On the basis of the representations and warranties herein contained, but subject
to the terms and conditions herein set forth, the Company hereby agrees to sell
the Offered Shares and the Offered Warrants to the Underwriter, and the
Underwriter agrees to purchase the Offered Shares and the Offered Warrants from
the Company, at purchase prices of $____ per Offered Share and $____ per Offered
Warrant. The Underwriter plans to offer the Offered Shares and Offered Warrants
to the public at a public offering price of $____ per Offered Share and $____
per Offered Warrant.
2. Payment and Delivery.
(a) Payment for the Offered Shares and Offered
Warrants will be made to the Company by wire transfer or certified or official
bank check or checks payable to its order in New York Clearing House funds, at
the offices of the Underwriter, Paragon Capital Corporation, 7 Hanover Square,
New York, New York 10004, against delivery of the Offered Shares and Offered
Warrants to the Underwriter. Such payment and delivery will be made at ____, New
York City time, on the third business day following the Effective Date (the
fourth business day following the Effective Date in the event that trading of
the Offered Shares and/or Offered Warrants commences on the day following the
Effective Date), the
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<PAGE>
date and time of such payment and delivery being herein called the "Closing
Date." The certificates representing the Offered Shares and Offered Warrants to
be delivered will be in such denominations and registered in such names as the
Underwriter may request not less than two full business days prior to the
Closing Date, and will be made available to the Underwriter for inspection,
checking and packaging at the office of the Company's transfer agent or
correspondent in New York City, Continental Stock Transfer & Trust Company, 2
Broadway, New York, New York 10004, not less than one full business day prior to
the Closing Date.
(b) On the Closing Date, the Company will sell the
Underwriter's Warrants to the Underwriter or to the designees of the Underwriter
limited to officers, directors and partners of the Underwriter, members of the
selling group and/or their officers, directors or partners (collectively, the
"Underwriter's Designees"). The Underwriter's Warrants will be in the form of,
and in accordance with, the provisions of the Underwriter's Warrant attached as
an exhibit to the Registration Statement. The aggregate purchase price for the
Underwriter's Warrants is $100.00. The Underwriter's Warrants will be restricted
from sale, transfer, assignment or hypothecation for a period of one year from
the Effective Date, except to the Underwriter's Designees. Payment for the
Underwriter's Warrant Agreement will be made to the Company by check or checks
payable to its order on the Closing Date against delivery of the certificates
representing the Underwriter's Warrants. The certificates representing the
Underwriter's Warrants will be in such denominations and such names as the
Underwriter may request prior to the Closing Date.
3. Option to Purchase Optional Shares and /or Optional
Warrants.
(a) For the purposes of covering any overallotments
in connection with the distribution and sale of the Offered Shares and Offered
Warrants as contemplated by the Prospectus, the Underwriter is hereby granted an
option to purchase all or any part of the Optional Shares from ______________
and/or Optional Warrants from the Company. The purchase price to be paid for the
Optional Shares and Optional Warrants will be the same price per Optional Share
and Optional Warrant as the price per Offered Share or Optional Warrant, as the
case may be, set forth in Section 1 hereof. The option granted hereby may be
exercised by the Underwriter as to all or any part of the Optional Shares and/or
the Optional Warrants at any time within 45 days after the Effective Date. The
Underwriter will not be under any obligation to purchase any Optional Shares or
Optional Warrants prior to the exercise of such option.
(b) The option granted hereby may be exercised by
the Underwriter by giving oral notice to the Company, which must be confirmed by
a letter, telex or telegraph setting forth the number of Optional Shares and/or
Optional Warrants to be purchased, the
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<PAGE>
date and time for delivery of and payment for the Optional Shares and Optional
Warrants to be purchased and stating that the Optional Shares and Optional
Warrants referred to therein are to be used for the purpose of covering
over-allotments in connection with the distribution and sale of the Offered
Shares and Offered Warrants. If such notice is given prior to the Closing Date,
the date set forth therein for such delivery and payment will not be earlier
than either two full business days thereafter or the Closing Date, whichever
occurs later. If such notice is given on or after the Closing Date, the date set
forth therein for such delivery and payment will not be earlier than two full
business days thereafter. In either event, the date so set forth will not be
more than 15 full business days after the date of such notice. The date and time
set forth in such notice is herein called the "Option Closing Date." Upon
exercise of such option, the Company will become obligated to convey to the
Underwriter, and, subject to the terms and conditions set forth in Section 3(d)
hereof, the Underwriter will become obligated to purchase, the number of
Optional Shares and Optional Warrants specified in such notice.
(c) Payment for any Optional Shares and Optional
Warrants purchased will be made to the Company by wire transfer or certified or
official bank check or checks payable to its order in New York Clearing House
funds, at the office of the Underwriter, against delivery of the Optional Shares
and Optional Warrants purchased to the Underwriter. The certificates
representing the Optional Shares and Optional Warrants to be delivered will be
in such denominations and registered in such names as the Underwriter requests
not less than two full business days prior to the Option Closing Date, and will
be made available to the Underwriter for inspection, checking and packaging at
the aforesaid office of the Company's transfer agent or correspondent not less
than one full business day prior to the Option Closing Date.
(d) The obligation of the Underwriter to purchase
and pay for any of the Optional Shares or Optional Warrants is subject to the
accuracy and completeness (as of the date hereof and as of the Option Closing
Date) of and compliance in all material respects with the representations and
warranties of the Company herein, to the accuracy and completeness of the
statements of the Company or its officers made in any certificate or other
document to be delivered by the Company pursuant to this Agreement, to the
performance in all material respects by the Company of its obligations
hereunder, to the satisfaction by the Company of the conditions, as of the date
hereof and as of the Option Closing Date, set forth in Section 3(b) hereof, and
to the delivery to the Underwriter of opinions, certificates and letters dated
the Option Closing Date substantially similar in scope to those specified in
Section 5, 6(b), (c), (d) and (e) hereof, but with each reference to "Offered
Shares," "Offered Warrants" and "Closing Date" to be, respectively, to the
Optional Shares, Optional Warrants and the Option Closing Date.
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<PAGE>
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of North
Carolina, with full power and authority, corporate and other, to own or lease
and operate, as the case may be, its properties, whether tangible or intangible,
and to conduct its business as described in the Registration Statement and to
execute, deliver and perform this Agreement and the Underwriter's Warrant
Agreement and to consummate the transactions contemplated hereby and thereby.
The Company is duly qualified to do business as a foreign corporation and is in
good standing in all jurisdictions wherein such qualification is necessary and
failure to so qualify could have a material adverse effect on the financial
condition, results of operations, business or properties of the Company. Other
than the companies listed on Schedule A to this Agreement (the "Subsidiaries"),
the Company has no subsidiaries.
(b) Sherwood Brands, L.L.C. ("Sherwood LLC"), a
wholly-owned subsidiary of the Company, is a limited liability corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland, with full power and authority, corporate and other, and with all
permits necessary to own or lease and operate, as the case may be, its
properties, whether tangible or intangible, and to conduct its business as
described in the Registration Statement. Sherwood LLC is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
wherein such qualification is necessary and failure to so qualify could have a
material adverse effect on the financial condition, results of operations,
business or properties of Sherwood LLC.
(c) Sherwood Brands Overseas, Inc. ("Overseas"), a
wholly-owned subsidiary of Sherwood LLC, is a Bahamas Corporation duly
organized, validly existing and in good standing under the laws of the Bahamas,
with full power and authority, corporate and other, and with all permits
necessary to own or lease and operate, as the case may be, its properties,
whether tangible or intangible, and to conduct its business as described in the
Registration Statement. Overseas is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and failure to so qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of Overseas.
(d) Except as otherwise stated herein, the Company
owns all of the issued and outstanding shares of capital stock of each
Subsidiary, free and clear of any security interests, liens, encumbrances,
claims and charges, and all of such shares have been duly authorized and validly
issued and are fully paid and non-assessable. There are no options or warrants
for the purchase of,
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<PAGE>
or other rights to purchase, or outstanding securities convertible into or
exchangeable for, any capital stock or other securities of any Subsidiary.
(e) This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, and each of the Warrant Agreement, the Underwriter's Warrant Agreement
and the Consulting Agreement described in Section 5(r) hereof (the "Consulting
Agreement"), when executed and delivered by the Company on the Closing Date,
will be the valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms. The execution, delivery
and performance of this Agreement, the Warrant Agreement, the Consulting
Agreement and the Underwriter's Warrant Agreement by the Company, the
consummation by the Company of the transactions herein and therein contemplated
and the compliance by the Company with the terms of this Agreement, the Warrant
Agreement, the Consulting Agreement and the Underwriter's Warrant Agreement have
been duly authorized by all necessary corporate action and do not and will not,
with or without the giving of notice or the lapse of time, or both, (i) result
in any violation of the Certificate of Incorporation or By-Laws, each as
amended, of the Company; (ii) result in a breach of or conflict with any of the
terms or provisions of, or constitute a default under, or result in the
modification or termination of, or result in the creation or imposition of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company or any Subsidiary pursuant to any indenture, mortgage,
note, contract, commitment or other agreement or instrument to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary or any of
their respective properties or assets is or may be bound or affected; (iii)
violate any existing applicable law, rule, regulation, judgment, order or decree
of any governmental agency or court, domestic or foreign, having jurisdiction
over the Company or any Subsidiary or any of their respective properties or
businesses; or (iv) have any effect on any permit, certification, registration,
approval, consent order, license, franchise or other authorization
(collectively, the "Permits") necessary for the Company or any Subsidiary to own
or lease and operate their respective properties and to conduct their respective
businesses or the ability of the Company to make use thereof.
(f) No Permits of any court or governmental agency
or body, other than under the Securities Act of 1933, as amended (the "Act"),
the Regulations (as hereinafter defined) and applicable state securities or Blue
Sky laws, are required (i) for the valid authorization, issuance, sale and
delivery of the Securities to the Underwriter, and (ii) the consummation by the
Company of the transactions contemplated by this Agreement, the Consulting
Agreement or the Underwriter's Warrant Agreement.
(g) The conditions for use of a registration
statement on Form SB-2 set forth in the General Instructions to
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<PAGE>
Form SB-2 have been satisfied with respect to the Company, the transactions
contemplated herein and in the Registration Statement. The Company has prepared
in conformity with the requirements of the Act and the rules and regulations
(the "Regulations") of the Securities and Exchange Commission (the "Commission")
and filed with the Commission a registration statement (File No. 333-___) on
Form SB-2 and has filed one or more amendments thereto, covering the
registration of the Securities under the Act, including the related preliminary
prospectus or preliminary prospectuses (each thereof being herein called a
"Preliminary Prospectus") and a proposed final prospectus. Each Preliminary
Prospectus was endorsed with the legend required by Item 501(a)(5) of Regulation
S-B of the Regulations and, if applicable, Rule 430A of the Regulations. Such
registration statement including any documents incorporated by reference therein
and all financial schedules and exhibits thereto, as amended at the time it
becomes effective, and the final prospectus included therein are herein,
respectively, called the "Registration Statement" and the "Prospectus," except
that, (i) if the prospectus filed by the Company pursuant to Rule 424(b) of the
Regulations differs from the Prospectus, the term "Prospectus" will also include
the prospectus filed pursuant to Rule 424(b), and (ii) if the Registration
Statement is amended or such Prospectus is supplemented after the date the
Registration Statement is declared effective by the Commission (the "Effective
Date") and prior to the Option Closing Date, the terms "Registration Statement"
and "Prospectus" shall include the Registration Statement as amended or
supplemented.
(h) Neither the Commission nor, to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the best of the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
(i) The Registration Statement when it becomes
effective, the Prospectus (and any amendment or supplement thereto) when it is
filed with the Commission pursuant to Rule 424(b), and both documents as of the
Closing Date and the Option Closing Date, referred to below, will contain all
statements which are required to be stated therein in accordance with the Act
and the Regulations and will in all material respects conform to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, on such
dates, will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not apply to
statements or omissions made in reliance upon and in conformity with information
furnished in writing to the Company in connection with the Registration
Statement or Prospectus or any amendment or supplement thereto by the
Underwriter expressly for use therein.
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<PAGE>
(j) The Company had at the date or dates indicated
in the Prospectus a duly authorized and outstanding capitalization as set forth
in the Registration Statement and the Prospectus. Based on the assumptions
stated in the Registration Statement and the Prospectus, the Company will have
on the Closing Date the adjusted stock capitalization set forth therein. Except
as set forth in the Registration Statement or the Prospectus, on the Effective
Date and on the Closing Date, there will be no options to purchase, warrants or
other rights to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell shares of the Company's
capital stock or any such warrants, convertible securities or obligations.
Except as set forth in the Prospectus, no holders of any of the Company's
securities has any rights, "demand," "piggyback" or otherwise, to have such
securities registered under the Act.
(k) The descriptions in the Registration Statement
and the Prospectus of contracts and other documents are accurate and present
fairly the information required to be disclosed, and there are no contracts or
other documents required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
(l) BDO Seidman, LLP, the accountants who have
certified certain of the consolidated financial statements filed and to be filed
with the Commission as part of the Registration Statement and the Prospectus,
are independent public accountants within the meaning of the Act and
Regulations. The consolidated financial statements and schedules and the notes
thereto filed as part of the Registration Statement and included in the
Prospectus are complete, correct and present fairly the financial position of
the Company as of the dates thereof, and the results of operations and changes
in financial position of the Company for the periods indicated therein, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved except as otherwise stated in the
Registration Statement and the Prospectus. The selected financial data set forth
in the Registration Statement and the Prospectus present fairly the information
shown therein and have been compiled on a basis consistent with that of the
audited and unaudited financial statements included in the Registration
Statement and the Prospectus.
(m) The Company and each Subsidiary have filed with
the appropriate federal, state and local governmental agencies, and all
appropriate foreign countries and political subdivisions thereof, all tax
returns, including franchise tax returns, which are required to be filed or has
duly obtained extensions of time for the filing thereof and has paid all taxes
shown on such returns and all assessments received by it to the extent that the
same have become due; and the provisions for income taxes payable, if any, shown
on the consolidated financial statements filed with or as
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<PAGE>
part of the Registration Statement are sufficient for all accrued and unpaid
foreign and domestic taxes, whether or not disputed, and for all periods to and
including the dates of such consolidated financial statements. Except as
disclosed in writing to the Underwriter, neither the Company nor any Subsidiary
has executed or filed with any taxing authority, foreign or domestic, any
agreement extending the period for assessment or collection of any income taxes
and is not a party to any pending action or proceeding by any foreign or
domestic governmental agency for assessment or collection of taxes; and no
claims for assessment or collection of taxes have been asserted against the
Company or any Subsidiary.
(n) The outstanding Class A Common Shares and
outstanding options to purchase Class A Common Shares have been duly authorized
and validly issued. [Class B Common Shares] The outstanding Class A Common
Shares are fully paid and nonassessable. The outstanding options to purchase
Class A Common Shares constitute the valid and binding obligations of the
Company, enforceable in accordance with their terms. None of the outstanding
Class A Common Shares or options to purchase Class A Common Shares has been
issued in violation of the preemptive rights of any shareholder of the Company.
None of the holders of the outstanding Class A Common Shares is subject to
personal liability solely by reason of being such a holder. The offers and sales
of the outstanding Class A Common Shares and outstanding options to purchase
Class A Common Shares were at all relevant times either registered under the Act
and the applicable state securities or Blue Sky laws or exempt from such
registration requirements. The authorized Class A Common Shares and outstanding
options to purchase Class A Common Shares conform to the descriptions thereof
contained in the Registration Statement and Prospectus. Except as set forth in
the Registration Statement and the Prospectus, on the Effective Date and the
Closing Date, there will be no outstanding options or warrants for the purchase
of, or other outstanding rights to purchase, Class A Common Shares or securities
convertible into Class A Common Shares.
(o) No securities of the Company have been sold by
the Company or by or on behalf of, or for the benefit of, any person or persons
controlling, controlled by, or under common control with the Company within the
three years prior to the date hereof, except as disclosed in the Registration
Statement.
(p) The issuance and sale of the Class A Common
Shares and the Warrant Shares have been duly authorized and, when the Class A
Common Shares and the Warrant Shares have been issued and duly delivered against
payment therefor as contemplated by this Agreement and the Warrants, as the case
may be, the Class A Common Shares and the Warrant Shares will be validly issued,
fully paid and nonassessable, and the holders thereof will not be subject to
personal liability solely by reason of being such holders. The Securities will
not be subject to preemptive rights of any shareholder of the Company.
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<PAGE>
(q) The issuance and sale of the Warrants, the
Underwriter's Warrants and the Underlying Warrants have been duly authorized
and, when issued, paid for and delivered pursuant to the terms of this Agreement
or the Underwriter's Warrants, as the case may be, the Warrants, the
Underwriter's Warrants and the Underlying Warrants will constitute valid and
binding obligations of the Company, enforceable as to the Company in accordance
with their terms. The Warrant Shares have been duly reserved for issuance upon
exercise of the Warrants, the Underwriter's Warrants and the Underlying Warrants
in accordance with the provisions of the Warrants, the Underwriter's Warrants
and the Underlying Warrants. The Warrants, Underwriter's Warrants and Underlying
Warrants will conform to the descriptions thereof contained in the Registration
Statement and Prospectus.
(r) Neither the Company nor any Subsidiary is in
violation of, or in default under, (i) any term or provision of its Certificate
of Incorporation or By-Laws, each as amended; (ii) any material term or
provision or any financial covenants of any indenture, mortgage, contract,
commitment or other agreement or instrument to which it is a party or by which
it or any of its property or business is or may be bound or affected; or (iii)
any existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary or any of the Company's or any Subsidiary's properties
or business. The Company and each Subsidiary owns, possesses or has obtained all
governmental and other (including those obtainable from third parties) Permits,
necessary to own or lease, as the case may be, and to operate its properties,
whether tangible or intangible, and to conduct the business and operations of
the Company as presently conducted and all such Permits are outstanding and in
good standing, and there are no proceedings pending or, to the best of the
Company's knowledge, threatened, or any basis therefor, seeking to cancel,
terminate or limit such Permits.
(s) Except as set forth in the Prospectus, there are
no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, domestic or
foreign, or before any private arbitration tribunal, pending, or, to the best of
the Company's knowledge, threatened against the Company or any Subsidiary or
involving the Company's or any Subsidiary's properties or business which, if
determined adversely to the Company or any Subsidiary, would, individually or in
the aggregate, result in any material adverse change in the financial position,
shareholders' equity, results of operations, properties, business, management or
affairs of the Company or any Subsidiary or which question the validity of the
capital stock of the Company or this Agreement or of any action taken or to be
taken by the Company pursuant to, or in connection with, this Agreement; nor, to
the best of the Company's knowledge, is there any basis for any such claim,
action, suit, proceeding, arbitration, investigation or inquiry. There are no
outstanding
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<PAGE>
orders, judgments or decrees of any court, governmental agency or other tribunal
naming the Company or any Subsidiary and enjoining the Company or any Subsidiary
from taking, or requiring the Company or any Subsidiary to take, any action, or
to which the Company or any Subsidiary, or the Company's or any Subsidiary's
properties or businesses is bound or subject.
(t) Neither the Company nor any of its affiliates
has incurred any liability for any finder's fees or similar payments in
connection with the transactions herein contemplated.
(u) The Company and each of the Subsidiaries owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, rights, trade secrets,
confidential information, processes and formulations used or proposed to be used
in the conduct of their businesses as described in the Prospectus (collectively
the "Intangibles"); to the best of the Company's knowledge, neither the Company
nor any Subsidiary has infringed nor is infringing upon the rights of others
with respect to the Intangibles; and neither the Company nor any Subsidiary has
received any notice of conflict with the asserted rights of others with respect
to the Intangibles which could, singly or in the aggregate, materially adversely
affect its business as presently conducted or the prospects, financial condition
or results of operations of the Company or any Subsidiary, and the Company knows
of no basis therefor; and, to the best of the Company's knowledge, no others
have infringed upon the Intangibles of the Company or any Subsidiary.
(v) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus and the
Company's latest consolidated financial statements, neither the Company nor any
Subsidiary has incurred any material liability or obligation, direct or
contingent, or entered into any material transaction, whether or not incurred in
the ordinary course of business, and has not sustained any material loss or
interference with its business from fire, storm, explosion, flood or other
casualty, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree; and since the respective dates as
of which information is given in the Registration Statement and the Prospectus,
there have not been, and prior to the Closing Date referred to below there will
not be, any changes in the capital stock or any material increases in the
long-term debt of the Company or any material adverse change in or affecting the
general affairs, management, financial condition, shareholders' equity, results
of operations or prospects of the Company or any Subsidiary, otherwise than as
set forth or contemplated in the Prospectus.
(w) The Company and each Subsidiary have good and
marketable title in fee simple to all real property and good title to all
personal property (tangible and intangible) owned by them, free and clear of all
security interests, charges, mortgages,
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liens, encumbrances and defects, except such as are described in the
Registration Statement and Prospectus or such as do not materially affect the
value or transferability of such property and do not interfere with the use of
such property made, or proposed to be made, by the Company or any Subsidiary.
The leases, licenses or other contracts or instruments under which the Company
and each Subsidiary leases, holds or is entitled to use any property, real or
personal, are valid, subsisting and enforceable only with such exceptions as are
not material and do not interfere with the use of such property made, or
proposed to be made, by the Company or any Subsidiary, and all rentals,
royalties or other payments accruing thereunder which became due prior to the
date of this Agreement have been duly paid, and neither the Company nor any
Subsidiary, nor, to the best of the Company's knowledge, any other party is in
default thereunder and, to the best of the Company's knowledge, no event has
occurred which, with the passage of time or the giving of notice, or both, would
constitute a default thereunder. Neither the Company nor any Subsidiary has
received notice of any violation of any applicable law, ordinance, regulation,
order or requirement relating to its owned or leased properties. The Company and
each Subsidiary has adequately insured its properties against loss or damage by
fire or other casualty and maintains, in adequate amounts, such other insurance
as is usually maintained by companies engaged in the same or similar businesses
located in its geographic area.
(x) Each contract or other instrument (however
characterized or described) to which the Company or any Subsidiary is a party or
by which their properties or businesses are or may be bound or affected and to
which reference is made in the Prospectus has been duly and validly executed, is
in full force and effect in all material respects and is enforceable against the
parties thereto in accordance with its terms, and none of such contracts or
instruments has been assigned by the Company or any Subsidiary, and neither the
Company nor any Subsidiary, nor, to the best of the Company's knowledge, any
other party, is in default thereunder and, to the best of the Company's
knowledge, no event has occurred which, with the lapse of time or the giving of
notice, or both, would constitute a default thereunder.
None of the material provisions of such contracts or
instruments violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court having jurisdiction over the
Company or any Subsidiary or any of their respective assets or businesses,
including, without limitation, the Food, Drug and Cosmetic Act, as amended (the
"FD&C Act") and the rules and regulations promulgated thereunder.
(y) The employment, consulting, confidentiality and
non-competition agreements between the Company and between each Subsidiary and
its officers, employees and consultants, described in the Registration
Statement, are binding and enforceable obligations upon the respective parties
thereto in accordance with
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their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws or
arrangements affecting creditors' rights generally and subject to principles of
equity.
(z) Except as set forth in the Prospectus, the
Company has no employee benefit plans (including, without limitation, profit
sharing and welfare benefit plans) or deferred compensation arrangements that
are subject to the provisions of the Employee Retirement Income Security Act of
1974.
(aa) Except as set forth in the Prospectus, neither
the Company nor any Subsidiary manufactures, fabricates or markets any product
or performs any service which is subject to regulation by the Federal Food and
Drug Administration (the "FDA"), or to any provision of the FD&C Act or any rule
or regulation promulgated thereunder.
With respect to the products manufactured,
fabricated or marketed by the Company and/or any Subsidiary and the services
performed by them which are subject to such regulation, the Company and each
subsidiary are in compliance with the provisions of the FD&C Act and the rules
and regulations promulgated thereunder.
(ab) To the best of the Company's knowledge, no
labor problem exists with any of the Company's or any Subsidiary's employees or
is imminent which could adversely affect the Company or any Subsidiary.
(ac) The Company has not, directly or indirectly, at
any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(ad) The Class A Common Shares, Warrants and Warrant
Shares have been approved for listing on the Nasdaq SmallCap Market System.
(ae) The Company has provided to Tenzer Greenblatt
LLP, counsel to the Underwriter ("Underwriter's Counsel"), all agreements,
certificates, correspondence and other items, documents and information
requested by such counsel's Corporate Review Memorandum dated November 19, 1997.
Any certificate signed by an officer of the Company
or of any Subsidiary and delivered to the Underwriter or to
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Underwriter's Counsel shall be deemed to be a representation and warranty by the
Company to the Underwriter as to the matters covered thereby.
5. Certain Covenants of the Company. The Company covenants
with the Underwriter as follows:
(a) The Company will not at any time, whether before
the Effective Date or thereafter during such period as the Prospectus is
required by law to be delivered in connection with the sales of the Securities
by the Underwriter or a dealer, file or publish any amendment or supplement to
the Registration Statement or Prospectus of which the Underwriter has not been
previously advised and furnished a copy, or to which the Underwriter shall
object in writing.
(b) The Company will use its best efforts to cause
the Registration Statement to become effective and will advise the Underwriter
immediately, and, if requested by the Underwriter, confirm such advice in
writing, (i) when the Registration Statement, or any post-effective amendment to
the Registration Statement or any supplemented Prospectus is filed with the
Commission; (ii) of the receipt of any comments from the Commission; (iii) of
any request of the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional information; and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any Preliminary Prospectus, or of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the initiation of any
proceedings for any of such purposes. The Company will use its best efforts to
prevent the issuance of any such stop order or of any order preventing or
suspending such use and to obtain as soon as possible the lifting thereof, if
any such order is issued.
(c) The Company will deliver to the Underwriter,
without charge, from time to time until the Effective Date, as many copies of
each Preliminary Prospectus as the Underwriter may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will deliver to the Underwriter, without charge, as soon as the
Registration Statement becomes effective, and thereafter from time to time as
requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as the Underwriter may
reasonably request. The Company has furnished or will furnish to the Underwriter
two signed copies of the Registration Statement as originally filed and of all
amendments thereto, whether filed before or after the Registration Statement
becomes effective, two copies of all exhibits filed therewith and two signed
copies of all consents and certificates of experts.
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(d) The Company will comply with the Act, the
Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder so as to permit the continuance
of sales of and dealings in the Offered Shares and Offered Warrants and in any
Optional Shares and Optional Warrants which may be issued and sold, and in the
Warrant Shares underlying such Warrants. If, at any time when a prospectus
relating to the Securities is required to be delivered under the Act, any event
occurs as a result of which the Registration Statement and Prospectus as then
amended or supplemented would include an untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, or if it shall
be necessary to amend or supplement the Registration Statement and Prospectus to
comply with the Act or the regulations thereunder, the Company will promptly
file with the Commission, subject to Section 5(a) hereof, an amendment or
supplement which will correct such statement or omission or which will effect
such compliance.
(e) The Company will furnish such proper informa-
tion as may be required and otherwise cooperate in qualifying the Securities for
offering and sale under the securities or Blue Sky laws relating to the offering
in such jurisdictions as the Underwriter may reasonably designate, provided that
no such qualification will be required in any jurisdiction where, solely as a
result thereof, the Company would be subject to service of general process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction.
(f) The Company will make generally available to its
security holders, in the manner specified in Rule 158(b) under the Act, and
deliver to the Underwriter and Underwriter's Counsel as soon as practicable and
in any event not later than 45 days after the end of its fiscal quarter in which
the first anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under the
Act covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
(g) For a period of five years from the Effective
Date, the Company will deliver to the Underwriter and to Underwriter's Counsel
on a timely basis (i) a copy of each report or document, including, without
limitation, reports on Forms 8-K, 10-C, 10-K (or 10-K SB), 10-Q (or 10-Q SB) and
10-C and exhibits thereto, filed or furnished to the Commission, any securities
exchange or the National Association of Securities Dealers, Inc. (the "NASD") on
the date each such report or document is so filed or furnished; (ii) as soon as
practicable, copies of any reports or communications (financial or other) of the
Company mailed to its security holders; (iii) as soon as practicable, a copy of
any Schedule 13D, 13G, 14D-1 or 13E-3 received or prepared by the Company from
time to time; (iv) monthly statements setting forth
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such information regarding the Company's results of operations and financial
position (including balance sheet, profit and loss statements and data regarding
outstanding purchase orders) as is regularly prepared by management of the
Company; and (v) such additional information concerning the business and
financial condition of the Company as the Underwriter may from time to time
reasonably request and which can be prepared or obtained by the Company without
unreasonable effort or expense. The Company will furnish to its shareholders
annual reports containing audited financial statements and such other periodic
reports as it may determine to be appropriate or as may be required by law.
(h) Neither the Company nor any person that con-
trols, is controlled by or is under common control with the Company will take
any action designed to or which might be reasonably expected to cause or result
in the stabilization or manipulation of the price of the Class A Common Shares
or the Warrants.
(i) If the transactions contemplated by this
Agreement are consummated, the Underwriter shall retain the $50,000 previously
paid to it, and the Company will pay or cause to be paid the following: all
costs and expenses incident to the performance of the obligations of the Company
under this Agreement, including, but not limited to, the fees and expenses of
accountants and counsel for the Company; the preparation, printing, mailing and
filing of the Registration Statement (including financial statements and
exhibits), Preliminary Prospectuses and the Prospectus, and any amendments or
supplements thereto; the printing and mailing of the Selected Dealer Agreement,
the issuance and delivery of the Securities to the Underwriter; all taxes, if
any, on the issuance of the Securities; the fees, expenses and other costs of
qualifying the Securities for sale under the Blue Sky or securities laws of
those states in which the Securities are to be offered or sold, including fees
and disbursements of counsel in connection therewith, and including those of
such local counsel as may have been retained for such purpose; the filing fees
incident to securing any required review by the NASD and either the Boston Stock
Exchange or Pacific Stock Exchange; the cost of printing and mailing the "Blue
Sky Survey," the cost of furnishing to the Underwriter copies of the
Registration Statement, Preliminary Prospectuses and the Prospectus as herein
provided; the costs of placing "tombstone advertisements" in any publications
which may be selected by the Underwriter; and all other costs and expenses
incident to the performance of the Company's obligations hereunder which are not
otherwise specifically provided for in this Section 5(i).
In addition, at the Closing Date or the Option
Closing Date, as the case may be, the Underwriter will deduct from the payment
for the Offered Shares and Offered Warrants or any Optional Shares and/or
Optional Warrants purchased, three percent (3%) of the gross proceeds of the
offering (less the sum of $50,000 previously paid to the Underwriter), as
payment for the
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Underwriter's nonaccountable expense allowance relating to the transactions
contemplated hereby, which amount will include the fees and expenses of
Underwriter's Counsel (other than the fees and expenses of Underwriter's Counsel
relating to Blue Sky qualifications and registrations, which, as provided for
above, shall be in addition to the three percent (3%) nonaccountable expense
allowance and shall be payable directly by the Company to Underwriter's Counsel
on or prior to the Closing Date).
(j) If the transactions contemplated by this
Agreement or related hereto because the Company decides not to proceed with the
offering for any reason or because the Underwriter decides not to proceed with
the offering as a result of a breach by the Company of its representations,
warranties or covenants in the Agreement or as a result of adverse changes in
the affairs of the Company, then the Company will be obligated to reimburse the
Underwriter for its accountable out-of-pocket expenses up to the sum of $75,000,
inclusive of $50,000 previously paid to the Underwriter by the Company. In all
cases other than those set forth in the preceding sentence, if the Company or
the Underwriter decide not to proceed with the offering, the Company will only
be obligated to reimburse the Underwriter for its accountable out-of-pocket
expenses up to $50,000, and inclusive of $50,000 previously paid to the
Underwriter by the Company. In no event, however, will the Underwriter, in the
event the offering is terminated, be entitled to retain or receive more than an
amount equal to its actual accountable out-of-pocket expenses.
(k) The Company intends to apply the net proceeds
from the sale of the Securities for the purposes set forth in the Prospectus.
(l) During the period of eighteen (18) months from
the Effective Date without the prior written consent of the Underwriter, (i)
neither the Company nor any of its officers, directors or securityholders will
offer for sale or otherwise dispose of, directly or indirectly, any securities
of the Company, in any manner whatsoever, whether pursuant to Rule 144 of the
Regulations or otherwise, other than by bona fide gift, will or the laws of
descent and distribution to the securityholder's spouse, children or
grandchildren, a trust for the benefit of such securityholder's spouse, children
or grandchildren, a partnership the general partner of which is the
securityholder (or a corporation, a majority of whose outstanding stock is owned
of record or beneficially by the securityholder or any of the forgoing) or
partners of the securityholder in connection with the securityholder
partnership's distribution of its securities to its partners; provided in each
case that the transferee first executes and delivers to the Underwriter the
transferee's written agreement to be bound by the provisions set forth in this
Section 5(l); and (ii) no holder of registration rights relating to securities
of the Company will exercise any such registration rights. In addition, for a
period of one (1) year following the foregoing lock-up
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period, no officer, director or securityholder beneficially owning 5% or more of
the outstanding Class A Common Shares of the Company (calculated in accordance
with Rule 13d-3(d)(1) under the Exchange Act) (the "Principal Shareholders")
may, without the Underwriter's prior written consent, sell any of its Common
Shares during any three-month period in excess of the amount that the Principal
Shareholder would be allowed to sell if it were deemed an "affiliate" of the
Company and its Class A Common Shares were deemed "restricted" as those terms
are defined in Rule 144 promulgated under the Securities Act, i.e., in general,
no more than the greater of (a) 1% of the then outstanding Class A Common Shares
and (b) the average weekly trading value of the Class A Common Shares during the
four (4) calendar weeks preceding such sale. The Company will deliver to the
Underwriter the agreements (the "Lock-Up Agreements") of its officers,
directors, securityholders and registration rights holders to such effect prior
to Closing Date.
(m) The Company will not file any registration
statement relating to the offer or sale of any of the Company's securities,
including any registration statement on Form S-8, during the eighteen (18)
months from the Effective Date, without the Underwriter's prior written consent
other than a registration statement relating to a public offering by the Company
of shares of its Common Stock in connection with which the Underwriter is
participating, or has been given the opportunity to participate, as a lead (name
on the Prospectus cover) underwriter on terms as favorable as the most favorable
underwriting terms given in connection with such offering.
(n) The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary in order to permit preparation of financial statements in
accordance with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(o) The Company will use its best efforts to
maintain the listing of the Class A Common Shares and Warrants on NASDAQ and, if
so qualified, list the Securities and maintain such listing for so long as
qualified, on the NASDAQ National Market System.
(p) The Company will, concurrently with the
Effective Date, register the classes of equity securities of which the Class A
Common Shares are a part under Section 12(g) of the
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Exchange Act and the Company will maintain such registration for a minimum of
five (5) years from the Effective Date.
(q) Subject to the provisions of applicable law, the
Underwriter shall be entitled to receive a warrant solicitation fee of 5% of the
aggregate exercise price of the Warrants for each Warrant exercised during the
period commencing one year after the Effective date.
(r) Subject to the sale of the Offered Shares and
Offered Warrants, the Underwriter and its successors will have the right to
designate a nominee for election, at its or their option, either as a member of
or a non-voting advisor to the Board of Directors of the Company (which Board,
during such period, shall be comprised of five (5) persons, a majority of the
members of which Board must, during such period, be persons not otherwise
affiliated with the Company, its management or its founders), and the Company
will use its best efforts to cause such nominee to be elected and continued in
office as a director of the Company or as such advisor until the expiration of
three (3) years from the Effective Date. Each of the Company's current officers,
directors and shareholders agrees to vote all of the Class A Common Shares and
shares of Class B common stock, par value $.01 (the "Class B Common Shares")
owned by such person or entity so as to elect and continue in office such
nominee of the Underwriter. Following the election of such nominee as a director
or advisor, such person shall receive no more or less compensation than is paid
to other non-officer directors of the Company for attendance at meetings of the
Board of Directors of the Company and shall be entitled to receive reimbursement
for all reasonable costs incurred in attending such meetings including, but not
limited to, food, lodging and transportation. The Company agrees to indemnify
and hold such director or advisor harmless, to the maximum extent permitted by
law, against any and all claims, actions, awards and judgments arising out of
his service as a director or advisor and, in the event the Company maintains a
liability insurance policy affording coverage for the acts of its officers and
directors, to include such director or advisor as an insured under such policy.
The rights and benefits of such indemnification and the benefits of such
insurance shall, to the extent possible, extend to the Underwriter insofar as it
may be or may be alleged to be responsible for such director or advisor.
If the Underwriter does not exercise its option to
designate a member of or advisor to the Company's Board of Directors, the
Underwriter shall nonetheless have the right to send a representative (who need
not be the same individual from meeting to meeting) to observe each meeting of
the Board of Directors. The Company agrees to give the Underwriter notice of
each such meeting and to provide the Underwriter with an agenda and minutes of
the meeting no later than it gives such notice and provides such items to the
directors.
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(s) The Company agrees to employ the Underwriter or
a designee of the Underwriter as a financial consultant on a non-exclusive basis
for a period of two (2) years from the Closing Date, pursuant to a separate
written consulting agreement between the Company and the Underwriter and/or such
designee (the "Consulting Agreement"), at an annual rate of Forty-Eight Thousand
Dollars ($48,000) (exclusive of any accountable out-of-pocket expenses). In the
event that the underwriter's discount afforded to the Underwriter in connection
with its role as underwriter of the Company's initial public offering of Common
Stock is reduced from nine percent (9%) to eight percent (8%) or less, the
entire Ninety-Six Thousand Dollars ($96,000) is payable in full, in advance, on
the Closing Date. In the event that the underwriter's discount referred to above
remains at nine percent (9%), then Forty-Eight Thousand Dollars ($48,000) shall
be payable monthly, at the rate of Two Thousand Dollars ($2,000) per month,
commencing on the first day of the month following the Closing Date, until such
amount is paid in full. In addition, the Consulting Agreement shall provide that
the Company will pay the Underwriter a finder's fee in the event that the
Underwriter originates a financing, merger, acquisition, joint venture or other
transaction to which the Company is a party. The Company further agrees to
deliver a duly and validly executed copy of said Consulting Agreement, in form
and substance acceptable to the Underwriter, on the Closing Date.
(t) The Company shall retain a transfer agent for
the Class A Common Shares and Warrants, reasonably acceptable to the
Underwriter, for a period of five (5) years from the Effective Date. In
addition, for a period of five (5) years from the Effective Date, the Company,
at its own expense, shall cause such transfer agent to provide the Underwriter,
if so requested in writing, with copies of the Company's daily transfer sheets,
and, when requested by the Underwriter, a current list of the Company's
securityholders, including a list of the beneficial owners of securities held by
a depository trust company and other nominees.
(u) The Company hereby agrees, at its sole cost and
expense, to supply and deliver to the Underwriter and Underwriter's Counsel,
within a reasonable period from the date hereof, four bound volumes, including
the Registration Statement, as amended or supplemented, all exhibits to the
Registration Statement, the Prospectus and all other underwriting documents.
(v) The Company shall, as of the date hereof, have
applied for listing in Standard & Poor's Corporation Records Service (including
annual report information) or Moody's Industrial Manual (Moody's OTC Industrial
Manual not being sufficient for these purposes) and shall use its best efforts
to have the Company listed in such manual and shall maintain such listing for a
period of five years from the Effective Date.
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(w) For a period of five (5) years from the
Effective Date, the Company shall provide the Underwriter, on a not less than
annual basis, with internal forecasts setting forth projected results of
operations for each quarterly and annual period in the two (2) fiscal years
following the respective dates of such forecasts. Such forecasts shall be
provided to the Underwriter more frequently than annually if prepared more
frequently by management, and revised forecasts shall be prepared and provided
to the Underwriter when required to reflect more current information, revised
assumptions or actual results that differ materially from those set forth in the
forecasts.
(x) For a period of five (5) years from the
Effective Date, or until such earlier time as the Class A Common Shares and
Warrants are listed on the New York Stock Exchange or the American Stock
Exchange, the Company shall cause its legal counsel to provide the Underwriter
with a list, to be updated at least annually, of those states in which the Class
A Common Shares and Warrants may be traded in non-issuer transactions under the
Blue Sky laws of the 50 states.
(y) For a period of five (5) years from the
Effective Date, the Company shall continue to retain BDO Seidman, LLP (or such
other nationally recognized accounting firm acceptable to the Underwriter) as
the Company's independent public accountants.
(z) For a period of five (5) years from the
Effective Date, the Company, at its expense, shall cause its then independent
certified public accountants, as described in Section 5(x) above, to review (but
not audit) the Company's financial statements for each of the first three fiscal
quarters prior to the announcement of quarterly financial information, the
filing of the Company's 10-Q (or 10-QSB) quarterly report (or other equivalent
report) and the mailing of quarterly financial information to shareholders.
(aa) For a period of twenty-five (25) days from the
Effective Date, the Company will not issue press releases or engage in any other
publicity without the Underwriter's prior written consent, other than normal and
customary releases issued in the ordinary course of the Company's business or
those releases required by law.
(ab) The Company will not increase or authorize an
increase in the compensation of its five (5) most highly paid employees greater
than those increases provided for in their employment agreements with the
Company in effect as of the Effective Date and disclosed in the Registration
Statement without the prior written consent of the Underwriter, for a period of
three (3) years from the Effective Date.
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(ac) For a period of five (5) years from the
Effective Date, the Company will promptly submit to the Underwriter copies of
accountant's management reports and similar correspondence between the Company's
accountants and the Company.
(ad) For a period of five (5) years from the
Effective Date, the Company will not offer or sell any of its securities
pursuant to Regulation S promulgated under the Act without the prior written
consent of the Underwriter.
(ae) For a period of three (3) years from the
Effective Date, the Company will provide to the Underwriter ten day's written
notice prior to any issuance by the Company or its subsidiaries of any equity
securities or securities exchangeable for or convertible into equity securities
of the Company, except for (i) Class A Common Shares or Class B Common Shares
issuable upon exercise of currently outstanding options and warrants or
conversion of currently outstanding convertible securities and (ii) options
available for future grant pursuant to any stock option plan in effect on the
Effective Date and the issuance of Class A Common Shares or Class B Common
Shares upon the exercise of such options.
(af) Prior to the Effective Date and for a period of
three (3) years thereafter, the Company will retain a financial public relations
firm reasonably acceptable to the Underwriter.
(ag) For a period of three (3) years from the
Effective Date, the Company will cause its Board of Directors to meet, either in
person or telephonically, a minimum of four (4) times per year and will hold a
shareholder's meeting at least once per annum.
6. Conditions of the Underwriter's Obligation to Purchase
Securities from the Company. The obligation of the Underwriter to purchase and
pay for the Offered Shares and Offered Warrants which it has agreed to purchase
from the Company is subject (as of the date hereof and the Closing Date) to the
accuracy of and compliance in all material respects with the representations and
warranties of the Company herein, to the accuracy of the statements of the
Company or its officers made pursuant hereto, to the performance in all material
respects by the Company of its obligations hereunder, and to the following
additional conditions:
(a) The Registration Statement will have become
effective not later than ____ .M., New York City time, on the day following the
date of this Agreement, or at such later time or on such later date as the
Underwriter may agree to in writing; prior to the Closing Date, no stop order
suspending the effectiveness of the Registration Statement will have been issued
and no proceedings for that purpose will have been initiated or will be pending
or, to the best of the Underwriter's or the Company's knowledge, will be
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contemplated by the Commission; and any request on the part of the Commission
for additional information will have been complied with to the satisfaction of
Underwriter's Counsel.
(b) At the time that this Agreement is executed and
at the Closing Date, there will have been delivered to the Underwriter a signed
opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., with offices
located at 1221 Brickell Avenue, Miami, Florida 33131, counsel for the Company
("Company Counsel"), dated as of the date hereof or the Closing Date, as the
case may be (and any other opinions of counsel referred to in such opinion of
Company Counsel or relied upon by Company Counsel in rendering their opinion),
reasonably satisfactory to Underwriter's Counsel, to the effect that:
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of North
Carolina, with full power and authority, corporate and other, and with all
Permits necessary to own or lease, as the case may be, and operate its
properties, whether tangible or intangible, and to conduct its business as
described in the Registration Statement. The Company is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
wherein such qualification is necessary and failure so to qualify could have a
material adverse effect on the financial condition, results of operations,
business or properties of the Company. To the best of Company Counsel's
knowledge, other than the Subsidiaries the Company has no subsidiaries.
Sherwood LLC, a wholly owned subsidiary of the
Company, is a limited liability corporation duly organized, validly existing and
in good standing under the laws of the State of Maryland, with full power and
authority, corporate and other, and with all permits necessary to own or lease
and operate, as the case may be, its properties, whether tangible or intangible,
and to conduct its business as described in the Registration Statement. Sherwood
LLC is duly qualified to do business as a foreign corporation and is in good
standing in all jurisdictions wherein such qualification is necessary and
failure to so qualify could have a material adverse effect on the financial
condition, results of operations, business or properties of Sherwood LLC.
Overseas, a wholly-owned subsidiary of Sherwood LLC,
is a Bahamas Corporation duly organized, validly existing and in good standing
under the laws of the Bahamas, with full power and authority, corporate and
other, and with all permits necessary to own or lease and operate, as the case
may be, its properties, whether tangible or intangible, and to conduct its
business as described in the Registration Statement. Overseas is duly qualified
to do business as a foreign corporation and is in good standing in all
jurisdictions wherein such qualification is necessary and failure to so qualify
could have a material adverse
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effect on the financial condition, results of operations, business or
properties of Overseas.
Except as otherwise stated herein, the Company owns
all of the issued and outstanding shares of capital stock of each Subsidiary,
free and clear of any security interests, liens, encumbrances, claims and
charges, and all of such shares have been duly authorized and validly issued and
are fully paid and non-assessable.
(ii) The Company has full power and authority,
corporate and other, to execute, deliver and perform this Agreement, the
Consulting Agreement, the Warrant Agreement and the Underwriter's Warrant
Agreement and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance of this Agreement, the Consulting
Agreement, the Warrant Agreement and the Underwriter's Warrant Agreement by the
Company, the consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms of this Agreement,
the Consulting Agreement, the Warrant Agreement and the Underwriter's Warrant
Agreement have been duly authorized by all necessary corporate action, and this
Agreement and each of the Consulting Agreement, the Warrant Agreement and the
Underwriter's Warrant Agreement has been duly executed and delivered by the
Company. This Agreement is (assuming for the purposes of this opinion that it is
valid and binding upon the other party thereto) and, when executed and delivered
by the Company on the Closing Date, each of the Consulting Agreement, the
Warrant Agreement and the Underwriter's Warrant Agreement will be, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and the discretion of courts in granting equitable
remedies and except that enforceability of the indemnification provisions set
forth in Section 7 hereof and the contribution provisions set forth in Section 8
hereof may be limited by the federal securities laws or public policy underlying
such laws.
(iii) The execution, delivery and performance of
this Agreement, the Consulting Agreement, the Warrant Agreement and the
Underwriter's Warrant Agreement by the Company, the consummation by the Company
of the transactions herein and therein contemplated and the compliance by the
Company with the terms of this Agreement, the Consulting Agreement, the Warrant
Agreement and the Underwriter's Warrant Agreement do not, and will not, with or
without the giving of notice or the lapse of time, or both, (A) result in a
violation of the Certificate of Incorporation or By-Laws, each as amended, of
the Company or any Subsidiary, (B) result in a breach of or conflict with any
terms or provisions of, or constitute a default under, or result in the
modification or termination of, or result in the creation or imposition of any
lien, security interest, charge or encumbrance upon any of the
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properties or assets of the Company or any Subsidiary pursuant to any indenture,
mortgage, note, contract, commitment or other material agreement or instrument
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of the Company's or any Subsidiary's properties or assets are
or may be bound or affected; (C) violate any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any Subsidiary or
any of the Company's or any Subsidiary's properties or business; or (D) have any
effect on any Permit necessary for the Company or any Subsidiary to own or lease
and operate their respective properties or conduct its their businesses or the
ability of the Company to make use thereof.
(iv) To the best of Company Counsel's knowledge, no
Permits of any court or governmental agency or body (other than under the Act,
the Regulations and applicable state securities or Blue Sky laws) are required
for the valid authorization, issuance, sale and delivery of the Securities to
the Underwriter, and the consummation by the Company of the transactions
contemplated by this Agreement, the Consulting Agreement, the Warrant Agreement
or the Underwriter's Warrant Agreement.
(v) The Registration Statement has become effective
under the Act; to the best of Company Counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued, and
no proceedings for that purpose have been instituted or are pending, threatened
or contemplated under the Act or applicable state securities laws.
(vi) The Registration Statement and the Prospectus,
as of the Effective Date, and each amendment or supplement thereto as of its
effective or issue date (except for the financial statements and other financial
data included therein or omitted therefrom, as to which Company Counsel need not
express an opinion) comply as to form in all material respects with the
requirements of the Act and Regulations and the conditions for use of a
registration statement on Form SB-2 have been satisfied by the Company.
(vii) The descriptions in the Registration Statement
and the Prospectus of statutes, regulations, government classifications,
contracts and other documents (including opinions of such counsel); and the
response to Item 13 of Form SB-2 have been reviewed by Company Counsel, and,
based upon such review, are accurate in all material respects and present fairly
the information required to be disclosed, and there are no material statutes,
regulations or government classifications, or, to the best of Company Counsel's
knowledge, material contracts or documents, of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits
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to the Registration Statement, which are not so described or filed
as required.
None of the material provisions of the contracts or
instruments described above violates any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court having
jurisdiction over the Company or any Subsidiary or any of their assets or
businesses, including, without limitation, those relating to the FD&C Act and
the rules and regulations promulgated therein.
(viii) The outstanding Class A Common Shares and
outstanding options and warrants to purchase Class A Common Shares have been
duly authorized and validly issued. [Class B Common Shares] The outstanding
Class A Common Shares are fully paid and nonassessable. The outstanding options
to purchase Class A Common Shares constitute the valid and binding obligations
of the Company, enforceable in accordance with their terms. None of the
outstanding Class A Common Shares or options to purchase Class A Common Shares
has been issued in violation of the preemptive rights of any shareholder of the
Company. None of the holders of the outstanding Class A Common Shares is subject
to personal liability solely by reason of being such a holder. The offers and
sales of the outstanding Class A Common Shares and outstanding options to
purchase Class A Common Shares were at all relevant times either registered
under the Act and the applicable state securities or Blue Sky laws or exempt
from such registration requirements. The authorized Class A Common Shares and
outstanding options to purchase Class A Common Shares conform to the
descriptions thereof contained in the Registration Statement and Prospectus. To
the best of Company Counsel's knowledge, except as set forth in the Prospectus,
no holders of any of the Company's securities has any rights, "demand",
"piggyback" or otherwise, to have such securities registered under the Act.
(ix) The issuance and sale of the Class A Common
Shares and the Warrant Shares have been duly authorized and, when the Class A
Common Shares and Warrant Shares have been issued and duly delivered against
payment therefor as contemplated by this Agreement or by the Warrants, as the
case may be, the Class A Common Shares and the Warrant Shares will be validly
issued, fully paid and nonassessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. The Class
A Common Shares and Warrant Shares are not subject to preemptive rights of any
shareholder of the Company. The certificates representing the Class A Common
Shares and Warrant Shares are in proper legal form.
(x) The issuance and sale of the Warrants, the
Underwriter's Warrants and the Underlying Warrants have been duly authorized
and, when issued, paid for and delivered pursuant to the terms of this Agreement
or the Underwriter's Warrants, as the case may be, the Warrants, the
Underwriter's
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Warrants and the Underlying Warrants will constitute valid and binding
obligations of the Company, enforceable as to the Company in accordance with
their terms. The Warrant Shares have been duly reserved for issuance upon
exercise of the Warrants, the Underwriter's Warrants and the Underlying Warrants
in accordance with the provisions of the Warrants, the Underwriter's Warrants
and the Underlying Warrants. The Warrants, Underwriter's Warrants and Underlying
Warrants will conform to the descriptions thereof contained in the Registration
Statement.
(xi) Upon delivery of the Offered Shares and Offered
Warrants to the Underwriter against payment therefor as provided in this
Agreement, the Underwriter (assuming it is a bona fide purchaser within the
meaning of the Uniform Commercial Code) will acquire good title to the Offered
Shares and Offered Warrants, free and clear of all liens, encumbrances,
equities, security interests and claims.
(xii) Assuming that the Underwriter exercises the
over-allotment option to purchase any of the Optional Shares and/or Optional
Warrants and makes payment therefor in accordance with the terms of this
Agreement, upon delivery of the Optional Shares and/or Optional Warrants to the
Underwriter hereunder, the Underwriter (assuming it is a bona fide purchaser
within the meaning of the Uniform Commercial Code) will acquire good title to
such Optional Shares and/or Optional Warrants, free and clear of any liens,
encumbrances, equities, security interests and claims.
(xiii) To the best of Company Counsel's knowledge,
there are no claims, actions, suits, proceedings, arbitrations, investigations
or inquiries before any governmental agency, court or tribunal, foreign or
domestic, or before any private arbitration tribunal, pending or threatened
against the Company or any Subsidiary, or involving the Company's or any
Subsidiary's properties or businesses, other than as described in the
Prospectus, such description being accurate, and other than litigation incident
to the kind of business conducted by the Company which, individually and in the
aggregate, is not material.
(xiv) The Company and each Subsidiary each owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, rights, trade secrets,
confidential information, processes and formulations used or proposed to be used
in the conduct of its business as described in the Prospectus (collectively the
"Intangibles"); to the best of Company Counsel's knowledge, neither the Company
nor any Subsidiary has infringed nor is infringing with the rights of others
with respect to the Intangibles; and, to the best of Company Counsel's
knowledge, neither the Company nor any Subsidiary has received any notice that
it has or may have infringed, is infringing upon or is conflicting with the
asserted rights of others with respect to the Intangibles which might, singly or
in the aggregate, materially adversely
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affect its business, results of operations or financial condition and such
counsel is not aware of any licenses with respect to the Intangibles which are
required to be obtained by the Company.
(xv) Company Counsel has participated in reviews and
discussions in connection with the preparation of the Registration Statement and
the Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsel deemed necessary, no facts came to its
attention which lead it to believe that (A) the Registration Statement (except
as to the financial statements and other financial data contained therein, as to
which Company Counsel need not express an opinion), on the Effective Date,
contained any untrue statement of a material fact required to be stated therein
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or that (B) the Prospectus (except as to the
financial statements and other financial data contained therein, as to which
Company Counsel need not express an opinion) contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
The opinion letter delivered pursuant to this
Section 6(b) shall state that any opinion given therein qualified by the phrase
"to the best of our knowledge" is being given by Company Counsel after due
investigation of the matters therein discussed.
(c) At the time this Agreement is executed and at
the Closing Date, there will have been delivered to the Underwriter a signed
opinion of _________________, regulatory counsel to the Company, dated as of the
date hereof and the Closing Date, in form and substance satisfactory to the
Underwriter and its counsel.
(d) At the Closing Date (i) the Registration State-
ment and the Prospectus and any amendments or supplements thereto will contain
all material statements which are required to be stated therein in accordance
with the Act and the Regulations and will conform in all material respects to
the requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; (ii)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there will not have been any material adverse
change in the financial condition, results of operations or general affairs of
the Company from that set forth or contemplated in the Registration Statement
and the Prospectus, except changes which the Registration Statement and the
Prospectus indicate might occur
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after the Effective Date; (iii) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
shall have been no material transaction, contract or agreement entered into by
the Company, other than in the ordinary course of business, which would be
required to be set forth in the Registration Statement and the Prospectus, other
than as set forth therein; and (iv) no action, suit or proceeding at law or in
equity will be pending or, to the best of the Company's knowledge, threatened
against the Company which is required to be set forth in the Registration
Statement and the Prospectus, other than as set forth therein, and no
proceedings will be pending or, to the best of the Company's knowledge,
threatened against the Company before or by any federal, state or other
commission, board or administrative agency wherein an unfavorable decision,
ruling or finding would materially adversely affect the business, property,
financial condition or results of operations of the Company, other than as set
forth in the Registration Statement and the Prospectus. At the Closing Date,
there will be delivered to the Underwriter a certificate signed by the Chairman
of the Board or the President or a Vice President of the Company, dated the
Closing Date, evidencing compliance with the provisions of this Section 6(d) and
stating that the representations and warranties of the Company set forth in
Section 4 hereof were accurate and complete in all material respects when made
on the date hereof and are accurate and complete in all material respects on the
Closing Date as if then made; that the Company has performed all covenants and
complied with all conditions required by this Agreement to be performed or
complied with by the Company prior to or as of the Closing Date; and that, as of
the Closing Date, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
initiated or, to the best of his knowledge, are contemplated or threatened. In
addition, the Underwriter will have received such other and further certificates
of officers of the Company as the Underwriter or Underwriter's Counsel may
reasonably request.
(e) At the time that this Agreement is executed and
at the Closing Date, the Underwriter will have received a signed letter from BDO
Seidman, LLP, dated the date such letter is to be received by the Underwriter
and addressed to it, confirming that it is a firm of independent public
accountants within the meaning of the Act and Regulations and stating that: (i)
insofar as reported on by them, in their opinion, the financial statements of
the Company included in the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Act and the
applicable Regulations; (ii) on the basis of procedures and inquiries (not
constituting an examination in accordance with generally accepted auditing
standards) consisting of a reading of the unaudited interim financial statements
of the Company, if any, appearing in the Registration Statement and the
Prospectus and the latest available unaudited interim financial statements of
the Company, if more recent than that appearing in the Registration Statement
and Prospectus, inquiries of officers of
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the Company responsible for financial and accounting matters as to the
transactions and events subsequent to the date of the latest audited financial
statements of the Company, and a reading of the minutes of meetings of the
shareholders, the Board of Directors of the Company and any committees of the
Board of Directors, as set forth in the minute books of the Company, nothing has
come to their attention which, in their judgment, would indicate that (A) during
the period from the date of the latest financial statements of the Company
appearing in the Registration Statement and Prospectus to a specified date not
more than three business days prior to the date of such letter, there have been
any decreases in net current assets or net assets as compared with amounts shown
in such financial statements or decreases in net sales or decreases in total or
per share net income compared with the corresponding period in the preceding
year or any change in the capitalization or long-term debt of the Company,
except in all cases as set forth in or contemplated by the Registration
Statement and the Prospectus, and (B) the unaudited interim financial statements
of the Company, if any, appearing in the Registration Statement and the
Prospectus, do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Regulations or are not
fairly presented in conformity with generally accepted accounting principles and
practices on a basis substantially consistent with the audited financial
statements included in the Registration Statement or the Prospectus; and (iii)
they have compared specific dollar amounts, numbers of shares, numerical data,
percentages of revenues and earnings, and other financial information pertaining
to the Company set forth in the Prospectus (with respect to all dollar amounts,
numbers of shares, percentages and other financial information contained in the
Prospectus, to the extent that such amounts, numbers, percentages and
information may be derived from the general accounting records of the Company,
and excluding any questions requiring an interpretation by legal counsel) with
the results obtained from the application of specified readings, inquiries and
other appropriate procedures (which procedures do not constitute an examination
in accordance with generally accepted auditing standards) set forth in the
letter, and found them to be in agreement.
(f) There shall have been duly tendered to the
Underwriter certificates representing the Offered Shares and Offered Warrants to
be sold on the Closing Date.
(g) The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of the
Securities by the Underwriter.
(h) No action shall have been taken by the
Commission or the NASD the effect of which would make it improper, at any time
prior to the Closing Date or the Option Closing Date, as the case may be, for
any member firm of the NASD to execute transactions (as principal or as agent)
in the Securities, and no proceedings for the purpose of taking such action
shall have been
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instituted or shall be pending, or, to the best of the Underwriter's or the
Company's knowledge, shall be contemplated by the Commission or the NASD. The
Company represents at the date hereof, and shall represent as of the Closing
Date or Option Closing Date, as the case may be, that it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD.
(i) The Company meets the current and any existing
and proposed criteria for inclusion of the Class A Common Shares and Warrants on
Nasdaq.
(j) All proceedings taken at or prior to the Closing
Date or the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Securities shall be reasonably
satisfactory in form and substance to the Underwriter and to Underwriter's
Counsel, and such counsel shall have been furnished with all such documents,
certificates and opinions as they may request for the purpose of enabling them
to pass upon the matters referred to in Section 6(c) hereof and in order to
evidence the accuracy and completeness of any of the representations, warranties
or statements of the Company, the performance of any covenants of the Company,
or the compliance by the Company with any of the conditions herein contained.
(k) As of the date hereof, the Company will have
delivered to the Underwriter the written undertakings of its officers, directors
and securityholders and/or registration rights holders, as the case may be, to
the effect of the matters set forth in Sections 5(l) and (q).
If any of the conditions specified in this Section 6
have not been fulfilled, this Agreement may be terminated by the Underwriter on
notice to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold
harmless the Underwriter, each officer, director, partner, employee and agent of
the Underwriter, and each person, if any, who controls the Underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Underwriter
and each such person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions, whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in the Registration Statement, in any Preliminary Prospectus or in the
Prospectus (or the Registration
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<PAGE>
Statement or Prospectus as from time to time amended or supplemented) or (ii) in
any application or other document executed by the Company, or based upon written
information furnished by or on behalf of the Company, filed in any jurisdiction
in order to qualify the Securities under the securities laws thereof
(hereinafter "application"), or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, in light of
the circumstances under which they were made, unless such untrue statement or
omission was made in such Registration Statement, Preliminary Prospectus,
Prospectus or application in reliance upon and in conformity with information
furnished in writing to the Company in connection therewith by the Underwriter
or any such person through the Underwriter expressly for use therein; provided,
however, that the indemnity agreement contained in this Section 7(a) with
respect to any Preliminary Prospectus will not inure to the benefit of the
Underwriter (or to the benefit of any other person that may be indemnified
pursuant to this Section 7(a)) if (A) the person asserting any such losses,
claims, damages, expenses or liabilities purchased the Shares which are the
subject thereof from the Underwriter or other indemnified person; (B) the
Underwriter or other indemnified person failed to send or give a copy of the
Prospectus to such person at or prior to the written confirmation of the sale of
such Securities to such person; and (C) the Prospectus did not contain any
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such cause, claim, damage, expense or liability.
(b) The Underwriter agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all losses, claims, damages, expenses or
liabilities, joint or several (and actions in respect thereof), to which they or
any of them may become subject under the Act or under any other statute or at
common law or otherwise, and, except as hereinafter provided, will reimburse the
Company and each such director, officer or controlling person for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or supplemented) or (ii) in any
application (including any application for registration of the Securities under
state securities or Blue Sky laws), or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, in light of the
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<PAGE>
circumstances under which they were made, but only insofar as any such statement
or omission was made in reliance upon and in conformity with information
furnished in writing to the Company in connection therewith by the Underwriter
expressly for use therein.
(c) Promptly after receipt of notice of the
commencement of any action in respect of which indemnity may be sought against
any indemnifying party under this Section 7, the indemnified party will notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party will, subject to the provisions hereinafter stated, assume
the defense of such action (including the employment of counsel satisfactory to
the indemnified party and the payment of expenses) insofar as such action
relates to an alleged liability in respect of which indemnity may be sought
against the indemnifying party. After notice from the indemnifying party of its
election to assume the defense of such claim or action, the indemnifying party
shall no longer be liable to the indemnified party under this Section 7 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if, in the reasonable judgment of the
indemnified party or parties, it is advisable for the indemnified party or
parties to be represented by separate counsel, the indemnified party or parties
shall have the right to employ a single counsel to represent the indemnified
parties who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the indemnified parties thereof against the
indemnifying party, in which event the fees and expenses of such separate
counsel shall be borne by the indemnifying party. Any party against whom
indemnification may be sought under this Section 7 shall not be liable to
indemnify any person that might otherwise be indemnified pursuant hereto for any
settlement of any action effected without such indemnifying party's consent,
which consent shall not be unreasonably withheld.
8. Contribution. To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for indemnification
pursuant to Section 7 hereof (subject to the limitations thereof) and it is
finally determined, by a judgment, order or decree not subject to further
appeal, that such claim for indemnification may not be enforced, even though
this Agreement expressly provides for indemnification in such case; or (ii) any
indemnified or indemnifying party seeks contribution under the Act, the Exchange
Act, or otherwise, then the Company (including, for this purpose, any
contribution made by or on behalf of any director of the Company, any officer of
the Company who signed the Registration Statement and any controlling person of
the Company) as one entity and the Underwriter (including, for this purpose, any
contribution by or on behalf of each person, if any, who controls the
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and each officer, director, partner, employee and agent of the
Underwriter) as a second entity, shall contribute to the losses, liabilities,
claims, damages and
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expenses whatsoever to which any of them may be subject, so that the Underwriter
is responsible for the proportion thereof equal to the percentage which the
underwriting discounts per Class A Common Share and per Warrant set forth on the
cover page of the Prospectus represents of the initial public offering price per
Class A Common Share and per Warrant set forth on the cover page of the
Prospectus and the Company is responsible for the remaining portion; provided,
however, that if applicable law does not permit such allocation, then, if
applicable law permits, other relevant equitable considerations such as the
relative fault of the Company and the Underwriter in connection with the facts
which resulted in such losses, liabilities, claims, damages and expenses shall
also be considered. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission or alleged omission, shall be determined by,
among other things, whether such statement, alleged statement, omission or
alleged omission relates to information supplied by the Company or by the
Underwriter, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement, alleged statement,
omission or alleged omission. The Company and the Underwriter agree that it
would be unjust and inequitable if the respective obligations of the Company and
the Underwriter for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages and expenses or
by any other method of allocation that does not reflect the equitable
considerations referred to in this Section 8. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and each officer, director, partner, employee and
agent of the Underwriter will have the same rights to contribution as the
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company will have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 8. Anything in
this Section 8 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 8 is intended to supersede, to the
extent permitted by law, any right to contribution under the Act or the Exchange
Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
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Underwriter, the Company or any of its directors and officers, or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Securities.
10. Termination of Agreement.
(a) The Company, by written or telegraphic notice to
the Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Offered Shares and Offered Warrants for public offering.
The time when the Underwriter "releases the Offered Shares and Offered Warrants
for public offering" for the purposes of this Section 10 means the time when the
Underwriter releases for publication the first newspaper advertisement, which is
subsequently published, relating to the Offered Shares and/or the Offered
Warrants, or the time when the Underwriter releases for delivery to members of a
selling group copies of the Prospectus and an offering letter or an offering
telegram relating to the Offered Shares and Offering Warrants, whichever will
first occur.
(b) This Agreement, including without limitation,
the obligation to purchase the Offered Shares and the Offered Warrants and the
obligation to purchase the Optional Shares and/or the Optional Warrants after
exercise of the option referred to in Section 3 hereof, are subject to
termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Offered Shares and
Offered Warrants or such Optional Shares and/or Optional Warrants, as the case
may be, if, prior to such time, any of the following shall have occurred: (i)
the Company withdraws the Registration Statement from the Commission or the
Company does not or cannot expeditiously proceed with the public offering; (ii)
the representations and warranties in Section 4 hereof are not materially
correct or cannot be complied with; (iii) trading in securities generally on the
New York Stock Exchange or the American Stock Exchange will have been suspended;
(iv) limited or minimum prices will have been established on either such
Exchange; (v) a banking moratorium will have been declared either by federal or
New York State authorities; (vi) any other restrictions on transactions in
securities materially affecting the free market for securities or the payment
for such securities, including any of the Offered Shares, the Offered Warrants,
the Optional Shares or the Optional Warrants, will be established by either of
such Exchanges, by the Commission, by any other federal or state agency, by
action of the Congress or by Executive Order; (vii) trading in any securities of
the Company shall have been suspended or halted by any national securities
exchange, the NASD or the Commission; (viii) there has been a materially adverse
change in the condition (financial or otherwise), prospects or obligations of
the Company; (ix) the Company will have sustained a material loss, whether or
not
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insured, by reason of fire, flood, accident or other calamity; (x) any action
has been taken by the government of the United States or any department or
agency thereof which, in the judgment of the Underwriter, has had a material
adverse effect upon the market or potential market for securities in general; or
(xi) the market for securities in general or political, financial or economic
conditions will have so materially adversely changed that, in the judgment of
the Underwriter, it will be impracticable to offer for sale, or to enforce
contracts made by the Underwriter for the resale of, the Offered Shares, the
Offered Warrants, the Optional Shares or the Optional Warrants, as the case may
be.
(c) If this Agreement is terminated pursuant to
Section 6 hereof or this Section 10 or if the purchases provided for herein are
not consummated because any condition of the Underwriter's obligations hereunder
is not satisfied or because of any refusal, inability or failure on the part of
the Company to comply with any of the terms or to fulfill any of the conditions
of this Agreement, or if for any reason the Company shall be unable to or does
not perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 9 of this
Agreement.
11. Information Furnished by the Underwriter to the Company.
It is hereby acknowledged and agreed by the parties hereto that for the purposes
of this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and
8 hereof, the only information given by the Underwriter to the Company for use
in the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page __ with respect to stabilizing the market price of Securities, the
information in the __ paragraph on page __ with respect to concessions and
reallowances, and the information in the ___ paragraph on page ___ with respect
to the determination of the public offering price, as such information appears
in any Preliminary Prospectus and in the Prospectus.
12. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at, or
mailed by certified mail, return receipt requested, or telegraphed to, the
following addresses: if to the Underwriter, to Paragon Capital Corporation,
Attention: George B. Levine, President, 7 Hanover Square, New York, New York
10004, with a copy to Tenzer Greenblatt LLP, Attention: Robert J. Mittman, Esq.,
405 Lexington Avenue, New York, New York 10174; if to the Company, to Sherwood
Brands, Inc., Attention, Uziel Frydman, President and Chief Executive Officer,
6110 Executive Boulevard, Suite 1080, Rockville, Maryland 20852, with a copy to
Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., Attention: Gary Epstein,
Esq., 1221 Brickell Avenue, Miami, Florida 33131.
-36-
<PAGE>
This Agreement shall be deemed to have been made and
delivered in New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (1) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (2) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (3) irrevocably consents to the jurisdiction of the
New York State Supreme Court, County of New York, and the United States District
Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon the Company mailed by certified mail to the Company's address shall
be deemed in every respect effective service of process upon the Company, in any
such suit, action or proceeding.
13. Parties in Interest. This Agreement is made solely for the
benefit of the Underwriter, the Company and, to the extent expressed, any person
controlling the Company or the Underwriter, each officer, director, partner,
employee and agent of the Underwriter, the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Securities from
the Underwriter, as such purchaser.
-37-
<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
SHERWOOD BRANDS, INC.
By
----------------------------------
Name:
Title:
Confirmed and accepted in New York, N.Y., as of the date first above written:
PARAGON CAPITAL CORPORATION
By
----------------------------------
Name:
Title:
-38-
<PAGE>
Schedule A
1. Sherwood Brands, LLC
2. Sherwood Brands Overseas, Inc.
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SHERWOOD FOODS, INC.
(ORIGINALLY INCORPORATED ON DECEMBER 15, 1982)
On December 12, 1997, the Board of Directors and the sole shareholder of
SHERWOOD FOODS, INC. duly adopted the following amendments to Articles of
Incorporation and adopted the restated Articles of Incorporation to incorporate
such amendments pursuant to the provisions of Sections 55-10-03 and 55-10-07 of
the General Statutes of North Carolina.
FIRST: The Articles of Incorporation of Sherwood Foods are hereby amended
as follows:
1. In order to effect a change in the name of the corporation from Sherwood
Foods, Inc. to Sherwood Brands, Inc., the text of ARTICLE I is stricken in its
entirety and the following language is substituted:
The name of the corporation is SHERWOOD BRANDS, INC. (hereinafter
called the "Company"). The address of the principal office and the mailing
address of the Company is 6110 Executive Boulevard, Suite 1080, Rockville,
Maryland 20852.
2. In order to effect a reclassification of the capital stock of the
Company, the text of ARTICLE IV is stricken in its entirety and the following
language is substituted:
The aggregate number of shares of all classes of capital stock which
this Company shall have authority to issue is 50,000,000, consisting of (i)
30,000,000 shares of Class A Common Stock, par value $0.01 per share (the
"Class A Common Stock"); (ii) 5,000,000 shares of Class B Common Stock, par
value $.01 (the "Class B Common Stock" and together with the Class A Common
Stock, "Common Stock"), and (iii) 5,000,000 shares of preferred stock, par
value $0.01 per share (the "Preferred Stock").
The designations and the preferences, limitations and relative rights
of the Preferred Stock and the Common Stock of the Company are as follows:
<PAGE>
A. Provisions Relating to the Preferred Stock.
1. The Preferred Stock may be issued from time to time in one or
more classes or series, the shares of each class or series to have
such designations and powers, preferences and rights, and
qualifications, limitations and restrictions thereof as are stated and
expressed herein and in the resolution or resolutions providing for
the issue of such class or series adopted by the Board of Directors
(the "Board") as hereinafter prescribed.
2. Authority is hereby expressly granted to and vested in the
Board to authorize the issuance of the Preferred Stock from time to
time in one or more classes or series, to determine and take necessary
proceedings fully to effect the issuance and redemption of any such
Preferred Stock, and, with respect to each class or series of the
Preferred Stock, to fix and state by the resolution or resolutions
from time to time adopted providing for the issuance thereof the
following:
(a) whether or not the class or series is to have voting
rights, full or limited, or is to be without voting rights;
(b) the number of shares to constitute the class or series
and the designations thereof;
(c) the preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations
or restrictions thereof, if any, with respect to any class or
series;
(d) whether or not the shares of any class or series shall
be redeemable and if redeemable the redemption price or prices,
and the time or times at which and the terms and conditions upon
which such shares shall be redeemable and the manner of
redemption;
(e) whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be
applied to the purchase or redemption of such shares for
retirement, and if such retirement or sinking fund or funds be
established, the annual amount thereof and the terms and
provisions relative to the operation thereof;
(f) the dividend rate, whether dividends are payable in
cash, stock of the Company, or other property, the conditions
upon which and the times when such dividends are payable, the
preference to or the relation to the payment of the dividends
2
<PAGE>
payable on any other class or classes or series of stock, whether
or not such dividend shall be cumulative or noncumulative, and if
cumulative, the date or dates from which such dividends shall
accumulate;
(g) the preferences, if any, and the amounts thereof which
the holders of any class or series thereof shall be entitled to
receive upon the voluntary or involuntary dissolution of, or upon
any distribution of the assets of, the Company;
(h) whether or not the shares of any class or series shall
be convertible into, or exchangeable for, the shares of any other
class or classes or of any other series of the same or any other
class or classes of stock of the Company and the conversion price
or prices or ratio or ratios or the rate or rates at which such
conversion or exchange may be made, with such adjustments, if
any, as shall be stated and expressed or provided for in such
resolution or resolutions; and
(i) such other special rights and protective provisions with
respect to any class or series as the Board may deem advisable.
The shares of each class or series of the Preferred Stock may
vary from the shares of any other series thereof in any or all of the
foregoing respects. The Board may increase the number of shares of the
Preferred Stock designated for any existing class or series by a
resolution adding to such class or series authorized and unissued
shares of the Preferred Stock not designated for any other class or
series. The Board may decrease the number of shares of the Preferred
Stock designated for any existing class or series by a resolution,
subtracting from such series unissued shares of the Preferred Stock
designated for such class or series, and the shares so subtracted
shall become authorized, unissued and undesignated shares of the
Preferred Stock.
B. Provisions Relating to the Common Stock.
1. Except as otherwise required by law or as may be provided by
the resolutions of the Board authorizing the issuance of any class or
series of Preferred Stock, as hereinabove provided, all rights to vote
and all voting power shall be vested exclusively in the holders of the
Common Stock.
3
<PAGE>
a. Class A Common Stock Voting Rights
The holders of Class A Common Stock are entitled to one vote per
share on all matters submitted to a vote of the shareholders,
including the election of directors.
b. Class B Common Stock Voting Rights; Conversion Rights
The shares of Class A Common Stock and Class B Common Stock are
identical in all respects, except that (i) each share of the Class B
Common Stock entitles the holder to seven votes on each matter
submitted to a vote of the shareholders; and (ii) Class B Common Stock
is convertible into Class A Common Stock at the option of the holder
on the basis of one share of Class A Common Stock for each share of
Class B Common Stock converted. Each share of Class B Common Stock
will also automatically convert into one share of Class A Common Stock
upon transfer to a non-affiliate of the holder or the Company or if,
on the record date for any meeting of the shareholders, the number of
shares of Class B Common Stock then outstanding is less than 10% of
the aggregate number of shares of Class A Common Stock and Class B
Common Stock then outstanding. Except as required by applicable law,
holders of the Class A Common Stock and Class B Common Stock will vote
together as a single class on all matters submitted to a vote of the
shareholders.
2. Subject to the subject to preferences that may be applicable
to any Preferred Stock, the holders of the Common Stock shall be
entitled to receive ratably when, as and if declared by the Board, out
of funds legally available therefor, dividends payable in cash, stock
or otherwise.
3. Upon any liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, and after the holders of
the Preferred Stock shall have been paid in full the amounts to which
they shall be entitled (if any) or a sum sufficient for such payment
in full shall have been set aside, the remaining net assets of the
Company shall be distributed pro rata to the holders of the Common
Stock in accordance with their respective rights and interests to the
exclusion of the holders of the Preferred Stock.
C. General Provisions.
1. Except as may be provided by the resolutions of the Board
authorizing the issuance of any class or series of Preferred Stock, as
hereinabove provided, cumulative voting by any shareholder is hereby
expressly denied.
2. No shareholder of the Company shall have, by reason of its
holding shares of any class or series of stock of the Company, any
4
<PAGE>
preemptive or preferential rights to purchase or subscribe for any
other shares of any class or series of the Company now or hereafter to
be authorized, and any other equity securities, or any notes,
debentures, warrants, bonds, or other securities convertible into or
carrying options or warrants to purchase shares of any class, now or
hereafter to be authorized, whether or not the issuance of any such
shares, or such notes, debentures, bonds or other securities, would
adversely affect the dividend, voting or other rights of such
shareholder.
D. Share Reclassification
On the date of filing of these Amended and Restated Articles of
Incorporation with the Department of Corporations of the State of
North Carolina, each remaining issued and outstanding share of the
Corporation's previously authorized common stock, par value $.01 per
share (the "Old Common Stock"), shall thereby and thereupon be
classified and converted into 1,150,000 validly issued, fully paid and
nonassessable shares of Class A Common Stock reflecting a conversion
ratio of 4581.67331:1 and 1,000,000 validly issued, fully paid and
nonassessable shares of Class B Common Stock, reflecting a conversion
ratio of 3984.063745:1. Each certificate that heretofore represented
shares of Old Common Stock shall now represent the number of shares of
Common Stock into which the shares of Old Common Stock represented by
such certificate were reclassified and converted on a pro rata basis;
provided, however, that each person holding of record a stock
certificate or certificates that represented shares of Old Common
Stock shall receive, upon surrender of each such certificate or
certificates, new certificates evidencing and representing the number
of shares of Class A Common Stock and Class B Common Stock to which
such person is entitled.
3. The text of ARTICLE V is stricken in its entirety and the following
language is substituted in order to reflect a change in the registered agent of
the Company:
The street address of the Company's registered office in the State of
North Carolina is 380 Knollwood Street, Suite 700, Winston-Salem, Forsyth
County, North Carolina 27103, and the name of its registered agent at such
address is David C. Smith.
4. The text of ARTICLE VI is stricken in its entirety and the following
language is substituted regarding the number of directors of the Company:
The number of directors of the Company and the manner in which such
directors are to be elected shall be as set forth in the Bylaws of the
Company.
5
<PAGE>
5. The text of ARTICLE VII is stricken in their entirety and the following
language is substituted regarding a limitation on the liability of directors of
the Company:
A director shall have no liability to the Company or its shareholders
for monetary damages for breach of any duty as a director, except for (i)
acts or omissions that the director knew at the time of such breach knew or
believed were clearly in conflict with the best interests of the Company,
(ii) improper distributions described in Section 55-8-33 of the North
Carolina General Statutes, (iii) any transaction from which the director
derived an improper personal benefit, or (iv) acts or omissions occurring
prior to the date this Article became effective. If the North Carolina
Business Corporation Act is hereafter amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then
the liability of a director shall be eliminated or limited to the full
extent permitted by the North Carolina Business Corporation Act, as so
amended. Any repeal or modification of this Article shall not adversely
affect any right or protection of a director of the Company existing at the
time of such repeal or modification for or with respect to an act or
omission of such director occurring prior to such repeal or modification.
6. The text of ARTICLE VIII is stricken in its entirety and the following
language is substituted regarding indemnification of directors and officers of
the Company:
The Company shall indemnify and advance expenses to, and may purchase
and maintain insurance on behalf of, its officers and directors to the
fullest extent permitted by law as now or hereafter in effect. Without
limiting the generality of the foregoing, the Bylaws may provide for
indemnification and advancement of expenses to officers, directors,
employees and agents on such terms and conditions as the Board of Directors
may from time to time deem appropriate or advisable.
6
<PAGE>
SECOND: The Company's Articles of Incorporation, as amended by the
foregoing amendments, are hereby restated as follows:
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
SHERWOOD BRANDS, INC.
(ORIGINALLY INCORPORATED ON DECEMBER 15, 1982)
ARTICLE I
NAME AND PRINCIPAL OFFICE
The name of the corporation is SHERWOOD BRANDS, INC. (hereinafter called
the "Company"). The address of the principal office and the mailing address of
the Company is 6110 Executive Boulevard, Suite 1080, Rockville, Maryland 20852.
ARTICLE II
DURATION
The Company shall exist perpetually unless sooner dissolved according to
law.
ARTICLE III
PURPOSE
The purpose for which the Company is organized is to engage in the
transaction of any lawful business for which corporations may be incorporated
under the laws of the State of North Carolina.
ARTICLE IV
CAPITALIZATION
The aggregate number of shares of all classes of capital stock which this
Company shall have authority to issue is 50,000,000, consisting of (i)
30,000,000 shares of Class A Common Stock, par value $0.01 per share (the "Class
A Common Stock"); (ii) 5,000,000 shares of Class B Common Stock, par value $.01
(the "Class B Common Stock" and together with the Class A Common Stock, "Common
Stock"), and (iii) 5,000,000 shares of preferred stock, par value $0.01 per
share (the "Preferred Stock").
The designations and the preferences, limitations and relative rights of
the Preferred Stock and the Common Stock of the Company are as follows:
A. Provisions Relating to the Preferred Stock.
1. The Preferred Stock may be issued from time to time in one or more
classes or series, the shares of each class or series to have such
designations and
7
<PAGE>
powers, preferences and rights, and qualifications, limitations and
restrictions thereof as are stated and expressed herein and in the
resolution or resolutions providing for the issue of such class or series
adopted by the Board of Directors (the "Board") as hereinafter prescribed.
2. Authority is hereby expressly granted to and vested in the Board to
authorize the issuance of the Preferred Stock from time to time in one or
more classes or series, to determine and take necessary proceedings fully
to effect the issuance and redemption of any such Preferred Stock, and,
with respect to each class or series of the Preferred Stock, to fix and
state by the resolution or resolutions from time to time adopted providing
for the issuance thereof the following:
(a) whether or not the class or series is to have voting rights,
full or limited, or is to be without voting rights;
(b) the number of shares to constitute the class or series and
the designations thereof;
(c) the preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any class or series;
(d) whether or not the shares of any class or series shall be
redeemable and if redeemable the redemption price or prices, and the
time or times at which and the terms and conditions upon which such
shares shall be redeemable and the manner of redemption;
(e) whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be applied
to the purchase or redemption of such shares for retirement, and if
such retirement or sinking fund or funds be established, the annual
amount thereof and the terms and provisions relative to the operation
thereof;
(f) the dividend rate, whether dividends are payable in cash,
stock of the Company, or other property, the conditions upon which and
the times when such dividends are payable, the preference to or the
relation to the payment of the dividends payable on any other class or
classes or series of stock, whether or not such dividend shall be
cumulative or noncumulative, and if cumulative, the date or dates from
which such dividends shall accumulate;
(g) the preferences, if any, and the amounts thereof which the
holders of any class or series thereof shall be entitled to receive
upon the
8
<PAGE>
voluntary or involuntary dissolution of, or upon any distribution of
the assets of, the Company;
(h) whether or not the shares of any class or series shall be
convertible into, or exchangeable for, the shares of any other class
or classes or of any other series of the same or any other class or
classes of stock of the Company and the conversion price or prices or
ratio or ratios or the rate or rates at which such conversion or
exchange may be made, with such adjustments, if any, as shall be
stated and expressed or provided for in such resolution or
resolutions; and
(i) such other special rights and protective provisions with
respect to any class or series as the Board may deem advisable.
The shares of each class or series of the Preferred Stock may vary
from the shares of any other series thereof in any or all of the foregoing
respects. The Board may increase the number of shares of the Preferred
Stock designated for any existing class or series by a resolution adding to
such class or series authorized and unissued shares of the Preferred Stock
not designated for any other class or series. The Board may decrease the
number of shares of the Preferred Stock designated for any existing class
or series by a resolution, subtracting from such series unissued shares of
the Preferred Stock designated for such class or series, and the shares so
subtracted shall become authorized, unissued and undesignated shares of the
Preferred Stock.
B. Provisions Relating to the Common Stock.
1. Except as otherwise required by law or as may be provided by the
resolutions of the Board authorizing the issuance of any class or series of
Preferred Stock, as hereinabove provided, all rights to vote and all voting
power shall be vested exclusively in the holders of the Common Stock.
a. Class A Common Stock Voting Rights
The holders of Class A Common Stock are entitled to one vote per share
on all matters submitted to a vote of the shareholders, including the
election of directors.
b. Class B Common Stock Voting Rights; Conversion Rights
The shares of Class A Common Stock and Class B Common Stock are
identical in all respects, except that (i) each share of the Class B Common
Stock entitles the holder to seven votes on each matter submitted to a vote
of the shareholders; and (ii) Class B Common Stock is convertible into
Class A Common Stock at the option of the holder on the basis of one share
of Class A Common Stock for each share of Class B Common Stock converted.
Each share
9
<PAGE>
of Class B Common Stock will also automatically convert into one share of
Class A Common Stock upon transfer to a non-affiliate of the holder or the
Company or if, on the record date for any meeting of the shareholders, the
number of shares of Class B Common Stock then outstanding is less than 10%
of the aggregate number of shares of Class A Common Stock and Class B
Common Stock then outstanding. Except as required by applicable law,
holders of the Class A Common Stock and Class B Common Stock will vote
together as a single class on all matters submitted to a vote of the
shareholders.
2. Subject to the subject to preferences that may be applicable to any
Preferred Stock, the holders of the Common Stock shall be entitled to
receive ratably when, as and if declared by the Board, out of funds legally
available therefor, dividends payable in cash, stock or otherwise.
3. Upon any liquidation, dissolution or winding-up of the Company,
whether voluntary or involuntary, and after the holders of the Preferred
Stock shall have been paid in full the amounts to which they shall be
entitled (if any) or a sum sufficient for such payment in full shall have
been set aside, the remaining net assets of the Company shall be
distributed pro rata to the holders of the Common Stock in accordance with
their respective rights and interests to the exclusion of the holders of
the Preferred Stock.
C. General Provisions.
1. Except as may be provided by the resolutions of the Board
authorizing the issuance of any class or series of Preferred Stock, as
hereinabove provided, cumulative voting by any shareholder is hereby
expressly denied.
2. No shareholder of the Company shall have, by reason of its holding
shares of any class or series of stock of the Company, any preemptive or
preferential rights to purchase or subscribe for any other shares of any
class or series of the Company now or hereafter to be authorized, and any
other equity securities, or any notes, debentures, warrants, bonds, or
other securities convertible into or carrying options or warrants to
purchase shares of any class, now or hereafter to be authorized, whether or
not the issuance of any such shares, or such notes, debentures, bonds or
other securities, would adversely affect the dividend, voting or other
rights of such shareholder.
D. Share Reclassification
On the date of filing of these Amended and Restated Articles of
Incorporation with the Department of Corporations of the State of North
Carolina, each remaining issued and outstanding share of the Corporation's
previously authorized common stock, par value $.01 per share (the "Old
Common Stock"), shall thereby and thereupon be classified and converted
into 1,150,000 validly issued, fully paid and nonassessable shares of Class
A Common Stock reflecting a
10
<PAGE>
conversion ratio of 4581.67331:1 and 1,000,000 validly issued, fully paid
and nonassessable shares of Class B Common Stock, reflecting a conversion
ratio of 3984.063745:1. Each certificate that heretofore represented shares
of Old Common Stock shall now represent the number of shares of Common
Stock into which the shares of Old Common Stock represented by such
certificate were reclassified and converted on a pro rata basis; provided,
however, that each person holding of record a stock certificate or
certificates that represented shares of Old Common Stock shall receive,
upon surrender of each such certificate or certificates, new certificates
evidencing and representing the number of shares of Class A Common Stock
and Class B Common Stock to which such person is entitled.
ARTICLE V
REGISTERED AGENT
The street address of the Company's registered office in the State of North
Carolina is 380 Knollwood Street, Suite 700, Winston-Salem, Forsyth County,
North Carolina 27103, and the name of its registered agent at such address is
David C. Smith.
ARTICLE VI
BOARD OF DIRECTORS
The number of directors of the Company and the manner in which such
directors are to be elected shall be as set forth in the Bylaws of the Company.
ARTICLE VII
LIMITATION ON LIABILITY OF DIRECTORS
A director shall have no liability to the Company or its shareholders for
monetary damages for breach of any duty as a director, except for (i) acts or
omissions that the director knew at the time of such breach knew or believed
were clearly in conflict with the best interests of the Company, (ii) improper
distributions described in Section 55-8-33 of the North Carolina General
Statutes, (iii) any transaction from which the director derived an improper
personal benefit, or (iv) acts or omissions occurring prior to the date this
Article became effective. If the North Carolina Business Corporation Act is
hereafter amended to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director shall be
eliminated or limited to the full extent permitted by the North Carolina
Business Corporation Act, as so amended. Any repeal or modification of this
Article shall not adversely affect any right or protection of a director of the
Company existing at the time of such repeal or modification for or with respect
to an act or omission of such director occurring prior to such repeal or
modification.
11
<PAGE>
ARTICLE VIII
INDEMNIFICATION
The Company shall indemnify and advance expenses to, and may purchase and
maintain insurance on behalf of, its officers and directors to the fullest
extent permitted by law as now or hereafter in effect. Without limiting the
generality of the foregoing, the Bylaws may provide for indemnification and
advancement of expenses to officers, directors, employees and agents on such
terms and conditions as the Board of Directors may from time to time deem
appropriate or advisable.
12
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed these Amended and Restated
Articles of Incorporation this 12th day of December, 1997.
SHERWOOD FOODS, INC.
By: /s/ Uziel Frydman
-----------------------------------
Uziel Frydman, President
13
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
SHERWOOD FOODS, INC.
Dated: December 6 1995
ARTICLE I.
Offices
Section 1. Principal Office. The principal office of the Corporation
shall be located at 6110 Executive Blvd Rockville, Maryland
20852.
Section 2. Registered Office. The registered office of the Corporation,
which by law is required to be maintained within the State of
North Carolina, shall be located at 605 Hertford Road,
Winston-Salem, North Carolina 27104 or at such other place
within the State of North Carolina as may, from time to time,
be fixed and determined by the Board of Directors.
Section 3. Other Offices. The corporation may have offices at such places,
either within or outside the State of North Carolina, as the
Board of Directors may from time to time determine.
ARTICLE II.
Meetings of Shareholders
Section 1. Annual Meetings. The annual meeting of the shareholders for
the election of Directors and for the transaction of such other
business as may properly come before the meeting shall be held
at 10:00 o'clock, a.m., on the 26th of December each year,
beginning in 1984, if not a legal holiday, and if a legal
holiday, then on the next secular day following.
Section 2. Substitute Annual Meeting. If the annual meeting shall not
be held on the day designated by these By-Laws, or on
adjournment thereof, a substitute annual meeting may be called
in the manner provided for the call of a special meeting in
accordance with the provision of Section
<PAGE>
3 of this Article II and a substitute annual meeting so called
shall be designated as and shall be treated, for all purposes,
as the annual meeting.
Section 3. Special Meetings. Special meetings of the shareholders may
be called at any time by the President, or any member of the
Board of Directors, or by any shareholder pursuant to the
written request of the holders of not less than 50% of all the
shares entitled to vote at the meeting.
Section 4. Place of Meetings. All meetings of shareholders shall be
held at the principal office of the corporation except that a
meeting may be held at such other place, within or outside the
State of North Carolina, as may be designated in a duly
executed waiver of notice of such meeting or as may be
otherwise agreed upon in advance by a majority of the
shareholders entitled to vote at such a meeting.
Section 5. Notice of Meetings. Written or printed notice stating the
time and place of a meeting of shareholders shall be delivered,
personally or by mail, by or at the direction of the President,
the Secretary or other persons authorized to call such meeting,
to each shareholder of record entitled to vote at such meeting,
not less than ten or more than fifty days prior to the date of
such meeting, provided, that such notice must be given not less
than twenty days before the date of any meeting at which a
merger or consolidation is to be considered. If mailed, such
notice shall be directed to each shareholder at the address of
such shareholder as set forth in the records of the corporation
except that if any shareholder shall have filed with the
Secretary a written request that notices intended for such
shareholder be mailed to some other address then all notices to
such shareholder shall be mailed to the address designated in
such request. A statement of the business to be transacted at
an annual or substitute annual meeting of shareholders need not
be set forth in the notice of such meeting except that if any
matter is to be considered or acted upon, other than the
election of Directors, on which the vote of shareholders is
required under the provisions of the
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North Carolina Business Corporation Act then a specific
statement thereof shall be set forth in such notice. In the
case of a special meeting, the notice shall set forth the
nature of the business to be transacted. If a meeting shall
be adjourned for more than thirty days, notice of such
adjourned meeting shall be given as in the case of an
original meeting and if the adjournment shall be for less
than thirty days no notice thereof need be given except that
such adjournment shall be announced at the meeting at which
the adjournment is taken. Notice of a meeting need not be
given if each shareholder entitled to notice thereof shall,
in person, or by attorney thereunto duly authorized, waive
notice thereof in writing, either before or after such
meeting.
Section 6. Voting Lists. At least ten days before each meeting of
shareholders the Secretary of the corporation shall prepare an
alphabetical list of the shareholders entitled to vote at such
meeting, with the address of and number of shares held by each,
which list shall be kept on file at the registered office of
the corporation for a period of ten days prior to such meeting,
and shall be subject to inspection by any shareholder at any
time during the usual business hours. This list shall also be
produced and kept open at the time and place of the meeting and
shall be subject to inspection by any shareholder during the
whole time of the meeting.
Section 7. Quorum. Except as otherwise provided by statute, or by the
charter of the corporation, or by these By-Laws, the presence
in person or by proxy of holders of record of a majority of the
shares entitled to vote at the meeting shall be necessary to
constitute a quorum for the transaction of business. In the
absence of a quorum, a majority in interest of the shareholders
entitled to vote present in person or by proxy, may adjourn the
meeting from time to time. At any such adjourned meeting, at
which a quorum shall be present, any business may be transacted
which might have been transacted at the meeting as originally
called if a quorum had been there present. The shareholders
present in person or by proxy at a meeting at which a quorum is
present may continue to do
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business until adjournment notwithstanding the withdrawal of
enough shareholders to leave less than a quorum.
Section 8. Voting; Proxies. Except as otherwise provided in the
Articles of Incorporation or in these Bylaws, every shareholder
of record shall have the right at every shareholders' meeting
to one vote for every share standing in the shareholder's name
on the books of the corporation. If a quorum exists, action on
a matter, other than election of directors, is approved by a
voting group of shareholders if the votes cast within the
voting group favoring the action exceed the votes cast within
the voting group opposing the action, unless the Articles of
Incorporation or the North Carolina Business Corporation Act
require a greater number of affirmative votes.
Any shareholder entitled to vote may vote by proxy, provided
that the instrument authorizing such proxy to act shall have
been executed in writing by the shareholder or his duly
authorized attorney. No proxy shall be valid after the
expiration of eleven months from the date of its execution,
unless the person executing it shall have specified therein the
length of time it is to continue in force or limits its use to
a particular meeting, and in any event no proxy shall be valid
after ten years from the date of its execution. Each instrument
designating a proxy shall be exhibited to the Secretary of the
meeting and shall be filed with the records of the corporation.
Section 9. Votes Required. The vote of a majority of the shares voted
at a meeting of Shareholders, duly held at which a quorum is
present, shall be sufficient to take or authorize action upon
any matter which may properly come before the meeting except as
otherwise provided by law, the charter or these By-Laws.
Section 10. Informal Action by Shareholders. Any action which may be
taken by the shareholders at a meeting thereof may be taken
without a meeting if consent in writing, setting forth the
action taken, shall be signed by all of the persons
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who would be entitled to vote upon such action at a meeting
and filed with the Secretary of the corporation. Any consent
so filed with the Secretary of the corporation shall be
filed in the corporate minute book in like manner as minutes
of a meeting. Any such consent shall have the same force and
effect as a unanimous vote of shareholders.
ARTICLE III.
Board of Directors
Section 1. General Powers. The property, affairs and business of the
corporation shall be managed by the Board of Directors.
Section 2. Number, Tenure and Qualifications.
The number of directors of the corporation shall be five. The
number of directors can be increased or decreased from time to
time by the vote of the directors or shareholders to amend this
Section, provided that the number of directors shall be not
less than one, and provided further that no decrease shall
shorten the term of any incumbent director. The Directors shall
be elected at the annual or adjourned annual meeting of the
Shareholders (except as herein otherwise provided for the
filling of vacancies) and each Director shall hold office until
the next Annual Meeting of Shareholders and until his successor
shall have been elected and qualified, or until his death,
resignation, disqualification or removal in the manner
hereinafter provided. Directors need not be residents of the
State of North Carolina or Shareholders of the corporation.
Section 3. Election of Directors. Except as provided in Section 6 of
this Article, the Directors shall be elected at the annual
meeting of shareholders and the persons who shall receive the
highest number of votes for the available Director positions
shall be the elected Directors. If prior to voting for the
election of Directors, demand therefor shall be made by or on
behalf of any shares entitled to vote at such meeting the
election of Directors shall be by ballot.
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Section 4. Reserved.
Section 5. Removal of Directors. The Board of Directors or any
individual Director may be removed from office with or without
cause by a vote of shareholders holding a majority of the
shares entitled to vote at an election of Directors, provided,
however, that except in the event the entire Board shall be
removed, a particular Director may not be removed if the number
of shares voting against the removal would be sufficient to
elect a Director if such shares were voted cumulatively at an
annual election. If any or all Directors are so removed, new
Directors may be elected at the same meeting.
Section 6. Vacancies. A vacancy in the Board of Directors created by an
increase in the authorized number of Directors shall be filled
only by election at an annual meeting of shareholders or at a
special meeting of shareholders called for that purpose. Any
vacancy in the Board of Directors created other than by an
increase in the number of Directors may be filled by a majority
of the remaining Directors, though less than a quorum, or by
the sole remaining Director. The shareholders may elect a
Director at any time to
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fill any vacancy not filled by the Directors. Any Director
elected to fill a vacancy shall be elected for the unexpired
term of his predecessor in office.
Section 7. Chairman of Board. There may be a Chairman of the Board of
Directors elected by the Directors from their number at any
meeting of the Board of Directors. The Chairman, if any, shall
preside at all meetings of the Board of Directors and perform
such other duties as may be directed by the Board. There may be
one or more Vice Chairmen of the Board of Directors elected by
the Directors from their number at any meeting of the Board of
Directors, who shall perform such duties as may be directed by
the Board of Directors.
ARTICLE IV.
Meetings of Directors
Section 1. Regular Meetings. A regular annual meeting of the Board of
Directors may be held immediately after the annual meeting of
the shareholders and if not then same shall be held within a
reasonable time thereafter.
Section 2. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the
Board, President or any Director.
Section 3. Place of Meetings. All meetings of the Board of Directors
shall be held at the principal office of the corporation except
that such meetings may be held at such other place, within or
outside the State of North Carolina as may be designated in a
duly executed waiver of notice of such meeting or as may be
otherwise agreed upon in advance of the meeting by a majority
of the Directors.
Section 4. Notice of Meetings. Regular Meetings of the Board of
Directors may be held without notice. Special meetings shall be
called on not less than two days' prior notice. Notice of a
special meeting need not state the purpose thereof, and such
notice shall be directed to each Director at his residence or
usual place
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of business by mail, cable, or telegram or may be delivered
personally. The presence of a Director at a meeting shall
constitute a waiver of notice of that meeting except only
when such Director attends the meeting solely for the
purpose of objecting to the transaction of any business
thereat, on the ground that the meeting has not been
lawfully called, and does not otherwise participate in such
meeting.
Section 5. Quorum and Manner of Acting. A majority of the number of
Directors of the corporation shall constitute a quorum for the
transaction of any business at any meeting of the Board of
Directors. Except as otherwise expressly provided in these
By-Laws, the act of a majority of the Directors present at a
meeting at which a quorum is present shall be the act of the
Board of Directors. The vote of a majority of the number of
Directors of the corporation shall be required to adopt a
resolution appointing an executive committee, and the vote of a
majority of the Directors then holding office shall be required
to adopt, amend or repeal a By-Law or to dissolve the
corporation pursuant to the provision of the North Carolina
Business Corporation Act without shareholder consent.
Section 6. Informal Action of Directors. Action taken by a majority of
the Directors without a meeting shall constitute Board action
if written consent to the action in question is signed by all
the Directors and filed with the minutes of the proceedings of
the Board, whether done before or after the action so taken.
Section 7. Resignations. Any Director may resign at any time by giving
written notice to the President or the Secretary of the
corporation. Such resignation shall take effect at the time
specified therein, or if no time is specified therein, at the
time such resignation is received by the President or Secretary
of the corporation, unless it shall be necessary to accept such
resignation before it becomes effective, in which event the
resignation shall take effect upon its acceptance by the Board
of Directors. Unless otherwise specified therein, the
acceptance of any such resignation shall not be necessary to
make it effective.
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Section 8. Presumption of Assent. A Director of the corporation who is
present at a meeting of the Board of Direrctors shall be
presumed to have assented to the action taken unless his
contrary vote is recorded or his dissent is otherwise entered
in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the
Secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary
immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of
such action.
Section 9. Compensation. Directors who are neither officers nor
employees of the corporation shall receive such stipend, if
any, as may be determined by the Board of Directors, plus their
expenses, if any, of attending such Directors' meeting. No such
payments, however, shall preclude any such Director from
serving the corporation in any other capacity and receiving
compensation therefor.
ARTICLE V.
Executive Committee
Section 1. Creation of Powers. The Board of Directors, by resolution
adopted by a majority of the whole number of Directors, may
designate an Executive Committee and one or more other
committees each consisting of two (2) or more members of the
Board. During the intervals between the meetings of the Board
of Directors, the Executive Committee and any other committee
so designated by a majority of the whole number of Directors
shall possess and may exercise all of the powers of the Board
of Directors as may be lawfully conferred upon them by the
Board of Directors of the corporation, provided that they shall
have no power or authority to perform any acts required by law
to be performed only by the Board of Directors, and shall have
no power to fix or alter the number of Directors, to fill
vacancies in the Board of Directors or Executive Committee or
other committee so designated by a majority of the whole number
of Directors, to issue shares of stock, to declare
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dividends or to make, amend or repeal By-Laws. All actions of
the Executive Committee and any other committee so designated
by a majority of the whole number of Directors shall be
reported to the Board of Directors at its next meeting
succeeding such action and shall be subject to revision and
alteration by the Board, provided, however, that no rights of
third parties shall be affected by any such revision or
alteration.
No resolution relating to the powers or authority of the
Executive Committee and any other committee so designated by a
majority of the whole number of Directors may be altered,
amended, rescinded, or repealed in whole or part except upon
the affirmative vote of a majority of the whole Board of
Directors then holding office.
Section 2. Vacancy. Any vacancy occurring in an Executive Committee or
any other committee so designated by a majority of the whole
number of Directors shall be filled by a majority of the whole
Board of Directors at a regular or special meeting of the Board
of Directors.
Section 3. Removal. Any member of an Executive Committee or any other
committee so designated by a majority of the whole number of
Directors may be removed at any time with or without cause by a
majority of the whole Board of Directors.
Section 4. Minutes. The Executive Committee or any other committee so
designated by a majority of the whole number of Directors shall
keep regular minutes of its proceedings and report the same to
the Board of Directors at the next succeeding regular or
special meeting of the Board.
Section 5. Responsibility of Directors. The designation of an Executive
Committee or any other committee so designated by a majority of
the whole number of Directors and the delegation thereto of
authority shall not operate to relieve the Board of Directors,
or any member thereof, of any responsibility or liability
imposed upon it or him by the law.
If action taken by an Executive Committee or any other
committee so designated by a majority
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of the whole number of Directors is not thereafter formally
reported to the Board, as set forth in Section 4, a Director
may dissent from such action by filing his written objection
with the Secretary with reasonable promptness after learning of
such action.
Section 6. Quorum. A majority of the members of the Executive Committee or
any other committee so designated by a majority of the whole
number of Directors shall constitute a quorum of such
committee. Any actions shall be taken by a majority vote of
those present when a quorum is present.
Section 7. Reversal of Executive Committee by Board. Any action of the
Executive Committee or any other committee so designated by a
majority of the whole number of Directors may be reversed,
amended or nullified by a majority of all Directors then
holding office at any regular or special meeting of Directors.
ARTICLE VI.
Officers
Section 1. Number of Officers. The officers of the corporation shall be a
President, one or more Vice Presidents, a Secretary and a
Treasurer and such other officers as may be appointed in
accordance with the provisions of Section 3 of this Article VI.
Any two offices or more may be held by one person, except the
offices of President and Secretary. The Board of Directors may
elect a Chairman of the Board if and when it shall determine
the need for such officer.
Section 2. Election, Term of Office and Qualifications. Each officer,
except such officers as may be appointed in accordance with the
provisions of Section 3 of this Article VI, shall be chosen by
the Board of Directors and shall hold office until the annual
meeting of the Board of Directors held next after his election
or until his successor shall have been duly chosen and
qualified or until his death or until he shall
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resign or shall have been disqualified or shall have been
removed from office.
Section 3. Subordinate Officers and Agents. The Board of Directors from
time to time may appoint other officers or agents, each of whom
shall hold office for such period, have such authority, and
perform such duties as the Board of Directors from time to time
may determine. The Board of Directors may delegate to any
officer or agent the power to appoint any subordinate officer
or agent and to prescribe his respective authority and duties.
Section 4. Removal. The officers specifically designated in Section 1 of
this Article VI may be removed, either with or without cause,
by vote of a majority of the whole Board of Directors at a
special meeting of the Board called for that purpose. The
officers appointed in accordance with the provisions of Section
3 of this Article VI may be removed, either with or without
cause, by the Board of Directors, by a majority vote of the
Directors present at any meeting, or by an officer or agent
upon whom such power of removal may be conferred by the Board
of Directors. The removal of any person from office shall be
without prejudice to the contract rights, if any, of the person
so removed.
Section 5. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or
the Secretary of the corporation, or if he was appointed by an
officer or agent in accordance with Section 3 of this Article
VI, by giving written notice to the officer or agent who
appointed him. Any such resignation shall take effect upon its
being accepted by the Board of Directors or by the officer or
agent appointing the person so resigning.
Section 6. Vacancies. A vacancy in any office because of death,
resignation, removal, or disqualification, or any other cause,
shall be filled for the unexpired portion of the term in the
manner prescribed in these By-Laws for regular appointments or
elections to such offices.
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Section 7. President. The President shall be the chief executive
officer of the corporation, and subject to the instructions of
the Board of Directors, shall have general charge of the
business, affairs and property of the corporation and control
over its other officers, agents and employees. He shall preside
at all meetings of the shareholders at which he is present and,
in the absence or incapacity of the Chairman of the Board,
preside at all meetings of the Board of Directors at which he
may be present. He shall have authority to sign, with any other
proper officer, certificates for shares of the corporation and
any deeds, mortgages, bonds, contracts, or other instruments
which may be lawfully executed on behalf of the corporation,
except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution
thereof shall be delegated by the Board of Directors to some
other officer or agent; and, in general, he shall perform all
duties incident to the office of President and such other
duties as may be, prescribed by the Board of Directors from
time to time. He shall have power to make and execute any
contract on behalf of the corporation that he believes to be
necessary and suitable for the profitable operation of the
company.
Section 8. Vice-President. At the request of the President, or in his
absence or disability, the Vice-President, and if there be more
than one Vice-President, the Vice-President designated by the
Board of Directors, or in the absence of such designation, the
Vice-President designated by the President, shall perform all
the duties of the President and when so acting shall have all
the powers of and be subject to all the restrictions upon the
President. The Vice-Presidents shall perform such other duties
and have such authority as from time to time may be assigned to
them by the Board of Directors.
Section 9. Secretary. The Secretary shall keep the minutes of the
meetings of shareholders and of the Board of Directors, and
shall see that all notices are duly given in accordance with
the provisions of these By-Laws or as required by law. He shall
be custodian of the records,
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books, reports, statements, certificates and other documents of
the corporation and of the seal of the corporation, and see
that the seal is affixed to all share certificates prior to
their issuance and to all documents requiring such seal. In
general, he shall perform all duties and possess all authority
incident to the office of Secretary, and he shall perform such
other duties and have such other authority as from time to time
may be assigned to him by the Board of Directors.
Section 10. Treasurer. The Treasurer shall have supervision over the
funds, securities, receipts and disbursements of the
corporation. He shall keep full and accurate accounts of the
finances of the corporation in books especially provided for
that purpose, and he shall cause a true statement of its assets
and liabilities, as of the close of each fiscal year, and of
the results of its operations and of changes in surplus for
such fiscal year, all in reasonable detail, including
particulars as to convertible securities then outstanding, to
be made and filed at the registered or principal office of the
corporation within four months after the end of such fiscal
year. The statement so filed shall be kept available for
inspection by any shareholder for a period of ten years and the
Treasurer shall mail or otherwise deliver a copy of the latest
such statement to any shareholder upon his written request for
the same. He shall in general perform all duties and have all
authority incident to the office of Treasurer and shall perform
such other duties and have such other authority as from time to
time may be assigned or granted to him by the Board of
Directors. He may be required to give a bond for the faithful
performance of his duties in such form and amount as the Board
of Directors may determine.
Section 11. Duties of Officers May Be Delegated. In case of the absence
of any officer of the corporation or for any other reason that
the Board may deem sufficient, the Board may delegate the
powers or duties of such officer to any other officer or to any
Director for the time being, provided a majority of the entire
Board of Directors concurs therein.
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Section 12. Salaries of Officers. No officer of the corporation shall
be prevented from receiving a salary as such officer or from
voting thereon by reason of the fact that he is also a Director
of the corporation. The salaries of the officers of the
corporation, including such officers as may be Directors of the
corporation, shall be fixed from time to time by the Board of
Directors, except that the Board of Directors may delegate to
any officer who has been given power to appoint subordinate
officers or agents, as provided in Section 3 of this Article
VI, the authority to fix the salaries or other compensation of
any such officers or agents appointed by him.
ARTICLE VII.
Contracts, Loans, Deposits, Checks, Drafts, Etc.
Section 1. Contracts. Except as otherwise provided in these By-Laws,
the Board of Directors may authorize any officer or officers,
agent or agents to enter into any contract or to execute or
deliver any instrument on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidence of indebtedness shall be issued in
its name unless and except as authorized by the Board of
Directors. Any officer or agent of the corporation thereunto so
authorized may effect loans or advances for the corporation and
for such loans and advances may make, execute and deliver
promissory notes, bonds or other evidences of indebtedness of
the corporation. Any such officer or agent, when thereunto so
authorized, may mortgage, pledge, hypothecate or transfer as
security for the payment of any and all loans, advances,
indebtednesses and liabilities of the corporation any real
property and all stocks, bonds, other securities and other
personal property at any time held by the corporation, and to
that end may endorse, assign and deliver the same, and do every
act and thing necessary or proper in connection therewith. Such
authority may be general or confined to specific instances.
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Section 3. Deposits. All funds of the corporation shall be deposited
from time to time to the credit of the corporation in such
banks or trust companies or with such bankers or other
depositories as the Board of Directors may select, or as may be
selected by any officer or officers, agent or agents of the
corporation to whom such power may from time to time be given
by the Board of Directors.
Section 4. Checks, Drafts, Etc. All notes, drafts, acceptances, checks
and endorsements or other evidences of indebtedness shall be
signed by the President or a Vice-President and by the
Secretary or the Treasurer, or in such other manner as the
Board of Directors from time to time may determine.
Endorsements for deposit to the credit of the corporation in
any of its duly authorized depositories will be made by the
President or Treasurer or by any officer or agent who may be
designated by resolution of the Board of Directors in such
manner as such resolution may provide.
Section 5. Proxies. Any share in any other corporation which may from
time to time be held by the corporation may be represented and
voted at any meeting of shareholders of such other corporation
by any person or persons thereunto authorized by the Board of
Directors or if no one be so authorized, by the President or a
Vice-President or by any proxy appointed in writing by the
President or a Vice-President.
ARTICLE VIII.
Certificates for Shares and Their Transfer
Section 1. Issuance of Shares. The Board of Directors have the power by
resolution duly adopted to issue from time to time any part or
all of the authorized but unissued shares or dispose of any
Treasury Shares of the corporation and to determine the time
when, the terms upon which, and the consideration for which the
corporation shall issue or dispose of such shares.
Section 2. Certificates of Shares. Certificates representing shares of
the corporation shall be in such form as shall be determined by
the Board
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of Directors. The corporation shall issue and deliver to each
Shareholder certificates representing a11, fully paid shares
owned by him. Certificates shall be signed by or impressed with
the facsimile signature of either the President or Vice
President and countersigned by the Secretary, an Assistant
Secretary, Treasurer or Assistant Treasurer, provided that if
facsimile signatures are used, each certificate shall be
countersigned by a transfer agent or registered by a registrar
other than the corporation or any employee thereof. All
certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to
whom the shares represented thereby are issued, with the number
and class of shares and the date of issue, shall be entered on
the stock transfer books of the corporation.
Section 3. Transfers of Shares. A book shall be kept containing the
names, alphabetically arranged, of all shareholders of the
corporation, showing their places of residence, the number of
shares held by them respectively, the time when they
respectively become the owners thereof and the amount paid
thereon. Transfers of the shares of the corporation shall be
made on the books of the corporation at the direction of the
record holder thereof or his attorney thereunto duly authorized
by a power of attorney duly executed and filed with the
Secretary, or with the transfer agent, if any, for such shares,
and the surrender of the certificate or certificates for such
shares properly endorsed. The corporation shall be entitled to
treat the holder of record of any share or shares as the holder
and owner thereof and shall not be bound to recognize any
legal, equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise
expressly provided by the laws of the State of North Carolina.
Transfer of shares shall be subject to any and all restrictions
placed thereupon by the Board of Directors.
Section 4. Lost or Destroyed Certificates. The holder of any share or
shares of the corporation shall immediately notify the
corporation of any loss,
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destruction, theft or mutilation of the certificate therefor
and the corporation with the approval of the Board of Directors
may issue a new certificate of such share or shares in the
place of such certificate theretofore issued by it alleged to
have been lost, destroyed, stolen or mutilated. The Board of
Directors in its discretion may require the owner of the
certificate alleged to have been lost, destroyed, stolen or
mutilated, or his legal representative to give the corporation
and its transfer agent and its registrar, if any, before the
issuance of such new certificate, a bond of indemnity in such
sum and in such form and with such surety or sureties as the
Board of Directors may direct or the Board, by resolution
reciting that the circumstances justify such action, may
authorize the issuance of such new certificate without
requiring such bond.
Section 5. Closing Transfer Books and Fixing Record Date. For the
purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof,
or entitled to receive payment of any dividends, or in order to
make a determination of shareholders for any other proper
purpose, the Board of Directors may provide that the share
transfer books shall be closed for a stated period but not to
exceed, in any case, fifty days. If the share transfer books
shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders,
such books shall be closed for at least ten days immediately
preceding such meeting. In lieu of closing the share transfer
books, the Board of Directors may fix in advance a date as the
record date for any such determination of shareholders, such
record date in any case to be not more than fifty days and, in
case of a meeting of shareholders, not less than ten days
immediately preceding the date on which the particular action,
requiring such determination of shareholders, is to be taken.
If the share transfer books are not closed and no record date
is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders, or
shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on
which the
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resolution of the Board of Directors declaring such dividend is
adopted as the case may be shall be the record date for such
determination of shareholders.
When a determination of Shareholders entitled to vote at any
meeting of Shareholders has been made as provided in this
Section 5, such determination shall apply to any adjournment
thereof except where the determination has been made through
the closing of the stock transfer books and the stated period
of closing has expired.
Section 6. Treasury Shares. Treasury Shares of the corporation shall
consist of such shares as have been issued and thereafter
acquired but not cancelled by the corporation. Treasury Shares
shall not carry voting or dividend rights.
ARTICLE IX.
General Provisions
Section 1. Corporate Seal. The corporate seal shall be in such form as
shall be approved from time to time by the Board of Directors.
Section 2. Fiscal Year. The fiscal year of the corporation shall be
established by resolution of the Board of Directors.
Section 3. Waiver of Notice. Whenever any notice is required to be
given to any shareholder or director under the provisions of
the North Carolina Business Corporation Act or under the
provisions of the charter or By-Laws of this corporation, a
waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time
stated therein, shall be equivalent to the giving of such
notice.
Section 4. Amendments. Except as otherwise herein provided, these
By-Laws may be amended or repealed and new By-Laws may be
adopted by the affirmative vote of a majority of the Directors
then holding office at any regular or special meeting' of the
Board of Directors. The Board of Directors shall not have power
to adopt a
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By-Law: (1) requiring more than a majority of the voting shares
for a quorum at a meeting of shareholders or more than a
majority of the votes cast to constitute action by the
shareholders, except where higher percentages are required by
law, (2) providing for the management of the corporation other
than by the Board of Directors or its Executive committees. The
shareholders may make, alter, amend and repeal the By-Laws of
the corporation at any annual meeting or at a special meeting
called for such purpose, and By-Laws adopted by the Directors
may be altered or repealed by the shareholders. No By-Law
adopted or amended by the shareholders shall be altered or
repealed by the Board of Directors.
Section 5. Dividends. The Board of Directors may from time to time
declare, and the corporation may pay, dividends on its
outstanding shares in cash, property or its own shares in the
manner and upon the terms and conditions provided by law and by
its charter.
APPROVED:
/s/ UZIEL FRYDMAN
--------------------------------
UZIEL FRYDMAN
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<PAGE>
AMENDED AND RESTATED REIMBURSEMENT AGREEMENT
AMONG
CENTRAL FIDELITY NATIONAL BANK
AND
SHERWOOD FOODS, INC.
AND
SHERWOOD BRANDS, INC.
DATED AS OF
MAY 1, 1997
<PAGE>
TABLE OF CONTENTS(1)
Page
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ARTICLE I
DEFINITIONS
SECTION 1.1 Amendment and Restatement.....................................3
1.2 Definitions...................................................3
1.3 Interpretation...............................................11
ARTICLE II
REIMBURSEMENT OBLIGATION; OTHER FEES AND PAYMENTS
SECTION 2.1 Letter of Credit Commitment..................................11
2.2 Reimbursement and Other Payment..............................11
2.3 Letter of Credit Fees........................................19
2.4 Security for Reimbursement Obligation........................19
2.5 Computation of Interest; Place of Payment....................19
2.6 Supplemental Payments........................................19
2.7 Consent of Bank Required for Optional Redemption.............22
2.8 Transfer of Letter of Credit.................................23
2.9 Reduction, Increase, and Reinstatement of the
Letter of Credit.............................................23
2.10 Termination of the Letter of Credit..........................23
2.11 Late Charge..................................................23
ARTICLE III
COVENANTS
SECTION 3.1 Status of Borrower...........................................23
3.2 Accuracy and Completeness of Information.....................24
3.3 Existence of Defaults........................................24
3.4 Violation of Law.............................................25
3.5 Liabilities or Adverse Changes...............................25
3.6 Permits......................................................25
3.7 Binding Contracts; Enforceability............................25
3.8 Litigation...................................................26
3.9 Condition of Project.........................................26
3.10 Utilities....................................................26
3.11 Environment..................................................26
3.12 Roads........................................................28
3.13 Restrictive Covenants, Etc...................................28
3.14 Form 8038....................................................28
3.15 Representations, Warranties and Undertaking
of the Company...............................................28
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(1) The Table of Contents is not a part of this Agreement.
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Page
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ARTICLE IV
AFFIRMATIVE COVENANTS
SECTION 4.1 Affirmative Covenants of Borrower and Company................31
4.2 Financial Statements.........................................31
4.3 Payment and Performance......................................32
4.4 Protection of Security.......................................32
4.5 Insurance....................................................33
4.6 Books and Records............................................33
4.7 Permits and Approvals........................................33
4.8 Taxes, Liens and Charges.....................................33
4.9 Notice of Existence of Default...............................34
4.10 Notice of Litigation or Proceedings..........................34
4.11 Maintenance of Existence.....................................34
4.12 Compliance with Laws.........................................35
4.13 Environment..................................................35
4.14 ERISA Compliance.............................................35
4.15 Lease Compliance.............................................35
4.16 Financial Covenants..........................................36
ARTICLE V
NEGATIVE COVENANTS
SECTION 5.1 Transfer or Further Encumbrances.............................38
5.2 Purchase Money Security Interest.............................39
5.3 Additional Borrowings........................................39
5.4 Assignment of this Reimbursement Agreement...................39
5.5 False Certificates or Documents..............................39
5.6 Actions Affecting Bonds......................................40
ARTICLE VI
CONDITIONS TO ADVANCE OF FINANCING PROCEEDS
SECTION 6.1 Conditions to First Advance..................................40
6.2 Additional Conditions........................................43
ARTICLE VII
DISBURSEMENT FROM BOND FUND
SECTION 7.1 Provisions Regarding Approval of Requisitions................44
7.2 Final Payment from the Project Fund..........................44
ARTICLE VIII
SPECIAL COVENANTS
SECTION 8.1 Incorporation of Commitment..................................45
8.2 Payment of Expenses..........................................45
8.3 Public and Utility Agreements................................46
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8.4 Advancements.................................................46
8.5 Further Assurances...........................................47
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
SECTION 9.1 Events of Default............................................48
9.2 Remedies.....................................................49
9.3 Attorney-in-Fact.............................................50
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Successors and Assigns.......................................50
10.2 Severability.................................................50
10.3 Applicable Law ..............................................49
10.4 Notices......................................................50
10.5 Consents and Approvals.......................................50
10.6 Amendments...................................................51
10.7 Agreements to Survive .......................................51
10.8 No Partnership...............................................51
10.9 Time of the Essence..........................................51
10.10 Counterparts.................................................52
10.11 Failure to Exercise Rights...................................52
10.12 No Third Party Rights........................................52
10.13 Rule of Construction.........................................52
10.14 Waiver of Trial by Jury......................................52
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THIS AMENDED AND RESTATED REIMBURSEMENT AGREEMENT (this "Reimbursement
Agreement") is made as of May 1, 1997 by and among Sherwood Foods, Inc., a North
Carolina corporation (the "Borrower"), Sherwood Brands, Inc., a North Carolina
corporation ("the Company") and CENTRAL FIDELITY NATIONAL BANK, a national
banking association organized under the laws of the United States of America
(the "Bank");
W I T N E S S E T H:
WHEREAS, the Industrial Development Authority of Mecklenburg County,
Virginia, a political subdivision of the Commonwealth of Virginia (the
"Authority"), has issued its Variable Rate Demand Revenue Bonds (Sherwood Foods,
Inc. Project), Series 1996 (the "1996 Bonds"), in the aggregate principal amount
of Nine Hundred Thirty Five Thousand Dollars ($935,000) for the financing of the
acquisition of an approximately 10 acre parcel of land and the renovation and
equipping of an approximately 67,000 square foot manufacturing facility at 807
S. Main Street, Chase City, Mecklenburg, Virginia pursuant to the Indenture; and
WHEREAS, the Company is a sister corporation of the Borrower and is the
principal purchaser of the products to be manufactured in the Project by the
Borrower; and
WHEREAS, at the request of the Borrower, the Bank issued a letter of credit
for the benefit of Crestar Bank as Trustee (the "Trustee") and the holders, from
time to time, of the 1996 Bonds in the amount of Nine Hundred Fifty Thousand
Eight Hundred Eighty Three Dollars ($950,883) to provide for payment of the
principal, interest and premium, if any, on the 1996 Bonds (the "1996 Letter of
Credit"); and
<PAGE>
WHEREAS, the Authority has also issued its Variable Rate Demand Revenue
Bonds (Sherwood Foods, Inc. Project), Series 1997 (the "1997 Bonds") in the
aggregate principal amount of Five Hundred Eighty Thousand Dollars ($580,000);
and
WHEREAS, the Borrower has requested that the Bank issue a letter of credit
for the benefit of the Trustee and the holders from time to time of the 1997
Bonds in the amount of Five Hundred Eighty Nine Thousand Eight Hundred Fifty
Three Dollars ($589,853) to provide for payment of the principal, interest and
premium, if any, on the 1997 Bonds, and
WHEREAS, the Borrower, the Company and the Bank entered into a
Reimbursement Agreement dated as of June 1, 1996 (the "1996 Reimbursement
Agreement") with respect to the 1996 Letter of Credit; and
WHEREAS, the Borrower, the Company and the Bank now desire to amend and
restate the 1996 Reimbursement Agreement to include both the 1996 Letter of
Credit and the 1997 Letter of Credit; and
WHEREAS, the Borrower and the Bank desire to (i) specify the conditions
precedent to the issuance of the 1997 Letter of Credit by the Bank, (ii) provide
for the conditions precedent to payment by the Trustee from the Bond Fund (as
created by the 1997 Indenture), (iii) provide for the payment to the Bank of
certain fees for the 1996 Letter of Credit and the 1997 Letter of Credit, (iv)
provide for the reimbursement by the Borrower of amounts paid by the Bank under
the 1996 Letter of Credit and the 1997 Letter of Credit, (v) provide for the
indemnity by the Borrower and the Company of the Bank pursuant to the terms of
this Reimbursement Agreement, and (vi) provide for certain other matters;
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NOW, THEREFORE, in consideration of the promises and the agreements
contained in this Reimbursement Agreement, the Borrower and the Bank agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 Amendment and Restatement. The 1996 Reimbursement Agreement is
hereby amended and restated in its entirety. From and after the date hereof, the
agreements between the Borrower, the Company and the Bank with respect to the
1996 Letter of Credit and the 1997 Letter of Credit will be as set forth herein.
No novation is intended as to the Borrower's and the Company's existing duties
and obligations to the Bank. If there are any inconsistencies between the 1996
Reimbursement Agreement and the Financing Documents executed in connection
therewith, they shall be resolved under this Reimbursement Agreement and the
Financing Documents executed or modified in connection herewith.
Section 1.2. Definitions. As used in this Reimbursement Agreement, the
terms listed below shall have the indicated meanings unless otherwise required
by the context. Other capitalized terms herein are defined in the Indenture.
Accounts shall mean all now owned or hereafter acquired accounts as defined
by the UCC and all proceeds thereof.
A Drawing shall mean a drawing made under a Letter of Credit by sight draft
accompanied by a certificate in the form of Annex A to such Letter of Credit to
pay principal of the Bonds covered by such Letter of Credit.
Advance Rate shall mean a fluctuating rate of interest at all times equal
to the Bank's Prime Rate (plus one percent (1%) per annum).
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<PAGE>
Anniversary Date shall mean each June 1 but shall not include June 1, 2006
with respect to the 1996 Letter of Credit and shall mean each June 1 occurring
in any year subsequent to the Date of Issuance but shall not include June 1,
2002 with respect to the 1997 Letter of Credit.
Assignment of Contracts shall mean the assignment of contracts and
documents dated as of June 1, 1996, between the Borrower and the Bank, assigning
the operating agreements, contracts, permits and licenses for the Project to the
Bank as security for the Obligations.
Authority shall mean the Industrial Development Authority of Mecklenburg
County, Virginia, a political subdivision of the Commonwealth of Virginia, its
successors or assigns.
B Drawing shall mean a drawing made under a Letter of Credit by sight draft
to pay the purchase price of Bonds tendered for purchase pursuant to Section 707
of the applicable Indenture.
1996 Bond or Bonds shall mean the Variable Rate Demand Revenue Bonds,
(Sherwood Foods, Inc. Project), Series 1996 of the Authority in the original
aggregate principal sum of Nine Hundred Thirty Five Thousand Dollars ($935,000).
1997 Bond or Bonds shall mean the Variable Rate Demand Revenue Bonds
(Sherwood Foods, Inc. Project), Series 1997 in the principal sum of Five Hundred
Eighty Thousand Dollars ($580,000).
Bonds shall mean the 1996 Bonds and the 1997 Bonds.
Bond Proceeds shall mean proceeds created from the sale of the 1997 Bonds.
Business Day shall have the same meaning as set forth in the Indenture.
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<PAGE>
C Drawing shall mean a drawing made under a Letter of Credit by sight draft
to pay the interest on the applicable Bonds.
Closing shall mean the date upon which the Borrower fulfills all
requirements for the advance of Financing Proceeds under the 1997 Bonds, which
shall occur prior to July 1, 1997.
1996 Commitment shall mean the commitment letter dated May 15, 1996 from
the Bank to the Borrower with respect to the 1996 Letter of Credit and all
amendments thereto.
1997 Commitment shall mean the commitment letter dated February 6, 1997
from the Bank to the Borrower with respect to the 1997 Letter of Credit and all
amendments thereto.
Company shall mean Sherwood Brands, Inc., a North Carolina corporation and
its successors.
Date of Issuance shall mean the date on which the 1997 Letter of Credit is
issued and becomes effective.
Deed of Trust shall mean the amended and restated credit line deed of trust
and security agreement dated as of the date hereof among the Borrower, the
trustees therein named, and the Bank, securing the Obligations.
Default shall mean any event or circumstance which, with the lapse of time,
the giving of notice or both, would constitute an Event of Default.
Equipment shall mean all of the Borrower's now owned or hereinafter
acquired equipment as defined by the UCC and the proceeds thereof.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
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<PAGE>
Event of Default shall mean any of the events set forth in Section 9.1 of
this Reimbursement Agreement or in the Deed of Trust.
Financing Documents shall mean this Reimbursement Agreement, the Deed of
Trust, the Assignment of Contracts, the Commitments, the Pledge Agreements, the
Indentures, the Letters of Credit, the Guaranty, the Security Agreement and all
other documents, whether now or hereafter executed, or given by the Borrower,
Frydman, or the Company in connection therewith, all as the same may be amended,
modified or supplemented from time to time.
Financing Proceeds shall mean funds created from 1997 Bond Proceeds.
Fixtures shall mean all of the Borrower's now owned or hereafter acquired
fixtures as defined by the UCC and the proceeds thereof.
Frydman shall mean Uziel Frydman, his heirs and personal representative.
GAAP shall mean generally accepted accounting practices and principles
consistently applied.
General Intangibles shall mean all of the Borrower's now owned or hereafter
acquired general intangibles as defined by the UCC and related to the ownership,
use or operation of the Project and the proceeds thereof.
Guarantors shall mean Uziel Frydman and Sherwood Brands, Inc., jointly and
severally.
Guaranty shall mean the guaranty of the Obligations from the Guarantors
dated as of the date hereof in replacement of the Guarantor's Guaranty of June
1, 1996.
Improvements shall mean all buildings, improvements, structures and
fixtures now or hereafter located on the Land and all replacements thereof and
additions thereto.
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<PAGE>
1996 Indenture shall mean the Indenture of Trust, dated as of June 1, 1996,
between the Authority and the Trustee, including any amendments and supplements
thereto.
1997 Indenture shall mean the Indenture of Trust dated as of May 1, 1997,
between the Authority and the Trustee, including any amendments or supplements
thereto.
Indentures shall mean the 1996 Indenture and the 1996 Indenture.
Land shall mean the approximately 10 acre parcel of land at 807 South Main
Street, Chase City, Virginia, together with all easements, rights of way and
appurtenances thereto belonging, all as more particularly described in the Deed
of Trust.
Leases shall mean all leases, tenant contracts, rental agreements,
franchise agreements, licenses, accounts or other occupancy agreements, whether
oral or written, now existing or hereafter entered into for the use or occupancy
of all or any part of the Project, together with all modifications, renewals and
proceeds thereof.
Legal Requirements shall mean all existing and future laws, codes,
ordinances, rules, regulations, orders and decrees of governmental authorities
and courts having jurisdiction over the Project or the Borrower and all terms,
conditions and requirements of all Permits.
1996 Letter of Credit shall mean the Letter of Credit issued by the
Bank to the Trustee, in the initial stated amount of Nine Hundred Fifty Thousand
Eight Hundred Eighty Three Dollars ($950,883) providing credit enhancement for
the 1996 Bonds, having an expiration date of June 10, 2006.
1997 Letter of Credit shall mean the Letter of Credit issued by the
Bank to the Trustee in the initial stated amount of Five Hundred Eighty Nine
Thousand Eight Hundred
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<PAGE>
Fifty Three Dollars ($589,853) providing credit enhancement for the 1997 Bonds
having an expiration date of June 10, 2002.
Letters of Credit shall mean the 1996 Letter of Credit and the 1997 Letter
of Credit.
Obligations shall mean the duty of the Borrower to pay, when due, without
offset or deduction, all sums due under this Reimbursement Agreement and the
other Financing Documents and to comply with and perform all of the terms and
conditions of the Financing Documents. Specifically included are the Borrower's
reimbursement obligations under the 1996 Letter of Credit and the 1997 Letter of
Credit.
Obligors shall mean the Borrower, and any co-maker, endorser, guarantor,
surety or other party obligated to pay any sum pursuant to the provisions of or
to perform any act in order to comply with the provisions of the Financing
Documents.
Permits shall mean all permits, licenses, registrations, certificates,
authorizations and approvals now or hereafter issued or required to be issued by
any governmental or quasi governmental authority, for the lawful ownership, use
and operation of the Project.
Person shall mean any natural person or any firm, corporation, limited
liability company, partnership or other organizational entity of any kind.
1996 Pledge Agreement shall mean the Pledge and Security Agreement from the
Borrower in favor of the Bank dated as of June 1, 1996, with respect to the 1996
Bonds.
1997 Pledge Agreement shall mean the Pledge and Security Agreement from the
Borrower in favor of the Bank dated as of the date hereof with respect to the
1997 Bonds.
Pledge Agreements shall mean the 1996 Pledge Agreement and the 1997 Pledge
Agreement.
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<PAGE>
Prime Rate shall mean that rate of interest announced from time to time by
the Bank in Richmond, Virginia, as the Bank's Prime Rate. The Prime Rate is not
necessarily the Bank's lowest or best rate of interest.
Project shall mean the Land, the Improvements and the Equipment.
Project Fund shall mean the Bond Fund created pursuant to Section 701 of
the 1997 Indenture.
Reimbursement Account shall mean the account established by the Borrower
with the Bank pursuant to Section 2.2 of this Reimbursement Agreement.
Reimbursement Agreement shall mean this Reimbursement Agreement, dated as
of the date hereof, among the Bank, the Borrower and the Company.
Remarketing Agent shall mean the Bank, its successors and assigns.
Remarketing Agreement shall mean the Bond Purchase and Remarketing
Agreement, dated as of the date hereof, between the Authority, the Borrower and
the Remarketing Agent.
Security Agreement shall mean the existing Security Agreement between the
Borrower and the Bank encumbering the Equipment.
1996 Stated Amount shall mean with respect to the 1996 Bonds the face
amount of the 1996 Letter of Credit initially equal to Nine Hundred Fifty
Thousand Eight Hundred Eighty Three Dollars ($950,883) representing Nine Hundred
Thirty Five Thousand Dollars ($935,000) in principal portion and Fifteen
Thousand Eight Hundred Eighty Three Dollars ($15,883) to cover 62 days interest
on the 1996 Bonds at the rate of 10% per annum.
1997 Stated Amount shall mean with respect to the 1997 Bonds the face
amount of the 1997 Letter of Credit initially equal to Five Hundred Eighty Nine
Thousand Eight Hundred Fifty Three Dollars ($589,853) representing Five Hundred
Eighty Thousand
-9-
<PAGE>
Dollars ($580,000) in principal portion and Nine Thousand Eight Hundred Fifty
Three Dollars ($9,853) to cover 62 days interest on the 1997 Bonds at the rate
of 10% per annum.
Subordinate Liens shall mean the subordinate liens granted by the Borrower
to the Industrial Development Authority of Mecklenburg County, Virginia to
secure $400,000 and to Lake Country Development Corp. to secure $250,000 in
loans advanced to assist in the acquisition, renovation and equipping of the
Project.
Surveyor shall mean the certified land surveyor for the Project, licensed
by the State of Virginia and approved by the Bank.
Tenants shall mean the tenants under the Leases.
Tendered Bonds shall mean Bonds which are tendered by the holders thereof
to the Remarketing Agent or the Trustee pursuant to the applicable Indenture.
Termination Date shall mean the stated expiration date of a Letter of
Credit or the immediately preceding Business Day if such date is not a Business
Day.
Title Insurance Company shall mean the title insurance company approved by
the Bank for the purposes of issuing the Bank's title insurance policy required
under Section 6.1 of this Reimbursement Agreement.
Trustee shall mean Crestar Bank, Corporate Trust Division, as Trustee under
the Indenture, and any successor to the Trustee under the Indentures.
UCC shall mean the Uniform Commercial Code as adopted by the Commonwealth
of Virginia on the date of this Reimbursement Agreement.
Section 1.3. Interpretation. For the purpose of construing this
Reimbursement Agreement, unless the context indicates otherwise, words in the
singular number shall be deemed to include words in the plural number, and vice
versa, and words in one gender
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<PAGE>
shall be deemed to include words in the other genders. The table of contents,
titles to articles and section headings are for convenience only, and neither
limit nor amplify the provisions of this Reimbursement Agreement itself.
ARTICLE II
REIMBURSEMENT OBLIGATION; OTHER FEES AND PAYMENTS
Section 2.1. 1997 Letter of Credit Commitment. Subject to the terms and
conditions set forth in the 1997 Commitment and this Reimbursement Agreement,
the Bank agrees to issue the 1997 Letter of Credit, in the form attached as
Exhibit I to this Reimbursement Agreement in the Stated Amount of the 1997
Letter of Credit.
Section 2.2. Reimbursement and Other Payments. The Borrower unconditionally
agrees to reimburse the Bank without offset or deduction for all sums paid by
the Bank on the Borrower's behalf under the Letters of Credit. While no note or
other writing shall be necessary to evidence the Borrower's reimbursement
obligations, upon request, the Borrower shall promptly execute and deliver such
notes or other instruments as the Bank may from time to time request with
respect to the reimbursement obligations under the Letters of Credit. The
Borrower has established an interest bearing account with the Bank known as the
Reimbursement Account and promises and agrees to pay to the Bank, without offset
or deduction, the following amounts in the manner and at the times set forth
below:
(a) All funds deposited in the Reimbursement Account in accordance with
subparagraphs (b), (c) and (d) hereof shall be accounted for on a first-in,
first-out basis. Any amounts remaining in the Reimbursement Account on the date
the final payment is due under any subparagraph hereof shall be credited against
the amount due.
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<PAGE>
Any balance remaining in the Reimbursement Account after the Termination Date(s)
of both Letters of Credit and the payment of all Obligations of the Borrower
under the Financing Documents shall be paid to the Borrower or as required by
applicable law.
(b) Provisions applicable to the 1996 Letter of Credit:
(i) The Borrower has deposited to the Reimbursement Account thirty-one
days interest on the principal amount of the 1996 Bonds calculated at the
rate of 10% to be applied by the Bank to reimburse itself for a "C Drawing"
made under the 1996 Letter of Credit. On or before the tenth day of each
month, beginning July 10, 1996, and continuing on the same day of each
month thereafter to and including the tenth day of the month immediately
preceding the month in which the final draw is to be made under the 1996
Letter of Credit, the Borrower will pay the Bank for deposit in the
Reimbursement Account an amount equal to the sum of the most recent
interest draw by the Trustee under the 1996 Letter of Credit (the "1996
Monthly Reimbursement Requirement"), as specified in the Bank's statement
to Borrower. On or about the first day of each month, the Bank will mail a
statement to the Borrower indicating the amount of the 1996 Monthly
Reimbursement Requirement to be remitted to the Bank on or before the tenth
day of that month.
(ii) On the tenth day of the tenth month following the Date of
Issuance of the 1996 Letter of Credit and continuing on the tenth day of
each three month period thereafter until the 1996 Bonds are redeemed or
paid in full, the Borrower will pay the Bank for deposit in the
Reimbursement Account, one-fourth of the aggregate amount the Bank will be
required to advance under each "A Drawing" for principal payments on the
1996 Bonds in the next succeeding year in accordance with the provisions of
scheduled maturities and sinking fund redemptions set forth in the 1996
Indenture. The
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<PAGE>
principal amounts received by the Bank pursuant to this subparagraph shall
be deposited into the Reimbursement Account and debited by the Bank, as
necessary, to reimburse the Bank for an "A Drawing" on the 1996 Bonds. In
the event the Trustee credits the amount to be drawn under the 1996 Letter
of Credit for any principal payment, a corresponding credit shall be
granted to the Borrower for the amounts due hereunder. The sinking fund
payments for the 1996 Bonds are based upon a fifteen year straight line
amortization of $640,000 advanced for the purchase of the Land and a seven
year straight line amortization for approximately $295,000 advanced for
Equipment purchased with 1996 Bond Proceeds.
(iii) In the event of a "B Drawing" under the 1996 Letter of Credit to
purchase Tendered Bonds for the account of the Borrower under the
provisions of Section 404 of the 1996 Indenture, unless the Bank shall
otherwise agree, the Borrower shall on demand pay the Bank an amount
sufficient to reimburse the Bank for such "B Drawing" to the extent funds
are not available in the Reimbursement Account to cover such "B Drawing"
(for purposes hereof, amounts on deposit in the Reimbursement Account
pursuant to subsections (i) and (ii) above shall not be available to
reimburse the Bank for a "B Drawing"). The Borrower shall continue to make
the payments required by subparagraphs (i) and (ii) above, except that so
long as the Bank is the Placement Agent, until demand is made, interest on
such advances shall be at the one month LIBOR plus 1.75%. If the Bank is
not the Placement Agent, interest on such advances shall be at the Advance
Rate.
(iv) In the event of an "A Drawing" under the 1996 Letter of Credit to
make payments due on the 1996 Bonds as a result of redemption or
acceleration of the 1996 Bonds as provided in the 1996 Indenture, the
Borrower shall on the date of such
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<PAGE>
"A Drawing", pay the Bank an amount sufficient to reimburse the Bank for
such "A Drawing" to the extent funds are not available in the Reimbursement
Account to cover such "A Drawing" reimbursement.
(v) If any payments required by subparagraphs (i), (iii) and (iv)
above and subparagraph (ix) below are not made on the day on which they are
due, the Borrower agrees to pay interest thereon at the Advance Rate on the
amounts due until paid.
(vi) In the event of a "B Drawing" to purchase all or any portion of
the 1996 Bonds, whether the Borrower or the Bank is the registered owner of
the 1996 Bonds, unless the Bank otherwise agrees, the Borrower shall
continue to make the payments required in subparagraphs (ii) and (iii)
above until the Borrower shall either have reimbursed the Bank in full for
such "B Drawing" or shall have discharged the 1996 Bonds, as the case may
be.
(vii) In the event the Bank exercises its option to purchase 1996
Bonds pursuant to the 1996 Pledge Agreement after a "B Drawing," the
purchase price of such 1996 Bonds shall be applied directly as a credit
against any reimbursement amounts owing by the Borrower under this
Reimbursement Agreement as a result of the "B Drawing" on the 1996 Bonds;
provided, however, unless the Bank otherwise agrees, the Borrower shall
continue to make the payments required by subparagraphs (ii) and (iii)
which shall be applied to the principal payments due on the 1996 Bonds if
the 1996 Bonds continue to be owned by or pledged for the benefit of the
Bank on the principal payment date as provided in the 1996 Bonds.
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<PAGE>
(viii) In the event the Bank holds 1996 Bonds as collateral under the
1996 Pledge Agreement, the Bank shall release such 1996 Bonds upon the
remarketing of such 1996 Bonds to whomever makes such payments.
(ix) The Borrower agrees to reimburse the Bank for all other sums or
amounts, including but not limited to costs, expenses and reasonable
attorney's fees owed by the Borrower to the Bank hereunder or under any of
the Financing Documents.
(b) Provisions applicable to the 1997 Letter of Credit:
(i) On the Date of Issuance of the 1997 Letter of Credit, the Borrower
shall deposit in the Reimbursement Account, or shall cause to be paid to
the Bank for deposit in the Reimbursement Account, thirty-one days interest
on the principal amount of the 1997 Bonds calculated at the rate of 10% to
be applied by the Bank to reimburse itself for a "C Drawing" made under the
1997 Letter of Credit. On or before the tenth day of each month, beginning
June 10, 1997, and continuing on the same day of each month thereafter to
and including the tenth day of the month immediately preceding the month in
which the final draw is to be made under the 1997 Letter of Credit, the
Borrower will pay the Bank for deposit in the Reimbursement Account an
amount equal to the sum of the most recent interest draw by the Trustee
under the 1997 Letter of Credit (the "1997 Monthly Reimbursement
Requirement"), as specified in the statement from the Bank to the Borrower.
On or about the first day of each month, the Bank will mail a statement to
the Borrower indicating the amount of the 1997 Monthly Reimbursement
Requirement to be remitted to the Bank on or before the tenth day of that
month.
(ii) On the tenth day of the third month following the Date of
Issuance of the 1997 Letter of Credit and continuing on the tenth day of
each three month period thereafter until the 1997 Bonds are redeemed or
paid in full, the Borrower will pay
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<PAGE>
the Bank for deposit in the Reimbursement Account, one-fourth of the
aggregate amount the Bank will be required to advance under each "A
Drawing" for principal payments on the 1997 Bonds in the next succeeding
year in accordance with the provisions of scheduled maturities and sinking
fund redemptions set forth in the 1997 Indenture. The principal amounts
received by the Bank pursuant to this subparagraph shall be deposited into
the Reimbursement Account and debited by the Bank, as necessary, to
reimburse the Bank for an "A Drawing" on the 1997 Bonds. In the event the
Trustee credits the amount to be drawn under the 1997 Letter of Credit for
any principal payment, a corresponding credit shall be granted to the
Borrower for the amounts due hereunder. The sinking fund payments for the
1997 Bonds are set forth in the 1997 Indenture.
(iii) In the event of a "B Drawing" under the 1997 Letter of Credit to
purchase Tendered Bonds for the account of the Borrower under the
provisions of Section 404 of the 1997 Indenture, unless the Bank shall
otherwise agree, the Borrower shall on demand pay the Bank an amount
sufficient to reimburse the Bank for such "B Drawing" to the extent funds
are not available in the Reimbursement Account to cover such "B Drawing"
(for purposes hereof, amounts on deposit in the Reimbursement Account
pursuant to subsections (i) and (ii) above shall not be available to
reimburse the Bank for a "B Drawing"). The Borrower shall continue to make
the payments required by subparagraphs (i) and (ii) above, except that so
long as the Bank is the Placement Agent, until demand is made, interest on
such advances shall be at the one month LIBOR plus 1.75%. If the Bank is
not the Placement Agent, interest on such advances shall be at the Advance
Rate.
(iv) In the event of an "A Drawing" under the 1997 Letter of Credit to
make payments due on the 1997 Bonds as a result of redemption or
acceleration of
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the 1997 Bonds as provided in the 1997 Indenture, the Borrower shall on the
date of such "A Drawing", pay the Bank an amount sufficient to reimburse
the Bank for such "A Drawing" to the extent funds are not available in the
Reimbursement Account to cover such "A Drawing" reimbursement.
(v) If any payments required by subparagraphs (i), (iii) and (iv)
above and subparagraph (ix) below are not made on the day on which they are
due, the Borrower agrees to pay interest thereon at the Advance Rate on the
amounts due until paid.
(vi) In the event of a "B Drawing" to purchase all or any portion of
the 1997 Bonds, whether the Borrower or the Bank is the registered owner of
the 1997 Bonds, unless the Bank otherwise agrees, the Borrower shall
continue to make the payments required in subparagraphs (ii) and (iii)
above until the Borrower shall either have reimbursed the Bank in full for
such "B Drawing" or shall have discharged the 1997 Bonds, as the case may
be.
(vii) In the event the Bank exercises its option to purchase 1997
Bonds pursuant to the 1997 Pledge Agreement after a "B Drawing," the
purchase price of such 1997 Bonds shall be applied directly as a credit
against any reimbursement amounts owing by the Borrower under this
Reimbursement Agreement as a result of the "B Drawing" on the 1997 Bonds;
provided, however, unless the Bank otherwise agrees, the Borrower shall
continue to make the payments required by subparagraphs (ii) and (iii)
which shall be applied to the principal payments due on the 1997 Bonds if
the 1997 Bonds continue to be owned by or pledged for the benefit of the
Bank on the principal payment date as provided in the 1997 Bonds.
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(viii) In the event the Bank holds 1997 Bonds as collateral under the
1997 Pledge Agreement, the Bank shall release such 1997 Bonds upon the
remarketing of such 1997 Bonds to whomever makes such payments.
(ix) The Borrower shall reimburse the Bank for all other sums or
amounts, including but not limited to costs, expenses and reasonable
attorney's fees owed by the Borrower to the Bank hereunder or under any of
the Financing Documents.
Section 2.3. Letter of Credit Fees:
(a) 1996 Letter of Credit. In addition to any other fees payable to the
Bank, the Borrower will pay to the Bank, for as long as the 1996 Letter of
Credit is outstanding, an annual letter of credit fee equal to one and one
fourth percent (1 1/4%) of the amount of the 1996 Letter of Credit which is
outstanding on the Anniversary Date of the 1996 Letter of Credit for such years
or a portion thereof. A letter of credit fee for the year ending June 1, 1997,
was paid in full on the Date of Issuance of the 1996 Letter of Credit. An annual
letter of credit fee for the 1996 Letter of Credit shall be paid in full on each
subsequent Anniversary Date of the 1996 Letter of Credit except for the final
Anniversary Date of the 1996 Letter of Credit. The Bank shall have earned such
fee on a quarterly basis beginning on the Date of Issuance of the 1996 Letter of
Credit and there shall be no refund of any portion of such earned quarterly fee
by reason of any expiration, reduction, modification, termination or prepayment
of either the 1996 Letter of Credit or the 1996 Bonds. The letter of credit fee
will be calculated on the basis of a 365 day year and the actual number of days
elapsed.
(b) 1997 Letter of Credit. In addition to any other fees payable to the
Bank, the Borrower will pay to the Bank, for as long as the 1997 Letter of
Credit is outstanding, an annual letter of credit fee equal to one and one
fourth percent (1 1/4%) of
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the amount of the 1997 Letter of Credit which is outstanding on the Anniversary
Date of the 1997 Letter of Credit for such years or a portion thereof. A letter
of credit fee for the year ending June 1, 1998, was paid in full on the Date of
Issuance of the 1997 Letter of Credit. An annual letter of credit fee for the
1997 Letter of Credit shall be paid in full on each subsequent Anniversary Date
of the 1997 Letter of Credit except for the final Anniversary Date of the 1997
Letter of Credit. The Bank shall have earned such fee on a quarterly basis
beginning on the Date of Issuance of the 1997 Letter of Credit and there shall
be no refund of any portion of such earned quarterly fee by reason of any
expiration, reduction, modification, termination or prepayment of either the
1997 Letter of Credit or the 1997 Bonds. The letter of credit fee will be
calculated on the basis of a 365 day year and the actual number of days elapsed.
Section 2.4. Security for Reimbursement Obligations. As security for the
payment and performance of all of the Borrower's Obligations under this
Reimbursement Agreement and the other Financing Documents, the Borrower does
hereby grant and will cause all other Persons having an interest therein to
grant to the Bank a first lien and security interest in the Borrower's entire
interest in the Accounts, Equipment, Fixtures, General Intangibles, the Land,
the Leases, the Improvements, the Project, each of its respective component
parts and a pledge of and a security interest in the Reimbursement Account and
the proceeds of each of the foregoing (whether cash or otherwise) pursuant to
the Deed of Trust, the Security Agreement, and the other Financing Documents,
and shall execute and deliver the Pledge Agreement and the other Financing
Documents to which the Borrower is a party.
Section 2.5. Computation of Interest; Place of Payment. All interest
payable hereunder shall be computed on the basis of the actual number of days
elapsed over a
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year of 360 days with 30 day months. All payments by the Borrower to the Bank
hereunder shall be made without offset or deduction in lawful currency of the
United States and in immediately available funds on the date such payment is due
at the Bank's office at Centerville Shopping Center, U. S. Highway 501, South
Boston, Virginia 25492, or at such other place as the Bank shall designate in
writing.
Section 2.6. Supplemental Payments.
(a) Following the issuance of the Letters of Credit if, (i) the Bank
determines, or acquiesces in the determination by a court or administrative or
governmental authority, that its obligations under this Reimbursement Agreement
or a Letter of Credit is a deposit insured by the Federal Deposit Insurance
Corporation or (ii) the Bank determines that any law or regulation, or any
change in any law or regulation or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration thereof
shall either (A) impose, modify or deem applicable any reserve, capital, special
deposit or similar requirement against letters of credit issued or assets held
by, or deposits in or for the account of, the Bank or (B) impose on the Bank any
other condition regarding this Reimbursement Agreement or a Letter of Credit,
and the result of any event referred to in clauses (i) or (ii) above, shall be
to increase the cost of the Bank of issuing or maintaining such Letter of Credit
(which increase in cost shall be the result of the Bank's reasonable allocation
of the aggregate of such cost increases resulting from such events, and shall be
calculated without giving effect to any participation granted in such Letter of
Credit) then, upon demand by the Bank, the Borrower shall immediately pay to the
Bank all additional amounts which are necessary to compensate the Bank for such
increased cost incurred by the Bank. A certificate explaining such increased
cost incurred by the Bank as a result of any event referred to in clauses (i) or
(ii) above
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submitted by the Bank to the Borrower shall be conclusive, absent manifest
error, as to the amount thereof.
(b) The Borrower shall also pay interest on such increased cost at a
fluctuating per annum rate equal to the Advance Rate from the date of demand for
the payment of such charge until such amount is paid in full.
Section 2.7. Consent of Bank Required for Optional Redemption. The Borrower
agrees with respect to optional or extraordinary redemptions pursuant to Section
405 of the Indentures, which are to be paid from a drawing on the applicable
Letter of Credit, that the Trustee shall not send notice of such redemptions to
the bondholders without the prior written consent of the Bank unless for a
period of not less than 30 days prior to the date of redemption, the Borrower
shall first have deposited cash with the Bank in an interest-bearing account for
the benefit of the Borrower and pledged to the Bank or shall have pledged to the
Bank U.S. Treasury Bills in amounts needed to redeem the Bonds in full. The Bank
must be satisfied that such pledge or deposit does not constitute a voidable
preference under the U.S. Bankruptcy Code.
Section 2.8. Transfer a Letter of Credit. A Letter of Credit may be
transferred in accordance with the provisions set forth therein.
Section 2.9. Reduction, Increases, and Reinstatement of A Letter of Credit.
A Letter of Credit may be reduced, increased and reinstated in accordance with
the provisions set forth therein.
Section 2.10. Termination of the Letter of Credit. A Letter of Credit shall
terminate as provided therein.
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Section 2.11. Late Charge. The Borrower agrees to pay the Bank a late
charge equal to five percent (5%) of any payment or fee not paid within seven
(7) days of its due date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
To induce the Bank to issue the 1997 Letter of Credit and to enter into
this Reimbursement Agreement, the Borrower makes the following representations
and warranties as of the date hereof and acknowledges that the Bank is relying
on and has the full right to rely upon such representations and warranties.
Section 3.1. Status of Borrower. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
North Carolina and duly qualified to do business in the Commonwealth of
Virginia. The Borrower has the full power to own the Borrower's properties,
conduct the Borrower's affairs, participate in the Project and enter into the
transactions contemplated hereby with the Bank and to perform the Obligations.
The Borrower's articles of incorporation and by-laws heretofore delivered by the
Borrower to the Bank are true, accurate and complete and have not been revoked,
modified or amended since such delivery.
Section 3.2. Accuracy and Completeness of Information. All information,
documents, reports, statements, financial statements, and data submitted by or
on behalf of the Borrower in connection with the Borrower's application for the
1997 Letter of Credit, or in support thereof, or as a supplement thereto, are
true, accurate, and complete and contain no knowingly false, incomplete or
misleading statements. All financial statements (including any notes or
schedules which are a part of or pertain to the financial
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statements) submitted by the Borrower were prepared in accordance with GAAP and
fully, fairly and accurately reflect (i) the financial condition of the
Borrower, as the case may be, at the dates thereof, and (ii) the results of
operations of the Borrower, as the case may be, for the periods covered thereby.
The representations and warranties of the Borrower in the June 1, 1996
Reimbursement Agreement remain true and correct in all material respects. There
have been no material adverse changes in the financial condition or business of
the Borrower since the date of the financial statements most recently submitted
by the Borrower.
Section 3.3. Existence of Defaults. The Borrower is not in default as to
any of the Borrower's existing indebtedness or under any agreement or obligation
under which the Borrower or any of the Borrower's assets may be bound, nor will
the Borrower's entering into this Reimbursement Agreement or any other Financing
Document immediately, or with the passage of time, the giving of notice, or
both, cause the Borrower to violate or be in default under any other agreement
or obligation to which the Borrower may be a party or by which any of its assets
may be bound.
Section 3.4. Violations of Law. To the best of the Borrower's knowledge,
the Borrower is not in violation of any applicable federal, state, or local law,
statute, regulation, or ordinance, nor will the Borrower's entry into this
Reimbursement Agreement or any of the Financing Documents to which the Borrower
is a party or the performance of the Borrower's Obligations violate the
Borrower's articles of incorporation or by-laws or any agreement to which the
Borrower is a party or by which the Borrower is bound, any applicable Legal
Requirements.
Section 3.5. Liabilities or Adverse Changes. The Borrower has no direct or
contingent liability known to the Borrower and not previously disclosed in
writing to the
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Bank, nor does the Borrower know of or expect any materially adverse change in
the Borrower's assets, liabilities, properties, business, or condition,
financial or otherwise.
Section 3.6. Permits. All Permits required to be obtained to enable the
Project to be, used, operated and occupied as a manufacturing facility have been
obtained and each is in good standing.
Section 3.7. Binding Contracts; Enforceability. The Borrower has duly
executed and delivered the Financing Documents to which the Borrower is a party,
and such Financing Documents constitute valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, subject to the
provisions of bankruptcy and other insolvency laws and usual equitable
principles.
Section 3.8. Litigation. There are no pending or, to the best of the
Borrower's knowledge, threatened actions, suits, proceedings or investigations
of a legal, equitable, regulatory, administrative or legislative nature, the
resolution of which could have a material adverse effect on either the Project
or the business, assets or condition (financial or otherwise) of the Borrower or
the Borrower's ability to perform the Obligations.
Section 3.9. Condition of Project. The Project as it exists on the date of
the execution of this Reimbursement Agreement has not been damaged or destroyed,
and there has not been any other adverse change in the physical condition of the
Project since the date on which it was last inspected by the Bank.
Section 3.10. Utilities. All utility services necessary for the operation
of the Project for its intended purpose as a manufacturing facility are
available and the Project is connected to and enjoys the right to use all such
utilities as necessary for its operations.
Section 3.11. Environment. The Borrower has duly complied with and the
business, operations, and equipment of the Project are in compliance with, the
provisions
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of all federal, state, and local environmental, health, and safety laws, codes
and ordinances and all rules and regulations promulgated thereunder. The
Borrower has been issued and will maintain (or cause the tenants of the Project
to obtain and maintain) all required federal, state, and local permits,
licenses, certificates, and approvals relating to (i) air emissions; (ii)
discharges to surface water or groundwater; (iii) noise emissions; (iv) solid or
liquid waste disposal; (v) the use, generation, storage, transportation, or
disposal of toxic or hazardous substances or wastes (intended hereby and
hereafter to include any and all such materials listed in any federal, state, or
local law, code, or ordinance and all rules and regulations promulgated
thereunder as hazardous or potentially hazardous); (vi) compliance with the
Americans With Disabilities Act (except for those matters which the Borrower or
a Tenant is presently undertaking remediation); or (vii) other environmental,
health, or safety matters. The Borrower has received no notice of, or knows of,
or suspects no facts which might constitute any violations of any federal,
state, or local environmental, health, or safety laws, codes or ordinances and
any rules or regulations promulgated thereunder with respect to its business,
operations, equipment and the Project. Except in accordance with a valid
governmental permit, license, certificate or approval, there has been no
emission, spill, release or discharge into or upon (i) the air; (ii) soils, or
any improvements located thereon; (iii) surface water or groundwater; or (iv)
the sewer, septic
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system or waste treatment, storage or disposal system servicing the Project, of
any toxic or hazardous substances or wastes at or from the Project; and
accordingly the Project is free of all such toxic or hazardous substances or
wastes. There has been no complaint, order, directive, claim, citation, or
notice by any governmental authority or any Person with respect to (i) air
emissions; (ii) spills, releases, or discharges to soils or improvements located
thereon, surface water, groundwater or the sewer, septic system or waste
treatment, storage or disposal systems servicing the Project; (iii) noise
emissions; (iv) solid or liquid waste disposal; (v) the use, generation,
storage, transportation, or disposal of toxic or hazardous substances or waste;
or (vi) other environmental, health, or safety matters affecting the Borrower or
the Borrower's business, operations, equipment, the Project or its use or
operation. The Borrower has no indebtedness, obligation, or liability, absolute
or contingent, matured or not matured, with respect to the storage, treatment,
cleanup, or disposal of any solid wastes, hazardous wastes, or other toxic or
hazardous substances (including without limitation any such indebtedness,
obligation, or liability with respect to any current regulation, law, or statute
regarding such storage, treatment, cleanup, or disposal).
Section 3.12. Roads. The Land fronts on one or more fully improved public
roads, maintained by the appropriate governmental authorities and the Borrower
has obtained all necessary curb cuts or access points needed for ingress and
egress to operate the Project for its intended purpose as a manufacturing
facility.
Section 3.13. Restrictive Covenants, Etc. Except as shown in the policy of
title insurance issued by the Title Insurance Company, the Land and the
Improvements, in their present condition, comply with all recorded easements,
covenants, conditions and restrictions applicable thereto.
Section 3.14. Form 8038. The information contained in Internal Revenue
Service Form 8038 executed in connection with the issuance and delivery of the
1997 Bonds is true, accurate and complete in all respect.
Section 3.15. Representations, Warranties and Undertakings of the Company.
The Company makes the following representations, warranties and agreements to
induce the Bank to enter into this Reimbursement Agreement and to issue the
Letter of Credit:
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(a) The Company is a corporation duly organized and validly existing and in
good standing in the state of North Carolina.
(b) The Company has the necessary power and authority to enter into this
Reimbursement Agreement and each of the other Financing Documents executed and
delivered by the Company, to incur and perform the obligations provided for
therein, and has duly authorized the execution and delivery thereof and the
performance of the obligations of the Company hereunder and thereunder. No
consent or approval of any other Person or public authority or regulatory body
is required as a condition to the validity or enforceability of this
Reimbursement Agreement or any of such other Financing Documents to which the
Company is a party, or if required, the same has been obtained. The
representations and warranties made by the Company in the June 1, 1996
Reimbursement Agreement remain true and correct in all material respects.
(c) This Reimbursement Agreement, and the other Financing Documents
executed and delivered by the Company, have been duly authorized, executed and
delivered by the Company, constitute the valid and legally binding obligations
of the Company, and are enforceable against the Company in accordance with their
respective terms; except to the extent that enforceability may be affected by
any bankruptcy or insolvency proceeding filed by or against the Company and
subject to the exercise of judicial discretion in accordance with general
principles of equity.
(d) There is no litigation at law or in equity or any proceeding before any
governmental agency involving the Company pending, or to the knowledge of the
Company threatened, in which any liability of the Company is not adequately
covered by insurance or in which any judgment or order would have a material
adverse effect upon the business or assets of the Company, the Company's ability
to do business, the validity
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of any of the Financing Documents or the performance of the Company's
obligations thereunder.
(e) There is (i) no provision of the Company's Articles of Incorporation or
Bylaws, (ii) except for an existing loan agreement with First Union Bank whose
consent has been obtained, no provision of any existing mortgage, indenture,
contract or agreement binding on the Company or affecting the Company's
property, and (iii) to the knowledge of the Company, no provision of law or
order of any court binding on the Company or affecting any of the Company's
property, which would conflict with or in any way prevent the execution,
delivery, or performance of the terms of this Reimbursement Agreement or any of
the other Financing Documents executed and delivered by the Company, or which
would be in default or violated as a result of such execution, delivery or
performance, or for which adequate consents or waivers have not been obtained.
(f) The financial statements of the Company dated July 31, 1996, and
heretofore delivered to the Bank, are complete and correct and fairly present
the financial condition of the Company as of the dates and for the periods
referred to therein. There has been no material adverse change in the financial
condition of the Company since the date of such financial statements (and no
such change is pending or threatened).
(g) The Company has filed all required federal, state and local tax returns
and has paid all taxes as shown on such returns as they have become due. No
claims have been assessed and are unpaid with respect to such taxes except as
shown in the financial statements referred to in subsection (f) above, and the
Company has established reserves which it believes to be adequate for the
payment of additional taxes for years which have not been audited by the
respective tax authorities.
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(h) The Company maintains an employee pension plan. Such plan is in
compliance with ERISA and there exists no "reportable event" under such plan.
(i) To the best of the Company's knowledge, no Person has, or as a result
of any action of or by the Company in connection with the transactions
contemplated hereby and by the other Financing Documents will have, any right,
interest or valid claim against or on the Bank for any commission, fee or other
compensation as a broker or finder, or in any similar capacity (other than a fee
to the Bank, which fee is the obligation solely of the Company). The Company
shall pay any and all such fees, commissions or other compensation and shall
indemnify the Bank against any claimed fee, commission or other compensation
arising from or in connection with the transactions contemplated hereby or by
the Financing Documents.
ARTICLE IV
AFFIRMATIVE COVENANTS OF BORROWER AND COMPANY
SECTION 4.1. Affirmative Covenants of Borrower and Company. Until the
termination of this Reimbursement Agreement, the payment of all of the
Obligations and the release of both Letters of Credit, unless the prior written
consent to do otherwise is obtained from the Bank, the Borrower and the Company,
as the case may be and as may be applicable, shall satisfy the following
affirmative covenants:
SECTION 4.2. Financial Statements.
(a) The Borrower and the Company upon request shall furnish to the Bank
their annual tax returns.
(b) The Borrower and the Company shall furnish to the Bank:
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(i) as soon as available but in no event more than 120 days after the
close of each fiscal year, an audited financial statement consisting of a
balance sheet and statements of income and cash flow statements for such
fiscal year, and a balance sheet as of the end of such fiscal year,
prepared in accordance with GAAP and which financial statements shall be
certified by a certified public accountant acceptable to the Bank;
(ii) as soon as available but in no event more than 60 days after the
end of each fiscal quarter, a balance sheet of the Company as of the close
of such quarter and statements of income for such quarter and for the
fiscal year to date; and
(iii) such additional information, reports or statements regarding the
Borrower, the Company or the Project as the Bank may from time to time
reasonably request.
Section 4.3. Payment and Performance. Pay, when and as due without offset
or deduction, all sums due the Bank, whether principal, interest, advancement,
expense, escrow, or otherwise and perform as and when required all terms,
covenants and conditions of this Reimbursement Agreement and all other Financing
Documents.
Section 4.4. Protection of Security. Keep and maintain or cause any Tenant
to keep and maintain the Project and all the Improvements in a state of good
condition and repair and their value shall at all times be protected and
preserved by the Borrower, less ordinary wear and tear. The Borrower shall at
all times protect the Bank's lien and security interest in the Land, the
Improvements, the Project and the component parts thereof. If not managed by the
Borrower, the Project shall be managed by a professional property manager
experienced in the management of properties similar to the Project
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reasonably acceptable to the Bank. Any management agreement for the Project
shall be wholly subordinate to all liens and security interests in favor of the
Bank.
Section 4.5. Insurance. Obtain and maintain the insurance coverages
described in the Deed of Trust.
Section 4.6. Books and Records. Keep proper and complete books of account
and financial and accounting records, maintained in accordance with generally
accepted auditing standards. The Borrower and the Company shall permit the Bank
and the Bank's agents to have complete access to the books of account of the
Borrower and the Company.
Section 4.7. Permits and Approvals. Maintain and cause any Tenant to
maintain in good standing at all times, all Permits and comply with all Legal
Requirements necessary for the Project or for the use and occupancy of the
Improvements. The Borrower, upon request, shall supply the Bank with appropriate
evidence of the continuing good standing and validity of the Permits and the
fulfillment of all Legal Requirements.
Section 4.8. Taxes, Liens and Charges. Except as contested in good faith by
appropriate proceedings and for which reserves have been established if required
by GAAP, pay all real and personal property taxes, charges, or assessments, when
and as the same come due, and before the same become delinquent, and the Bank
shall be provided with evidence of the payment of any portion of the
aforementioned taxes, charges or assessments within 30 calendar days from the
date any tax bill is rendered. The Borrower shall keep the Land, the
Improvements and the Project free and clear of all liens and charges of any kind
and nature, whether voluntary or involuntary. The Bank may require an escrow for
taxes and insurance if the Bank deems such escrow appropriate.
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Section 4.9. Notice of Existence of Default. As soon as discovered,
promptly advise the Bank of the existence of any condition or event, or the
expected existence of any condition or event, which is or which will be with the
passage of time, the giving of notice, or both, a Default or violation or breach
by the Borrower or the Company under this Reimbursement Agreement or any of the
other Financing Documents.
Section 4.10. Notice of Litigation or Proceedings. Promptly advise the Bank
of the institution of any suit or proceeding which might materially and
adversely affect the Borrower, the Company, the Project, any Leases or their
respective operations, financial condition, property, or business.
Section 4.11. Maintenance of Existence. The Borrower and the Company each
shall preserve and maintain its existence in good standing as a corporation.
Neither the Borrower nor the Company shall merge, consolidate or dissolve or
change its articles of incorporation, without the Bank's prior written consent.
The Bank agrees not to unreasonably withhold its consent provided with respect
to any merger, consolidation, or dissolution (i) that the surviving entity
specifically assumes each and all of the obligations and undertakings under the
Financing Documents and (ii) that the financial standing of the surviving entity
is acceptable to the Bank.
Section 4.12. Compliance with Laws. Comply and cause any Tenant to comply
with any applicable Legal Requirements in the management, operation or leasing
of the Project.
Section 4.13. Environment. Cause the Project to be and remain in compliance
with the provisions of all federal, state, and local environmental, health, and
safety laws, codes and ordinances, and all rules and regulations issued
thereunder; notify the Bank immediately of any notice of a hazardous discharge
or environmental complaint received
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from any governmental agency or any other Person; notify the Bank immediately of
any hazardous discharge from or affecting the Project; immediately contain and
remove the same, in compliance with all Legal Requirements; promptly pay any
fine or penalty assessed in connection therewith; permit the Bank to make an
environmental inspection of the Project, to conduct tests thereon, and to
inspect all books, correspondence, and records pertaining thereto; and at the
Bank's request following any violation or alleged violation of any Legal
Requirement, and at the Borrower's expense, provide a report of a qualified
environmental engineer, satisfactory in scope, form, and content to such Bank,
and such other and further assurances reasonably satisfactory to such Bank that
the condition has been corrected.
Section 4.14. ERISA Compliance. Comply in all material respects with all
provisions of ERISA applicable to the Borrower and the Company.
Section 4.15. Lease Compliance. Observe and perform all of the Borrower's
undertakings under any Lease and use all reasonable efforts to cause any Tenant
under a Lease to observe and perform their respective undertakings under such
Lease.
Section 4.16. Financial Covenants. The Borrower and the Company shall
observe the following financial covenants calculated in accordance with GAAP:
a. Deposits: The Borrower shall maintain its primary depository
relationship with the Bank. The pricing of the Letter of Credit fees are
contingent upon this covenant being observed.
b. Debt/Worth Ratio: The Borrower shall maintain a ratio of debt, excluding
debt fully subordinated to the Bonds to consolidated tangible net worth of not
more than 1.90 to 1.00. For purposes of this covenant the debt to tangible net
worth ratio shall be defined as all liabilities, less any debt fully
subordinated to the Bonds and the
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Borrower's reimbursement obligation to the Bank under this Reimbursement
Agreement, divided by the net worth plus subordinated debt excluding intangible
and/or related assets.
c. Tangible Net Worth: The Company shall at all times maintain a
Consolidated Tangible Net Worth of at least $2,100,000. Minimum Tangible net
worth shall increase by not less than $25,000 each quarter beginning July 31,
1996. Consolidated Tangible Net Worth shall mean the consolidated total assets
of the Company and its subsidiaries, if any, minus consolidated total
liabilities, excluding debt fully subordinated to the Obligations after
subtracting therefrom the aggregated amount of any intangible assets of the
Company and its subsidiaries, including, without limitation, goodwill,
franchises, licenses, patents, trademarks, trade names, copyrights, service
marks and brand names.
d. Subordination of Debt: The obligation of the Company to the Borrower and
to all officers in the amounts of $364,258 and $819,288 respectively, as of July
31, 1995 shall be subordinated to the Obligations. Principal payments to service
this debt to related parties will be permitted only if the Company and the
Borrower are current with all of their obligations to the Bank and there exists
no Default or Event of Default or there is created no Default or Event of
Default by such payment under this Reimbursement Agreement or the other
Financing Documents. The maximum repayment of principal on the outstanding
subordinated debt as indicated on the July 31, 1996 balance sheet (Related Party
Loans) is limited to $125,000 annually.
e. Debt Coverage: The Borrower shall cause its business to be operated in
such a fashion so as to generate income sufficient to cover the debt service
associated with the Bonds on a 1.50 to 1.00 basis, calculated in accordance with
GAAP
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<PAGE>
(the Debt Coverage Ratio). For purposes of this covenant, the Debt Coverage
Ratio will be determined by adding the net income minus any withdrawals or
dividends plus depreciation/amortization and rent divided by the interest plus
rent plus the current portion of long term debt. In the event the Debt Coverage
Ratio is not maintained for the preceding calendar year, the Borrower shall
pledge to the Bank cash or other acceptable collateral in an amount equal to the
difference between the actual debt coverage and the required Debt Coverage Ratio
for the succeeding calendar year. Such collateral shall be pledged within thirty
(30) days of demand; otherwise, the Borrower shall be in Default under the
Reimbursement Agreement. This covenant shall not become effective until December
31, 1997.
f. Dividends: The Borrower shall not declare or pay dividends, except as
necessary to pay taxes attributable to income distributed by the Borrower,
without the prior written authorization of the Bank.
g. Additional Borrowings: Neither the Borrower nor any of the Guarantors
including the Company shall incur any additional liability, directly or
indirectly, in excess of $100,000 without the prior written authorization of the
Bank. Provided, however, the Borrower shall be allowed to borrow up to $500,000
from the Company on a full subordinated basis without the Bank's prior written
consent. Repayment may be made so long as there exists no Default or Event of
Default or there is created no Default or Event of Default by such payment under
this Reimbursement Agreement or the other Financing Documents.
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<PAGE>
ARTICLE V
NEGATIVE COVENANTS
The Borrower and the Company covenant and agree until the payment and
discharge of the Obligations, not to do or to permit to be done or allow to
occur any of the acts or happenings set forth below, as applicable without the
prior written authorization of the Bank.
Section 5.1. Transfer or Further Encumbrances. The Borrower shall not sell,
lease, transfer, cease to own, or convey all or any portion of any interest in
the Land or the Project to any Person, other than with respect to the Leases for
the occupancy of space in the Improvements which the Bank may specifically
approve, and which are subordinate and subject to the Deed of Trust and security
interest of the Bank in the Land and the Project nor permit any lien, security
interest or encumbrance, senior, equal or junior to the priority of the lien and
security interest of the Bank, to be placed against the Project, except for the
Subordinate Liens.
Section 5.2. Purchase Money Security Interest. The Borrower shall not
acquire any personalty for use in connection with the initial equipping of the
Project or incorporation into or affixation to the Land or any Improvements by
way of conditional bill of sale, chattel mortgage, security agreement, equipment
lease, or other security instrument which would constitute a security interest,
lien or leasehold interest on such personalty. After the Project has been fully
equipped, the Borrower may finance the purchase of additional, supplemental
Equipment and grant purchase money liens thereon provided that after giving
effect to such transaction(s) there will exist no breach or violation of any
financial covenant in Section 4.16.
Section 5.3. Additional Borrowings. Except for the debts secured by the
Subordinate Liens, and as permitted in Section 4.16, the Borrower shall not make
any further or additional borrowings with respect to the Project, whether or not
such
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<PAGE>
borrowings are secured by property constituting security for the Letters of
Credit, without the prior written approval of the Bank.
Section 5.4. Assignment of this Reimbursement Agreement. The Borrower shall
not assign or attempt to assign this Reimbursement Agreement or any Financing
Proceeds either directly or indirectly, and any attempted assignment shall be
void.
Section 5.5. False Certificates or Documents. Neither the Borrower nor the
Company shall knowingly furnish the Bank with any certificate or other document
that will contain any untrue statement of material fact or that will omit to
state a material fact necessary to make it not misleading in light of the
circumstances under which it was furnished.
Section 5.6. Actions Affecting Bonds. Neither the Borrower nor the Company
shall take, fail to take, or to the extent either the Borrower or the Company
exercises any control, permit to be taken, any action if such action or failure
to act would in any manner or fashion adversely affect the excludability from
Federal income taxes of interest on the Bonds and will perform all of the
Borrower's or the Company's obligations under the Financing Documents to prevent
or cure any action by the Borrower which would materially, adversely affect
excludability from Federal income taxation interest on the Bonds.
ARTICLE VI
CONDITIONS TO ADVANCE OF FINANCING PROCEEDS
Section 6.1. Conditions to Advance. The Bank shall not be required to issue
the 1997 Letter of Credit unless and until all of the conditions precedent set
forth in this
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Section 6.1 of this Reimbursement Agreement have been satisfied and the Bank has
received the following, all in form and substance satisfactory to the Bank:
(i) The 1997 Bonds shall have been duly issued and placed by the
Remarketing Agent and the Deed of Trust as amended and restated, this
Reimbursement Agreement, the 1997 Pledge Agreement and the Guaranty duly
authorized, executed and delivered by the parties thereto and, in the case
of the Deed of Trust duly recorded in the appropriate land records.
(ii) All of the representations and warranties shall remain true and
there shall have occurred no Default under any of the Financing Documents.
(iii) An ALTA lender's policy of title insurance (A) issued by the
Title Insurance Company, (B) being in the aggregate amount of the Letters
of Credit, (C) containing no exceptions or limitations (including
exceptions as to unfiled mechanics and materialmen's liens and matters of
survey) unacceptable to the Bank, and (D) insuring the Bank that the Deed
of Trust is a valid and first lien on the fee simple absolute title to the
Land. In lieu of the policy, the Borrower may furnish a commitment for
title insurance and an insured closing letter from the Title Insurance
Company with respect to the Borrower's Counsel, but in such case the policy
shall be furnished within 10 days after the Deed of Trust is recorded.
(iv) A certification that the Borrower's and the Company's Articles of
Incorporation and By-Laws heretofore delivered have not been modified or
rescinded, together with resolutions adopted by the Borrower's and the
Company's directors to enable the Borrower and the Company to enter into
this transaction and to authorize the execution and delivery, of the
Financing Documents and the performance of the Borrower's and the Company's
obligations thereunder.
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(v) An opinion of counsel to the Borrower and the Company (which shall
be in addition to the special opinions provided by the Borrower in
connection to the 1997 Bonds) with respect to such matters as the Bank may
require, including, without limitation: (A) the due organization and
existence of the Borrower and the Company; (B) the Financing Documents to
which they are parties are legal, valid and binding obligations of the
Borrower and the Guarantors; (C) the Borrower and the Guarantors have duly
executed and delivered the Financing Documents to which each is a party and
the execution, delivery and performance by the Borrower and the Guarantors
thereunder will not violate the Borrower's or the Company's articles of
incorporation or by-laws or any law, rule, regulation, agreement or
instrument to which either the Borrower or the Company is a party; and (D)
to the best of such counsel's knowledge, after due inquiry, there is no
litigation, inquiry or investigation of any kind, either pending or
threatened against either the Borrower, the Guarantor's or the Project or
any of the Borrower's or a Guarantor's assets wherein an unfavorable ruling
or finding would affect the validity or enforceability of the Financing
Documents or have a materially adverse effect upon the Project or the
Borrower or any Guarantor.
(vi) The opinion of bond counsel with respect to the 1997 Bonds, dated
as of the Date of Issuance, in form, scope and substance acceptable to the
Bank.
(vii) The Borrower shall have paid all fees, expenses, costs and
attorney's fees in accordance with the terms of the 1997 Commitment.
(viii) The Bank shall have received assurances regarding the continued
subordination of the Subordinate Liens.
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<PAGE>
(ix) The debt of the Borrower and the Company shall have been
subordinated as set forth in Section 4.16.
(x) First Union shall have consented to the Company's guaranty of the
Borrower's obligations with respect to the 1997 Bonds.
(xi) Such other documentation, certificates and assurances as may be
required by any of the Financing Documents or as the Bank may reasonably
request.
Section 6.2. Additional Conditions. In addition to the provisions of
Section 7.10, it shall be a condition precedent to the issuance of the 1997
Letter of Credit that, as of the Date of Issuance of the 1997 Letter of Credit,
(i) no part of the Equipment or any Improvements on the Land shall have been
damaged, and not repaired to the satisfaction of the Bank, nor taken in
condemnation or other like proceeding nor shall any such proceeding be
threatened or pending; (ii) neither the Borrower nor any Guarantor shall have
filed for or have filed against them any bankruptcy, dissolution or insolvency
proceeding; (iii) no material adverse change shall have occurred with respect to
the financial affairs of the Borrower or any Guarantor; (iv) all of the
representations and warranties of the Borrower and the Guarantors set forth in
the Financing Documents shall be true as if made on such date; (v) no change
shall have occurred in any law or regulation or interpretation thereof, which in
the opinion of the Bank's counsel would make it illegal to issue the 1997 Letter
of Credit for the purposes described in the 1997 Commitment; (vi) all conditions
and requirements of the 1997 Commitment shall have been fulfilled or waived by
the Bank in writing; and (vii) no Default or Event of Default has occurred and
is continuing and no event exists which, with the giving of notice or the lapse
of time, or both, would give rise to a Default or Event of Default.
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<PAGE>
ARTICLE VII
DISBURSEMENTS FROM PROJECT FUND
Section 7.1 Provisions Regarding Approval of Requisitions.
Disbursements from the Project Fund shall occur not more frequently than
monthly. Approval by the Bank of disbursements from the Project Fund shall be
conditioned upon the submission of requisitions on forms provided by the Bank to
the Bank by the Borrower showing the cost of the Equipment in place with such
requisitions to be properly certified and executed by the Borrower. Upon request
of the Bank, the Borrower shall exhibit to the Bank at any time receipts,
vouchers, statements, bills of sale or other evidence as available to the
Borrower satisfactory to the Bank of actual payment of such Cost of the Project.
Within ten (10) days after each payment hereunder, the Borrower shall, if
requested by the Bank, deliver to the Bank a receipt executed by the Person
receiving payment for the equipping of the Project for each payment made to it.
Section 7.2. Final Payment from the Project Fund. When the equipping of the
Project has been completed, but in any case no later than September 1, 1997, the
Borrower shall furnish the Bank the following documents:
(a) A certificate from the Borrower setting forth the total Cost of the
Project and evidence of payment thereof or evidence that the same will be paid
with the final disbursement;
(b) All other assurances, instruments, certificates and documents
reasonably required by the Bank.
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ARTICLE VIII
SPECIAL COVENANTS
Section 8.1. Incorporation of Commitments. All of the terms and conditions
of the Commitments are incorporated herein by reference and, to the extent not
inconsistent with the provisions of the Financing Documents, shall survive the
issuance of the Letters of Credit. If there is a conflict between the
Commitments and the other Financing Documents, the other Financing Documents
shall control.
Section 8.2. Payment of Expenses. The Borrower shall pay promptly, after
receiving written demand therefor, the following costs and expenses:
(i) all costs, fees and expenses of the Bank (including the fees of
its counsel) incident to the issuance of the Letters of Credit or
thereafter incurred in connection with reviewing documents or advising the
Bank with respect to the Letters of Credit, except as otherwise expressly
provided in the Commitment;
(ii) All costs, fees and expenses of the Title Insurance Company or
other persons employed to make inspections, examinations or reports
permitted or required by, or to render opinions permitted or required by,
the Financing Documents;
(iii) All filing and recording fees;
(iv) All fees and other costs payable to the trustees under the Deed
of Trust; (v) All costs incurred in connection with the release of the Deed
of Trust upon the cancellation of a Letter of Credit;
(vi) All commissions and fees, if any, owed by the Borrower to brokers
in connection with the issuance of the 1997 Letter of Credit;
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<PAGE>
(vii) All costs of collection, including reasonable attorneys' fees,
incurred by the Bank in connection with obtaining payment of any obligation
or amount due under this Reimbursement Agreement or the other Financing
Documents; and
(viii) All costs and expenses (including, without limitation,
reasonable attorneys' fees) incurred by the Bank in connection with
litigation with the Borrower arising from or involving the Letters of
Credit, the Project or the Financing Documents.
Section 8.3. Public and Utility Agreements. The Bank shall have the right
to review and approve, prior to execution by the Borrower, all public and
utility agreements required for the Project, including, but not limited to,
agreements with respect to subdivision, the construction of roads, or the
installation of water, sanitary sewer, storm water management, gas and electric,
telephone, or similar or related utility systems. The Borrower shall fully
comply with and perform all public and utility agreements entered into with
respect to the Project and shall permit no defaults under such public and
utility agreements on the part of the Borrower to occur.
Section 8.4. Advancements. If the Borrower shall fail to perform any of the
covenants contained in this Reimbursement Agreement or the other Financing
Documents, or if the Borrower shall fail to protect or preserve the Land, the
Project or the value thereof or the status and priority of the lien and security
interest of the Bank in the Project, the Bank may make advances to perform the
same on behalf of the Borrower or to protect or preserve the Project or the
value thereof or the status and priority of the lien and security interest of
the Bank in the Project (subject to any applicable notice or cure periods), and
all sums so advanced shall immediately upon advancement bear interest until paid
at the Advance Rate, become secured by the liens, security interests, and other
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assurances of repayment provided by or on behalf of the Borrower under the terms
and provisions of all of the Financing Documents, and shall become part of the
principal amount owed to the Bank. The Borrower shall repay on demand all sums
so advanced on the Borrower's behalf, plus any expenses or costs incurred by the
Bank, including reasonable attorney's fees, with interest thereon at the Advance
Rate. The provisions of this Section 8.4 shall not be construed to prevent the
institution of the rights and remedies of the Bank upon a default by the
Borrower. Anything in this Reimbursement Agreement to the contrary
notwithstanding, the authorization contained in Section 9.3 shall impose no duty
or obligation on the Bank to perform any action or make any advancement on
behalf of the Borrower and is for the sole benefit and protection of the Bank.
The Borrower and the Company agree to give the Bank prompt written notice
of any breach or alleged breach by the Bank of any of its duties and obligations
to either the Borrower or the Company under either this Reimbursement Agreement
or any of the other Financing Documents as soon as such breach or alleged breach
shall become known to either the Borrower or the Company.
Section 8.5. Further Assurances. The Borrower agrees to execute such other
and further documents, including, without limitation, confirmatory deeds, deeds
of trust, notes, security agreements, agreements, financing statements,
continuation statements, and the like as may from time to time in the sole
opinion of the Bank or the Bank's counsel be necessary, convenient, or proper to
facilitate the performance of the terms of this Reimbursement Agreement or carry
out the intentions of the parties hereto, it being the intention of the Borrower
to provide hereby a full and absolute warranty of further assurance to the Bank.
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ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
Section 9.1. Events of Default. The occurrence of any of the following
shall constitute an Event of Default under this Reimbursement Agreement, whether
such occurrence shall be voluntary or involuntary or come about or be effected
by operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body:
(i) The fact that any representation or warranty of any Obligor
contained in this Reimbursement Agreement or any statement or
representation made in any certificate, report or opinion delivered
pursuant hereto or in connection with any Financing Document proves to be
untrue or misleading in any material respect as of the time it is made or
deemed to be made;
(ii) The occurrence of an "Event of Default" under this Reimbursement
Agreement, either Indenture or any other Financing Document;
(iii) The failure to make any payment due under this Reimbursement
Agreement or any of the other Financing Documents, when and as the same
becomes due and payable and the continuation of such failure for ten (10)
days after the Bank sends the Borrower notice thereof; or
(iv) The failure of the Borrower or the Company to comply with any of
the terms or conditions of this Reimbursement Agreement and the
continuation of such failure for thirty (30) days after the Bank sends
notice thereof to the Borrower and the Company.
Section 9.2. Remedies. Upon the occurrence of an Event of Default, the
Bank, at its option and without any obligation to do so, may exercise any right
available to it under
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any of the Financing Documents including, without limitation, the right to: (i)
make any payment or take such other action as may be necessary to cure the Event
of Default; (ii) enter into and take possession of the Project; (iii) maintain,
repair and restore the Project; (iv) contest or compromise any claim or
encumbrance against the Project (including, without limitation), any lien prior
to or subordinate to the lien of the Deed of Trust and prosecute and defend all
actions or proceedings in connection with the construction of the Project; (v)
employ such counsel, accountants, contractors and other Persons as it shall deem
necessary to assist it; (vi) insure the Project or keep the Project insured;
(vii) exercise all of the rights and powers which the Borrower possesses with
respect to the Project to the same extent as the Borrower could have exercised
the same; and (viii) perform all acts required of the Borrower with respect to
the Project, including acts required of it under any Lease. Any amounts expended
by the Bank in exercising its rights under this Section 8.2, together with
interest thereon at the Advance Rate, until paid, shall be payable on demand and
shall be secured by the Deed of Trust and the other Financing Documents.
Section 9.3. Attorney-in-Fact. For the purpose of carrying out the
provisions of Sections 8.4 and 9.2 of this Reimbursement Agreement, the Borrower
hereby irrevocably appoints the Bank its true and lawful attorney-in-fact and
authorizes it to perform any act described in Sections 8.4 and 9.2 of this
Reimbursement Agreement and to take any and all actions necessary and incidental
thereto. This power of attorney is a power coupled with an interest which cannot
be revoked.
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ARTICLE X
MISCELLANEOUS
Section 10.1. Successors and Assigns. This Reimbursement Agreement shall
inure to the benefit of and be binding on the parties hereto and their
respective heirs, personal representatives, successors and assigns.
Section 10.2. Severability. If any provision of this Reimbursement
Agreement, or the application thereof in any circumstance, is deemed to be
unenforceable, the remainder of this Reimbursement Agreement shall not be
affected thereby and shall remain enforceable.
Section 10.3. Applicable Law. This Reimbursement Agreement shall be
governed by the laws of the Commonwealth of Virginia.
Section 10.4. Notices. All notices, demands, requests and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been given when delivered in person or sent by registered or
certified mail, postage prepaid, return receipt requested, to the persons and at
the addresses set forth below or to such other persons or addresses as the party
entitled to notice shall have specified in writing to the other party hereto
from time to time.
(a) To the Bank:
Central Fidelity National Bank
Centerville Shopping Center
U. S. Highway 501
South Boston, Virginia 25492
(b) To the Borrower or the Company:
c/o Sherwood Foods, Inc.
6110 Executive Boulevard
Rockville, Maryland 20852
Section 10.5. Consents and Approvals. All consents and approvals required
or permitted by this Reimbursement Agreement shall be in writing, shall be
signed by the
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party from whom the consent or approval is sought and, unless otherwise provided
herein, may be withheld by such party in its sole discretion.
Section 10.6. Amendments. This Reimbursement Agreement and the Financing
Documents may be amended, supplemented or terminated only in writing, signed by
all of the parties hereto.
Section 10.7. Agreements to Survive. The representations, warranties and
covenants contained in this Agreement shall survive the payment of the
Obligations for a period of three (3) years.
Section 10.8. No Partnership. Nothing in this Reimbursement Agreement or in
the other Financing Documents shall be construed as making any party a partner
or joint venturer with any other party, and the Borrower hereby agrees to
indemnify and hold the Bank harmless from any and all liability resulting or
arising from any claim that such a relationship exists.
Section 10.9. Time of the Essence. Time shall be of the essence with
respect to the performance of the Borrower's and the Company's obligations
hereunder.
Section 10.10. Counterparts. This Reimbursement Agreement may be executed
in any number of counterparts, each of which shall be an original and all of
which together shall constitute but one and the same instrument.
Section 10.11. Failure to Exercise Rights. The failure of the Bank to
exercise any right, power or remedy granted to it upon the occurrence of a
Default or an Event of Default shall not be deemed a waiver of the right to
exercise such right, power or remedy upon the occurrence of a subsequent Default
or Event of Default.
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Section 10.12. No Third Party Rights. No Person who is not a party to this
Agreement shall be entitled to rely upon or shall have any rights or benefits
under this Agreement.
Section 10.13. Rule of Construction. The parties hereto and their counsel
have reviewed and revised (or requested revisions of) this Reimbursement
Agreement and the other Financing Documents and the normal rule of construction
that any ambiguities are to be resolved against the drafting party shall not be
applicable in the construction and interpretation of this Reimbursement
Agreement or any of the other Financing Documents.
Section 10.14 Waiver of Trial by Jury. The Borrower and the Company hereby
agree and consent that any action or proceeding arising out of or brought to
enforce the provisions of this Reimbursement Agreement may be brought in any
appropriate court in the State or in any other court having jurisdiction over
the subject matter, all at the sole election of the Bank, and by the execution
of this Reimbursement Agreement the Borrower and the Company each irrevocably
consents to the jurisdiction of each such court. The Borrower and the Company
waive any right to trial by jury.
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WITNESS the following duly authorized signatures.
SHERWOOD FOODS, INC.
ATTEST: By: /s/ Anat Schwartz (SEAL)
--------------------------------
_________________________________ Title: Vice President
SHERWOOD BRANDS, INC.
ATTEST: By: /s/ Anat Schwartz (SEAL)
--------------------------------
_________________________________ Title: Vice President
CENTRAL FIDELITY NATIONAL BANK
By:___________________________(SEAL)
Title:______________________________
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EXHIBIT I
[1997 Letter of Credit]
<PAGE>
LOAN AGREEMENT
between
INDUSTRIAL DEVELOPMENT AUTHORITY
OF MECKLENBURG COUNTY, VIRGINIA
and
SHERWOOD FOODS, INC.
Dated as of May 1, 1997
THE INDUSTRIAL DEVELOPMENT AUTHORITY OF MECKLENBURG COUNTY, VIRGINIA ("THE
"AUTHORITY") HAS ASSIGNED ALL OF ITS INTEREST IN THIS AGREEMENT (EXCEPT CERTAIN
PROVISIONS RELATING TO THE PAYMENT OF EXPENSES, NOTICE AND INDEMNIFICATION
CONTAINED IN SECTIONS 8.5 AND 8.6 HEREOF) TO CRESTAR BANK AS TRUSTEE UNDER AN
INDENTURE OF TRUST, DATED AS OF MAY 1, 1997, BETWEEN THE AUTHORITY AND THE
TRUSTEE. INFORMATION CONCERNING THE ASSIGNMENT MAY BE OBTAINED FROM THE TRUSTEE
AT ITS PRINCIPAL CORPORATE TRUST OFFICE IN RICHMOND, VIRGINIA.
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
Definitions
Section 1.1 Definitions 1
Section 1.2 Rules of Construction 1
ARTICLE II
Representations and Covenants
Section 2.1 Representations by Authority 2
Section 2.2 Representations and Covenants by Borrower 3
ARTICLE III
Issuance of the Bonds; Use of Proceeds
Section 3.1 Loan of Proceeds 5
Section 3.2 Acquisition of Project 5
Section 3.3 Agreement to Issue Bonds 5
Section 3.4 Borrower Required to Complete Acquisition of Project 5
Section 3.5 Disclaimer of Warranties 5
Section 3.6 Limitation of Authority's Liability 6
ARTICLE IV
Payment by the Borrower
Section 4.1 Payments by the Borrower 6
Section 4.2 Obligations of Borrower Unconditional 8
Section 4.3 Payments Assigned 8
Section 4.4 Letter of Credit 8
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PAGE
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ARTICLE V
Operation and Use of the Project
Section 5.1 Maintenance and Operation of the Project 9
Section 5.2 Inspection of Project and Borrower's Books and Records 9
ARTICLE VI
Governmental Charges and Insurance
Section 6.1 Governmental Charges 10
Section 6.2 Insurance 10
Section 6.3 Requirements of Policies 10
ARTICLE VII
Damages, Destruction or Condemnation
Section 7.1 Parties to Give Notice 10
Section 7.2 Damage and Destruction 10
Section 7.3 Condemnation and Loss of Title 11
Section 7.4 Provisions of Reimbursement Agreement with Letter of
Credit Issuer During Letter of Credit Period 11
ARTICLE VIII
Special Covenants
Section 8.1 Use of Proceeds; Other Matters with Respect to Project, Bonds
and Tax Exemption 12
Section 8.2 Arbitrage and Rebate 14
Section 8.3 Reports 15
Section 8.4 Compliance with Tax Laws 16
Section 8.5 Indemnification by Borrower 16
Section 8.6 Payment of Expenses 17
Section 8.7 Approval of Indenture 19
Section 8.8 Right to Purchase Tendered Bonds 19
Section 8.9 Notice of Act of Bankruptcy 19
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<PAGE>
PAGE
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ARTICLE IX
Events of Default and Remedies
Section 9.1 Event of Default Defined 20
Section 9.2 Remedies on Default 20
Section 9.3 No Remedy Exclusive 21
Section 9.4 Attorneys' Fees and Other Expenses 21
Section 9.5 No Additional Waiver Implied by One Waiver 21
ARTICLE X
Miscellaneous
Section 10.1 Successors and Assigns 21
Section 10.2 Amendments 22
Section 10.3 Exculpation of Authority 22
Section 10.4 Applicable Law 22
Section 10.5 Severability 22
Section 10.6 Notices 22
Section 10.7 Agreements to Survive 22
Section 10.8 Right to Cure Default 22
Section 10.9 No Joint Venture 23
Section 10.10 Headings 23
Section 10.11 Term of Agreement 23
Section 10.12 Counterparts 23
Section 10.13 Trustee as Assignee and Third Party Beneficiary 23
Testimonium
Signatures
Receipt
Schedule of Definitions - See Tab #11
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<PAGE>
THIS LOAN AGREEMENT is made as of May 1, 1997, between the INDUSTRIAL
DEVELOPMENT AUTHORITY OF MECKLENBURG COUNTY, VIRGINIA, a political subdivision
of the Commonwealth of Virginia (the "Authority"), and SHERWOOD FOODS, INC., a
North Carolina corporation (the "Borrower");
WHEREAS, on April 23, 1997, the Authority adopted a resolution (the
"Resolution") authorizing the issuance and sale of the Authority's Variable Rate
Demand Revenue Bonds (Sherwood Foods, Inc., Project), Series 1997, in the
aggregate principal amount of $580,000 (the "Bonds"), and the loan of the
proceeds of the Bonds to the Borrower to pay off the Interim Note, the proceeds
of which were used to finance the acquisition of equipment (the "Equipment")
owned by the Borrower and used in the Borrower's business of manufacturing food
products at its manufacturing facility located in the Town of Chase City in
Mecklenburg County, Virginia;
WHEREAS, the parties desire to set forth in this Agreement certain of their
agreements and understandings with respect to the loan of the Bond proceeds,
NOW, THEREFORE, for and in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. Attached to this Agreement is a Schedule of
Definitions wherein certain words and terms used herein shall have the meaning
set forth in the Schedule (which is incorporated herein by this reference)
unless the context otherwise requires. In addition to, and not as a limitation
upon, the preceding sentence, all terms used herein which are defined within the
body of any of the Basic Documents or the Bonds shall have the same meaning
herein as therein, unless the context in which such terms are used herein
clearly requires that a different meaning be ascribed to such terms.
Section 1.2 Rules of Construction. The following rules shall apply to the
construction of this Agreement unless the context otherwise requires:
(a) Singular words shall connote the plural number as well as the singular
and vice versa.
(b) Words importing the redemption or calling for redemption of Bonds shall
not be deemed to refer to or connote the payment of Bonds at their stated
maturity.
(c) All references herein to particular Articles or Sections are references
to Articles or Sections of this Agreement.
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(d) The headings herein are solely for convenience of reference and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
(e) The masculine, feminine and neuter genders are used solely for
convenience of reference and not as terms of limitation. Accordingly, words of
the masculine, feminine and neuter genders shall be deemed and construed to
include correlative words of the masculine, feminine and neuter gender.
ARTICLE II
Representations and Covenants
Section 2.1 Representations by Authority. The Authority makes the following
representations as the basis for its undertakings under this Agreement:
(a) The Authority has been duly organized and operating under the Act since
its creation, and no dissolution proceedings have been undertaken by it. The
Authority is, on the date of the issuance of the Bonds, a duly created and
validly existing political subdivision of the Commonwealth vested, by the Act,
with the rights and powers conferred upon industrial development authorities
under the Act.
(b) Each director of the Authority has satisfied the residency requirements
of the Act. No director of the Authority is an officer or employee of the County
and each director has taken and subscribed to the oath prescribed by Section
49-1 of the Code of Virginia of 1950, as amended.
(c) The Authority has complied in all respects with the Act and has the
legal right, power and authority to (i) adopt the Resolution and execute and
deliver the Basic Documents to which it is a party and other documents related
thereto; (ii) issue, sell and deliver the Bonds to the initial purchasers
thereof; (iii) to undertake the financing of the Project by lending the proceeds
of the Bonds to the Borrower; and (iv) carry out and consummate all other
transactions to which it is a party and which are contemplated by the
Resolution, the Bonds and the Basic Documents.
(d) The Bonds and the Basic Documents to which the Authority is a party
have been executed and delivered by duly authorized officers of the Authority,
were duly authorized by the Resolution and are in substantially the same form
and text as the copies of such instruments presented to the Authority at its
meeting on April 23, 1997.
(e) The Bonds constitute the only bonds or other obligations of the
Authority in any manner secured by, or payable from, the amounts due under the
Basic Documents and all revenues and receipts derived by the Authority therefrom
or from the security therefor.
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(f) The Authority hereby finds and determines that the issuance of the
Bonds will serve the purposes of the Act and that the Project constitutes an
"authority facility," within the meaning of the Act.
(g) When authenticated and delivered in accordance with the Indenture, the
Bonds will have been duly authorized, executed, issued and delivered and will
constitute legal, valid and binding limited obligations of the Authority
enforceable against the Authority in accordance with their terms.
(h) The adoption of the Resolution, the issuance of the Bonds, the
execution and delivery of the Basic Documents to which the Authority is a party
and the compliance with the provisions thereof do not, and will not, conflict
with or constitute on the part of the Authority a violation or breach of, or
default under, any statute (except that no representation is made as to any
federal tax or securities law), ordinance, bylaw, indenture, mortgage, deed of
trust, resolution, bond, note or other agreement or instrument to which the
Authority is a party or by which it is bound or, to its knowledge, any judgment,
decree, order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Authority or any of the Authority's activities or
properties.
(i) To the best of the Authority's knowledge, no litigation or
investigation by any judicial or governmental body or agency is pending or
threatened against the Authority to (i) enjoin, restrain or otherwise affect the
execution, delivery or validity of the Resolution, the Bonds or the Basic
Documents, or (ii) challenge, contest or affect the constitution, existence or
powers of the Authority, the incumbency of the Authority's officers or directors
or the validity or enforceability of any action taken by the Authority with
respect to the Resolution, the Bonds or the Basic Documents or any transactions
authorized thereby or related thereto. To the best of the Authority's knowledge,
no litigation or investigation by any judicial or governmental body or agency is
pending or threatened against the Authority which challenges or contests the
collection of revenues or receipts under the Basic Documents or the payment
thereof to the registered owners of the Bonds. To the best of the Authority's
knowledge, there is no litigation or investigation by any judicial or
governmental body or agency pending or threatened against the Authority or any
of the property or assets under the control of the Authority which involves the
possibility of any judgment or liability which may adversely affect the Project
or the security for the Bonds.
Section 2.2 Representations and Covenants by Borrower. The Borrower makes
the following representations and covenants in connection with its undertakings
hereunder:
(a) The execution and delivery of the Basic Documents to which it is a
party and the performance by the Borrower of its obligations hereunder and
thereunder do not and will not (1) constitute a default under the articles of
incorporation or bylaws of the Borrower or any agreement or other instrument to
which the Borrower is a party or by which it is bound, or (2) result in a
violation of any agreement or other instrument to which the Borrower is a party
or by which it is bound or, to the best of the Borrower's knowledge, any
constitutional or
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statutory provision or order, rule, regulation, decree or ordinance of any
court, government or governmental authority having jurisdiction over the
Borrower or its property.
(b) It has duly authorized, executed and delivered the Basic Documents to
which it is a party, and such Basic Documents, when so executed and delivered by
other parties thereto, will constitute the valid and legally binding obligations
of the Borrower, enforceable in accordance with the provisions thereof.
(c) There are no pending or, to the best of its knowledge, threatened
actions, suits, proceedings, or investigations of a legal, equitable,
regulatory, administrative or legislative nature, the judgment, order or
resolution of which may have a materially adverse effect on the Borrower or its
business, assets, condition (financial or otherwise), operations or prospects or
on its ability to perform its obligations under the Basic Documents.
(d) It is not in default in the payment of the principal of or interest on
any of its indebtedness for borrowed money or any instrument under and subject
to which any indebtedness has been incurred, and, to the best of its knowledge,
no event has occurred and is continuing under the provisions of any such
agreement that with a lapse of time or the giving of notice, or both, would
constitute a default thereunder.
(e) Other than the Authority's $935,000 Variable Rate Demand Revenue Bonds
(Sherwood Foods, Inc. Project), Series 1996 (the "1996 Bonds"), the Bonds are
the only obligations of any state, territory or possession of the United States,
or any political subdivision of the foregoing, or of the District of Columbia,
the proceeds of which have been or are to be used primarily with respect to a
facility located or to be located in Mecklenburg County, Virginia, or in any
contiguous jurisdiction, a principal user of which is or will be the Borrower,
any other principal user(s) of the Project, or any "related persons" of the
Borrower or such other principal users, within the meaning of Section 144(a)(3)
of the Code.
(f) The Borrower has obtained all consents, approvals, authorizations and
orders of any governmental or regulatory authority that are required to be
obtained by the Borrower as a condition precedent to the issuance of the Bonds
or the execution and delivery of the Bond Documents to which it is a party or
the performance by the Borrower of its obligations hereunder or thereunder. The
Borrower has no reason to believe that any and all approvals, certificates and
permits which are required for the acquisition or operation of the Project
cannot be obtained when required.
(g) The Borrower currently intends to operate the facility in which the
Equipment is located as a manufacturing facility and to use the Equipment for
manufacturing purposes until the Indenture is discharged in accordance with its
terms.
(h) No document or instrument executed or delivered by the Borrower, nor
any information (financial or otherwise) furnished by or on behalf of the
Borrower to the Authority or the Remarketing Agent in connection with the
negotiation of the sale of the Bonds, contains any untrue statement of a
material fact or omits a material fact necessary to make the statements
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contained herein or therein not misleading. There is no fact that the Borrower
has not disclosed in writing to the Authority and the Letter of Credit Issuer
that materially adversely affects, or so far as it can now foresee, based on
facts known to it, will materially affect adversely the properties, business,
prospects, profits or condition (financial or otherwise) of the Borrower or the
ability of the Borrower to perform its obligations under the Basic Documents.
(j) The Borrower understands that the certifications made herein and in the
Tax Compliance Agreement are to be conclusively relied upon by Bond Counsel in
giving its opinion as to the tax-exempt status of the Bonds.
ARTICLE III
Issuance of the Bonds; Use of Proceeds
Section 3.1. Loan of Proceeds. The Authority hereby lends the proceeds from
the sale of the Bonds pursuant to this Loan Agreement to the Borrower, and the
Borrower hereby borrows the same from the Authority as evidenced by this Loan
Agreement. The Borrower covenants to use such proceeds to pay costs of the
Project.
Section 3.2 Acquisition of Project. The Borrower has acquired the Project
with the proceeds of the Interim Note substantially as described to the
Authority. The Borrower has obtained all licenses, permits and consents required
for the acquisition of the Project, and the Authority has no responsibility
therefor.
Section 3.3 Agreement to Issue Bonds. In order to provide funds for payment
of all or a portion of the cost of the Project, the Authority shall
simultaneously with the execution and delivery hereof proceed with the issuance
and sale of the Bonds bearing interest, maturing and having the other terms and
provisions set forth in the Indenture. The obligation of the Authority to pay
for the cost of the Project shall be limited to the proceeds in the Equipment
Fund derived from the sale of the Bonds in accordance with the Indenture.
Section 3.4. Borrower Required to Complete Acquisition of Project. The
Authority makes no warranty or promise, express or implied, that the proceeds of
the sale of the Bonds will be sufficient to pay the cost of the Project in full.
If the proceeds derived from the sale of the Bonds are not sufficient to pay in
full the cost of the Project, the Borrower shall pay so much of the cost thereof
as may be in excess of the moneys available therefor or shall pay over to the
Trustee such moneys as are necessary to provide for payment of such cost. The
Borrower agrees that if, after exhaustion of the proceeds derived from the sale
of the Bonds, the Borrower should pay any portion of the cost of the Project
pursuant to the provisions of this section, it shall not be entitled to any
reimbursement therefor from the Authority or the Trustee nor shall it be
entitled to any abatement, diminution or postponement of its payments hereunder.
Section 3.5. Disclaimer of Warranties. The Borrower recognizes that since
the Project has been or will be acquired by the Borrower from suppliers selected
by the Borrower, THE
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AUTHORITY MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT
TO THE MERCHANTABILITY, CONDITION OR WORKMANSHIP OF ANY PART OF THE PROJECT OR
ITS SUITABILITY FOR THE BORROWER'S PURPOSES OR THE EXTENT TO WHICH PROCEEDS
DERIVED FROM THE SALE OF THE BONDS WILL PAY THE COST TO BE INCURRED IN
CONNECTION THEREWITH.
Section 3.6. Limitation of Authority's Liability. THE BONDS AND THE
REDEMPTION PRICE THEREOF, AND INTEREST THEREON AND THE PURCHASE PRICE THEREOF
SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR A PLEDGE OF THE FAITH AND CREDIT OF
THE COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE COUNTY.
NEITHER THE COMMONWEALTH OF VIRGINIA NOR ANY POLITICAL SUBDIVISION THEREOF,
INCLUDING THE AUTHORITY AND THE COUNTY, SHALL BE OBLIGATED TO PAY THE PRINCIPAL
OR REDEMPTION PRICE OF, OR INTEREST ON, OR THE PURCHASE PRICE OF, THE BONDS OR
OTHER COSTS INCIDENT THERETO, EXCEPT FROM THE REVENUES AND MONEYS PLEDGED
THEREFOR, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE
COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY AND
THE COUNTY, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OR REDEMPTION PRICE OF,
OR INTEREST ON, OR THE PURCHASE PRICE OF, THE BONDS OR OTHER COSTS INCIDENT
THERETO.
ARTICLE IV
Payment by the Borrower
Section 4.1 Payments by the Borrower. In consideration of the Authority's
issuance of the Bonds to finance the Project, the Borrower agrees to pay, at the
times hereinafter specified, amounts sufficient to pay in Eligible Funds on each
date when due the principal or redemption price of, and interest on, and
purchase price of the Bonds, whether at maturity, upon redemption, including
mandatory redemption as provided in Section 405(c) of the Indenture, on
acceleration, on tender for purchase or otherwise.
(a) Until Payment of the Bonds, the Borrower agrees to deposit on each
Interest Payment Date into the Payments Account the amount, if any, necessary to
make the amount then on deposit in the Payments Account equal to the amount
needed for the payment of interest on the Bonds on such Interest Payment Date.
(b) Commencing on July 1, 1997, and continuing on the first day of each
month thereafter until Payment of the Bonds, the Borrower agrees to make monthly
deposits into the Payments Account (such monthly payments to be approximately
equal during the year preceding each June 1) so that on June 1 of each year
thereafter an amount equal to the aggregate principal amount of the Bonds which
is scheduled to be redeemed pursuant to Section
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405(c) of the Indenture on such June 1 will be on deposit in the Payments
Account prior to such June 1.
(c) The Borrower agrees to pay to the Trustee for deposit into the Payments
Account an amount sufficient to pay 100% of the principal of the Bonds and
interest accrued thereon to the redemption date due as a result of (i) the
mandatory redemption of the Bonds upon taxability in accordance with Section
405(a) of the Indenture or (ii) the mandatory redemption of the Bonds upon the
expiration of the Letter of Credit in accordance with Section 405(d) of the
Indenture. Such payment shall not relieve the Borrower of its continuing
obligation to make payments with respect to the interest due on the Bonds until
there is on deposit with the Trustee sufficient Eligible Funds to pay the
principal of and all interest accrued on the Bonds to the redemption date.
(d) In the event of an acceleration of the Bonds under Section 1002 of the
Indenture, the Borrower agrees immediately to pay to the Trustee for deposit
into the Payments Account an amount sufficient to pay in full the principal of
and interest on the Bonds.
(e) The Borrower shall be entitled to a credit in full against the amounts
required to be paid pursuant to subsections (a), (b), (c) and (d) above so long
as there is in force a Letter of Credit meeting the requirements of Section 4.4
and the issuer of such Letter of Credit has not failed or refused to honor any
drawing thereunder.
(f) The Borrower may exercise its right to direct the optional redemption
of Bonds in accordance with Section 405(b) of the Indenture, provided that, (i)
on or prior to the date of the proposed redemption, the Borrower shall have paid
or caused to be paid to the Trustee for deposit in the Payments Account amounts
(which will be Eligible Funds on the redemption date) or caused to be paid to
the Trustee for deposit in the Letter of Credit Account amounts drawn under the
Letter of Credit, in either case in an amount equal to the principal of the
Bonds to be redeemed plus interest accrued thereon to the redemption date, which
funds will be available to pay the principal of, and interest accrued on, the
Bonds to be redeemed on the redemption date and (ii) the Borrower shall have
given the Trustee and the Authority at least 30 days' notice of the exercise of
its optional redemption right.
(g) Subject to a credit in the aggregate amount of Eligible Funds or
proceeds of the remarketing of Bonds (pursuant to Section 404(a) of the
Indenture) on deposit in the Bond Purchase Account on a Tender Date, the
Borrower shall pay the Trustee all amounts necessary to pay in Eligible Funds
the purchase price of Bonds tendered on any Tender Date.
(h) The Borrower shall receive a credit against its obligation to make the
next succeeding payment due with respect to the principal or redemption price
of, or interest on, or the purchase price of, the Bonds, whether at maturity,
upon redemption, on acceleration, on purchase or otherwise, in an amount equal
to any interest or income derived from the investment of money in the Payments
Account or the Bond Purchase Account and amounts on deposit from the investment
thereof, provided such interest, income or amounts have not previously been
applied as a credit with respect to any payment and will be available to make
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the corresponding payment on the Bonds; and provided, further, that whenever
this Agreement, the Indenture or the Bonds requires payment of the principal or
redemption price of, or interest on, or the purchase price of, the Bonds in
Eligible Funds, such credit will not be effective until such time as such
interest or income has become Eligible Funds.
Section 4.2 Obligations of Borrower Unconditional. The obligations of the
Borrower to make all payments pursuant to this Agreement and to observe and
perform all other covenants, conditions and agreements under the Basic Documents
shall be absolute and unconditional, irrespective of any rights of setoff,
recoupment or counterclaim the Borrower might otherwise have against the
Authority or the Trustee. Subject to prepayment as provided in this Agreement,
the Borrower shall not suspend or discontinue any such payment or fail to
observe and perform any of its other covenants, conditions and agreements under
the Basic Documents for any cause, including without limitation any acts or
circumstances that may constitute an eviction or constructive eviction, failure
of consideration, failure of title to any part or all of the Project, or
commercial frustration of purpose, or any damage to or destruction or
condemnation of all or any part of the Project or any change in the tax or other
laws of the United States, the Commonwealth or any political subdivision of
either or any failure of the Authority or any other person to observe and
perform any covenant, condition or agreement, whether express or implied, or any
duty, liability or obligation arising out of or in connection with the Basic
Documents.
Section 4.3 Payments Assigned. The Borrower consents to the assignment of
the rights of the Authority assigned under this Agreement to the Trustee and
agrees to pay to the Trustee all amounts payable by the Borrower pursuant to the
Basic Documents, except for amounts payable directly to the Authority and others
pursuant to Sections 8.5 and 8.6 of this Agreement.
Section 4.4 Letter of Credit. At all times while the Bonds are Outstanding,
the Borrower shall cause a Letter of Credit to be in effect. On the Closing
Date, in order to commence the Letter of Credit Period, the Borrower shall
deliver to the Trustee a Letter of Credit having a stated expiration date no
earlier than June 10, 2002. Any replacement Letter of Credit must be delivered
to the Trustee on or before a date which is at least 40 days prior to the date
that the then existing Letter of Credit is being replaced and having an
effective date no later than June 1 in the year in which it is delivered and an
expiration date which is the earlier of June 10 in the next succeeding year or
June 10, 2002.
Any Letter of Credit shall be an irrevocable Letter of Credit or other
irrevocable and unconditional credit facility, and it shall permit drawings
thereunder by the Trustee in accordance with the Indenture of amounts not less
than (i) the aggregate principal amount of the Bonds outstanding and (ii)
sixty-two (62) days interest (at an assumed rate of 10% per annum) on the Bonds
Outstanding. On or before the date of delivery of any replacement Letter of
Credit to the Trustee, the Borrower shall cause to be delivered to the Trustee
(i) an Opinion of Counsel stating that the delivery of the Letter of Credit to
the Trustee is authorized under and complies in all respects with the provisions
of this Agreement and the Indenture, (ii) an Opinion of Counsel stating that the
Letter of Credit constitutes a legal, valid and binding obligation of
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the Letter of Credit Issuer to pay the amounts provided therein and is
enforceable in accordance with its terms, subject to customary exceptions and
qualifications, and (iii) if delivery of the Letter of Credit will commence a
Rated Period, or if a replacement Letter of Credit is being delivered during a
Rated Period, written evidence that the Rating Agency has received a true copy
of the Letter of Credit and that it will not, by itself, result in a rating on
the Bonds lower than the Rating Agency's prevailing rating on the Bonds at the
time such replacement Letter of Credit is delivered to the Trustee, or (iv) if
not commencing or during a Rated Period, written evidence satisfactory to the
Trustee that the proposed Letter of Credit Issuer has a rating by a Rating
Agency of either its long-term or short-term senior debt obligations at least
equal to the corresponding rating of the Letter of Credit Issuer whose Letter of
Credit is then outstanding.
ARTICLE V
Operation and Use of the Project
Section 5.1 Maintenance and Operation of the Project. The Borrower shall,
at its expense, keep the Project in good repair and operating condition and free
and clear of all encumbrances except Permitted Encumbrances, as defined in the
Reimbursement Agreement, making from time to time all necessary repairs,
renewals and replacements. The Borrower may, at its expense, make any additions,
modifications or improvements to the Project that it may deem desirable for the
efficient operation of the facility as a manufacturing facility and that do not
substantially impair the revenue producing capability of the facility, provided
that all such additions, modifications or improvements are located wholly on the
Land and comply with all Federal, state and local codes as applied to the
Project. All such renewals, replacements, additions, modifications and
improvements shall become part of the Project.
The Borrower shall (a) use, maintain and operate the Project for
manufacturing purposes; (b) comply with all laws, rules and regulations of any
governmental body applicable to the condition and operation of the Project,
whether existing or later enacted or foreseen or unforeseen and whether
involving any change in governmental policy or requiring structural or other
changes to the buildings at the facility; (c) neither commit nor suffer others
to commit a nuisance in or about the facility site at which the Project is
located; and (d) provide at its own cost and expense, to the extent not included
at the facility site at which the Project is located, the other personal
property required for the proper use, maintenance and operation of the Project
in an economical and efficient manner.
Section 5.2 Inspection of Project and Borrower's Books and Records. The
Authority and its duly authorized representatives and agents shall have such
reasonable rights of access to the facility site at which the Project is located
during normal business hours as may be necessary to determine whether the
Borrower is in compliance with the requirements of the Basic Documents and shall
have the right at all reasonable times and upon reasonable prior notice to the
Borrower to examine and copy the books and records of the Borrower insofar as
such books and records relate to the Project. The Authority shall not be deemed
to have any
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duty to inspect the Project and the books and records related thereto or to have
any obligation to take any actions with respect to any of its findings upon such
inspection.
ARTICLE VI
Governmental Charges and Insurance
Section 6.1 Governmental Charges. The Borrower shall pay when due
Governmental Charges. The Borrower, however, at its expense and in its name, may
contest in good faith any Governmental Charges. In the event of such a contest,
the Borrower may permit the same to remain unpaid during the period of the
contest and any subsequent appeal, so long as such nonpayment is otherwise
permitted by applicable law.
Section 6.2 Insurance. The Borrower shall continuously maintain such
insurance (if any) for the Project as is customarily maintained by businesses
for similar Projects, paying when due all premiums with respect thereto;
provided, however, that during any Letter of Credit Period, compliance with the
insurance requirements of the Reimbursement Agreement then in effect shall be
deemed compliance with this Section and Section 6.3.
Section 6.3 Requirements of Policies. All insurance required by Section 6.2
shall be maintained with generally recognized responsible insurance companies
qualified to do business in the Commonwealth of Virginia and selected by the
Borrower. Such insurance may be written with deductible amounts comparable to
those on similar policies carried by other businesses with respect to Projects
of like size and character. In each policy, other than policies of worker's
compensation insurance, the Authority and the Trustee shall be named as
insureds, additional insureds or loss payees, as appropriate, as their interests
may appear.
ARTICLE VII
Damage, Destruction or Condemnation
Section 7.1 Parties to Give Notice. In case of (i) any damage to, or
destruction of, any material part of the Project, (ii) a taking of all or any
material part of the Project or any right thereunder under the exercise of the
power of eminent domain, (iii) any loss of all or any material part of the
Project because of failure of title or (iv) the commencement of any proceedings
or negotiations which might result in such a taking or loss, the Borrower shall
give prompt notice thereof to the Authority, the Letter of Credit Issuer, if
any, and the Trustee describing generally the nature and extent of such damage,
destruction, taking, loss, proceedings or negotiations.
Section 7.2 Damage and Destruction. Unless Payment of the Bonds has
occurred or the Borrower has provided for the redemption of all of the Bonds
pursuant to an optional redemption, in accordance with Section 405(b) of the
Indenture, if all or any part of the Project
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is destroyed or damaged by fire or other casualty, then the Borrower shall
restore promptly the property damaged or destroyed to substantially the same
condition as before such damage or destruction, with such alterations and
additions as the Borrower may determine and which will not impair the capacity
or character of the Project for the purpose for which it then is being used or
is intended to be used. Any Net Proceeds paid to the Trustee shall be deposited
in a sub-account of the Bond Fund created for this purpose. The Borrower may
apply so much as may be necessary of the Net Proceeds of insurance received on
account of any such damage or destruction to payment of the cost of such
restoration, either on completion or as the work progresses but only after
delivery to the Trustee and the Letter of Credit Issuer of a certificate or
certificates from the Borrower containing such information regarding the
restoration as the Trustee and the Letter of Credit Issuer may reasonably
require. If such Net Proceeds are not sufficient to pay in full the cost of such
restoration, then the Borrower shall pay so much of the cost as may be in excess
of such Net Proceeds. Any balance of Net Proceeds held by the Trustee, after
payment of the cost of such restoration shall be deposited in a separate
segregated sub-account in the Bond Fund, invested in accordance with Section 801
of the Indenture and used by the Trustee to redeem Bonds in accordance with
Section 405(b) of the Indenture. The Borrower hereby agrees that it will direct
the optional redemption required by the preceding sentence.
Section 7.3 Condemnation and Loss of Title. Unless Payment of the Bonds has
occurred or the Borrower has provided for the redemption of all of the Bonds
pursuant to an optional redemption in accordance with Section 405(b) of the
Indenture, if title to, or the temporary use of, all or any part of the Project
shall be taken under the power of eminent domain or lost because of failure of
title, then the Borrower shall cause the Net Proceeds from any such condemnation
award or from title insurance to be paid over to the Trustee to be held by it in
a sub-account of the Bond Fund to be created for such purpose and applied to the
restoration of the Project to substantially its condition before the exercise of
such power of eminent domain or failure of title but only upon delivery to the
Trustee and the Letter of Credit Issuer of a certificate or certificates from
the Borrower to contain such information as the Trustee and the Letter of Credit
Issuer may reasonably require. Any balance of Net Proceeds remaining after
payment of the cost of such restoration shall be deposited in a separate
segregated sub-account in the Bond Fund, invested in accordance with Section 801
of the Indenture and used by the Trustee to redeem Bonds in accordance with
Section 405(b) of the Indenture. The Borrower hereby agrees that it will direct
the optional redemption required by the preceding sentence.
Section 7.4 Provisions of Reimbursement Agreement with Letter of Credit
Issuer During Letter of Credit Period. If, during the Letter of Credit Period,
the provisions of this Article VII and the provisions of the Reimbursement
Agreement are in conflict, then the provisions of the Reimbursement Agreement
shall control.
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ARTICLE VIII
Special Covenants
Section 8.1. Use of Proceeds; Other Matters with Respect to Project, Bonds
and Tax Exemption. (a) Use of Proceeds; Prohibited Uses of Project, etc. Neither
the Authority knowingly nor the Borrower shall cause any proceeds of the Bonds
to be expended except pursuant to the Indenture. The Borrower shall not (i)
allow any payment out of proceeds of the Bonds (A) if such payment is to be used
for the acquisition of any property (or an interest therein) unless the first
use of such property is pursuant to such acquisition, provided that this clause
(A) shall not apply to any building if the "rehabilitation expenditures", as
defined in Section 147(d) of the Code, with respect to the building equal or
exceed 15% of the portion of the cost of acquiring the building financed with
the proceeds of the Bonds, (B) if as a result of such payment, 25% or more of
the proceeds of the Bonds would be considered as having been used directly or
indirectly for the acquisition of land (or an interest therein), (C) if, as a
result of such payment, less than 95% of the net proceeds of the Bonds, expended
at the time of such payment would be considered as having been used for costs of
the acquisition, construction or improvement of land or property of a character
subject to the allowance for depreciation and for a "manufacturing facility,"
all within the meaning of Section 144(a)(1)(A) of the Code or (D) if such
payment is used to pay issuance costs (including counsel fees and placement
fees) in excess of an amount equal to 2% of the principal amount of the Bonds;
(ii) take or omit, or permit to be taken or omitted, any other action with
respect to the use of such proceeds the taking or omission of which would result
in the loss of exemption of interest on the Bonds from Federal income taxation
under Section 103(a) of the Code; or (iii) take or omit, or permit to be taken
or omitted, any other action the taking or omission of which would cause the
loss of such exemption. Without limiting the generality of the foregoing,
neither the Authority knowingly nor the Borrower shall use the proceeds of the
Bonds, or permit such proceeds to be used directly or indirectly, for the
acquisition of land (or an interest therein) to be used for farming purposes, or
to provide (x) any facility the primary purpose of which is retail food and
beverage services, automobile sales and service, the provision of recreation or
entertainment, or banks, savings and loan institutions or mortgage companies,
(y) any airplane, skybox or other private luxury box, any health club facility,
any facility primarily used for gambling, any store the principal business of
which is the sale of alcoholic beverages for consumption off premises, any
private or commercial golf course, country club, massage parlor, tennis club,
skating facility (including roller skating, skateboard and ice skating), racquet
sports facility (including any hand ball or racquet ball court), hot tub
facility, suntan facility, or race track, or (z) single or multi-family
residences. None of the proceeds is to be used for office space. None of the net
proceeds of the Bonds is to be used to provide facilities that are "directly
related and ancillary" to the manufacturing operations conducted at the facility
site.
(b) Average Maturity and Economic Life. The Borrower shall not request,
approve or permit to be approved on its behalf any payment of Bond Proceeds if,
as a result of such payment, the "average maturity" of the Bonds would exceed
120 percent of the "average
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reasonably expected economic life" of the Project, within the meaning of Section
147(b) of the Code.
(c) Use by United States or its Agencies. The Borrower shall not permit the
Project to be used or occupied, other than as a member of the general public, in
any manner for compensation by the United States or an agency or instrumentality
thereof, including any entity with statutory authority to borrow from the United
States (in any case within the meaning of Section 149(b) of the Code) unless the
Borrower shall deliver to the Trustee and the Letter of Credit Issuer, if any,
an opinion of Bond Counsel in form and substance satisfactory to the Trustee and
the Letter of Credit Issuer to the effect that such use will not impair the
exemption of interest on the Bonds from Federal income taxation.
(d) Other Bonds to be Issued. During the period commencing on the Closing
Date and ending 15 days thereafter, there shall be issued no "private activity
bonds", as defined in Section 141 of the Code, which are guaranteed or otherwise
secured by payments to be made by the Borrower or any "related person" (or
groups of "related persons") unless the Borrower shall deliver to the Trustee
and the Letter of Credit Issuer, if any, an opinion of Bond Counsel in form and
substance satisfactory to the Trustee and the Letter of Credit Issuer to the
effect that the issuance of such "private activity bonds" will not impair the
exemption of interest on the Bonds from federal income taxation. Except for the
Borrower, the Letter of Credit Issuer and the Remarketing Agent, or any "related
person" (or group of "related persons"), no person has (i) guaranteed, arranged,
participated in, assisted with or paid any portion of the cost of the issuance
of, the Bonds, or (ii) provided any property or any franchise, trademark or
trade name (within the meaning of Section 1253 of the Code) which is to be used
in connection with the Project.
(e) Limit on Amount of Bonds. The Borrower represents that on the date of
issuance of the Bonds, (i) obligations have not been assumed, capital
expenditures have not been made and outstanding obligations do not exist that
will cause the "aggregate face amount" of the Bonds as computed under the
provisions of Section 144(a) and related sections of the Code to exceed
$10,000,000, and (ii) outstanding obligations do not exist that will cause the
"aggregate face amount" of the Bonds allocated to any "test-period beneficiary,"
as defined in Section 144(a)(10) of the Code, when increased by such
obligations, to exceed $40,000,000. The "aggregate authorized face amount" of
the Bonds allocated to any "test period beneficiary" (as defined in Section
144(a)(10) of the Code) of the Project, when increased by the outstanding
"tax-exempt facility related" bonds allocated to such test period beneficiary,
does not exceed $40,000,000. The Borrower covenants that the Borrower will not
allow (i) any person or entity to become a test period beneficiary of the
facilities financed by the Bonds, if such act would cause such $40,000,000 limit
to be exceeded, as provided in Section 144(a)(10) of the Code and (ii) make
capital expenditures in amounts within the three years after the date of the
issuance of the Bonds that would cause the $10,000,000 limitation set forth in
Section 144(a)(4) of the Code to be exceeded.
(f) Tax Information; 8038 Form. The Borrower hereby represents and warrants
that the information that is provided by the Borrower that is contained in the
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certificates, agreements or letters of representation of the Borrower with
respect to the compliance with the requirements of Section 103 of the Code,
including the information in Form 8038 (excluding the issue number and the
employer identification number of the Authority), filed by the Authority with
respect to the Bonds and the Project, is true and correct in all material
respects.
Section 8.2 Arbitrage and Rebate.
(a) The Borrower hereby covenants with, and certifies to, and for the
benefit of, the holders of the Bonds and the Authority that so long as the Bonds
remain Outstanding, moneys on deposit in any fund or account established,
maintained or permitted to be established or maintained under the Indenture or
under any of the Basic Documents in connection with the Bonds, whether or not
such moneys were derived from the proceeds of the sale of the Bonds or from any
other source, will not be used or invested in a manner which will cause the
Bonds to be classified as "arbitrage bonds" within the meaning of Section 148(a)
of the Code. The Borrower obligates itself to comply with the requirements of
Section 148 of the Code and any regulations, whether temporary or final,
promulgated thereunder or relating thereto, including but not limited to
Treasury Regulation Sections 1.148-0 through 1.148-11 (such Section 148 and such
regulations hereinafter referred to as the "Arbitrage Rules").
(b) Except with respect to earnings on funds and accounts qualifying for an
exception to the rebate requirement of Section 148 of the Code, the Borrower
will compute and pay to the United States of America the amount, if any,
required by Section 148(f)(2) of the Code (the "Rebate Amount"), as provided in
the following subsections of this section.
(c) The Authority, at the direction of the Borrower, selects June 1 as the
end of each bond year with respect to the Bonds. The fifth June 1 following the
issuance of the Bonds will be the initial installment computation date for the
Bonds pursuant to Treasury Regulations Section 1.148-3(e) (the "Initial
Installment Computation Date"), unless the Authority, at the direction of the
Borrower, delivers to the Trustee a certificate, signed by an authorized
Authority officer, selecting another date to be the installment computation date
prior to the date on which any amount with respect to the Bonds is paid or
required to be paid to the United States of America as required by Section 148
of the Code.
(d) Within 30 days after the Initial Installment Computation Date, unless
such date is changed by the Authority pursuant to paragraph (c), and at least
once every five years thereafter, the Borrower will cause the Rebate Amount with
respect to the Bonds to be computed and will deliver a copy of such computation
(the "Rebate Amount Certificate") to the Authority and to the Trustee. Prior to
any payment of the Rebate Amount with respect to the Bonds to the United States
of America as required by Section 148 of the Code, the Rebate Amount Certificate
setting forth such Rebate Amount shall be prepared or approved by (i) an
independent certified public accountant, (ii) any recognized, independent
arbitrage rebate calculation service acceptable to the Trustee or the Authority
or (iii) Bond Counsel. The
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Borrower agrees to keep a record of such determinations until at least six years
after the payment of the Bonds in full.
(e) Not later than 55 days after the Initial Installment Computation Date,
the Borrower, on behalf of the Authority, shall pay to the Trustee for deposit
in the Rebate Fund and payment to the United States of America 90% of the Rebate
Amount with respect to the Bonds as set forth in the Rebate Amount Certificate
prepared with respect to the Initial Installment Computation Date. At least once
on or before 55 days after the installment computation date that is the fifth
anniversary of the Initial Installment Computation Date and on or before 55 days
after every fifth anniversary date thereafter until payment in full of the
Bonds, the Borrower, on behalf of the Authority, shall pay to the Trustee for
deposit in the Rebate Fund and payment to the United States of America the
amount, if any, by which 90% of the Rebate Amount with respect to the Bonds set
forth in the most recent Rebate Amount Certificate exceeds the aggregate of all
such payments theretofore made to the United States of America pursuant to this
section. On or before 55 days after payment in full of the Bonds, the Borrower,
on behalf of the Authority, shall pay to the Trustee for deposit in the Rebate
Fund and payment to the United States of America the amount, if any, by which
100% of the Rebate Amount with respect to the Bonds set forth in the Rebate
Amount Certificate for the date of payment of the Bonds exceeds the aggregate of
all payments theretofore made pursuant to this Section. The Borrower shall file
such forms in connection with such rebate payments as may be required by the
Internal Revenue Service.
(f) Notwithstanding anything contained herein to the contrary, no such
payment will be made if the Borrower receives and delivers to the Authority and
the Trustee an opinion of Bond Counsel that such payment is not required under
the Code to prevent the Bonds from becoming "arbitrage bonds" within the meaning
of Section 148 of the Code.
(g) The Authority shall not be liable to the Borrower by way of
contribution, indemnification, counterclaim, set-off or otherwise for any
payment made or expense incurred by the Borrower pursuant to this Section,
notwithstanding that payments to the Authority pursuant to this Section or
investment by the Trustee of such payments may result in whole or in part in the
Borrower's liability for such payment or expense.
NOTHING CONTAINED HEREIN SHALL BE INTERPRETED OR CONSTRUED TO REQUIRE THE
AUTHORITY OR THE TRUSTEE TO CALCULATE OR TO PAY THE "REBATE AMOUNT," SAME BEING
THE SOLE AND EXCLUSIVE RESPONSIBILITY AND OBLIGATION OF THE BORROWER.
Section 8.3 Reports. The Borrower agrees that the Authority shall not be
required to prepare any documents or reports that may be required to be prepared
under the Basic Documents and that the Authority shall not be responsible for
the content thereof or any costs associated therewith. The Authority agrees that
it will execute such reports as needed and file with the Internal Revenue
Service any forms or other documents that are required to be filed with the
Internal Revenue Service.
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Section 8.4 Compliance with Tax Laws. The Borrower will at its sole expense
take all action required under the Code, including but not limited to Section
148 of the Code, to prevent loss of the exclusion of interest on the Bonds from
gross income for federal income tax purposes under federal income tax law,
including but not limited to paying on behalf of the Authority the Rebate Amount
to the United States of America in accordance with the "rebate requirement"
described in Section 1.148-2 of the Treasury Regulations, and complying with the
requirements of Section 708 of the Indenture, including making the calculations
and deposits required therein. The Borrower agrees that it will comply with all
provisions of the Tax Compliance Agreement. The Borrower and the Authority agree
that the representations, warranties and covenants contained in the Tax
Compliance Agreement are hereby incorporated into this Agreement by reference
and made a part hereof. The Borrower agrees that the Letter of Credit Account
and the Payments Account of the Bond Fund and the Reimbursement Account in the
Reimbursement Agreement will be used primarily to achieve a proper matching of
revenues and debt service within each Bond Year and will be depleted at least
once a year, except for a reasonable carryover not to exceed the greater of (A)
one year's earnings on such accounts or (B) one-twelfth (1/12th) of the most
recent annual debt service on the Bonds.
Section 8.5 Indemnification by Borrower. The Borrower shall indemnify and
save harmless the Authority and the Trustee and their respective officers,
directors, employees and agents (hereinafter the "Indemnitees") from and against
all liabilities, obligations, claims, damages, penalties, fines, losses, costs
and expenses (hereinafter referred to as "Damages"), including without
limitation:
(a) all amounts paid in settlement of any litigation commenced or
threatened against the Indemnitees, if such settlement is effected with the
written consent of the Borrower;
(b) all expenses reasonably incurred in the investigation of, preparation
for or defense of any litigation, proceeding or investigation of any nature
whatsoever, commenced or threatened against the Borrower, the Project or the
Indemnitees;
(c) any judgments, penalties, fines, damages, assessments, indemnities or
contributions; and
(d) the reasonable fees of attorneys, auditors, and consultants; provided
that in all cases (a) through (d) the Damages arise out of:
(i) failure by the Borrower, or its officers, directors, employees or
agents, to comply with the terms of the Basic Documents and any agreements,
covenants, obligations, or prohibitions set forth therein;
(ii) any action, suit, claim or demand contesting or affecting the
title of the Project;
(iii) any breach by the Borrower of any representation or warranty set
forth in the Basic Documents or any certificate delivered pursuant thereto,
and any claim that any
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representation or warranty of the Borrower contains or contained any untrue
or misleading statement of fact or omits or omitted to state any material
facts necessary to make the statements made therein not misleading in light
of the circumstances under which they were made;
(iv) any action, suit, claim, proceeding or investigation of a
judicial, legislative, administrative or regulatory nature arising from or
in connection with the acquisition, operation or use of the Project; or
(v) any suit, action, administrative proceeding, enforcement action,
or governmental or private action of any kind whatsoever commenced against
the Borrower, the Project or the Indemnitees which might adversely affect
the validity or enforceability of the Bonds, the Basic Documents, or the
performance by the Borrower or any Indemnitee of any of their respective
obligations thereunder.
If any action or proceeding (including any governmental investigation)
shall be brought or asserted against any Indemnitee, then such Indemnitee shall
promptly notify the Borrower in writing, and the Borrower shall assume the
defense thereof, including the employment of counsel satisfactory to such
Indemnitee and the payment of all expenses. Such Indemnitee shall have the right
to employ separate counsel in any such action and to participate in the defense
thereof, but the reasonable fees and expenses of its counsel shall be the
expense of such Indemnitee unless (i) the Borrower has agreed to pay such
reasonable fees and expenses, (ii) the Borrower shall have failed to assume the
defense of such action or proceeding and employed counsel satisfactory to such
Indemnitee in any such action or proceeding, or (iii) the Indemnitee shall have
been advised by counsel that there may be one or more legal defenses available
to him or it which are different from, or additional to, those available to the
Borrower, in which case, if the Indemnitee notifies the Borrower in writing that
such person elects to employ separate counsel at the expense of the Borrower,
the Borrower shall not have the right to assume the defense of the action or
proceeding on behalf of such Indemnitee, it being understood, however, that the
Borrower shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for any Indemnitee. The Borrower shall not be liable for
any settlement of such action or proceeding effected without its written
consent, but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such action or proceeding, the Borrower agrees
to indemnify and hold harmless the Indemnitee from and against any loss or
liability by reason of such settlement or judgment.
Nothing contained herein shall require the Borrower to indemnify any
Indemnitee for any claim or liability resulting from its or their gross
negligence (as to the Trustee and its officers, directors employees and agents,
under the standard of care set forth in the Indenture and as to the Authority
and its officers, directors, employees and agents, gross negligence) or its or
their willful, wrongful acts.
Section 8.6 Payment of Expenses. The Borrower covenants to pay, either from
the proceeds of the Bonds (subject to the limitation on issuance costs set forth
in Section 601(b) of
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the Indenture) or from its own funds, within thirty (30) days after receiving
written demand therefor, an amount sufficient to pay the following costs and
expenses, including counsel fees, incurred by the Authority, the Trustee and
other parties described below as a result of actions taken pursuant to the
financing contemplated by this Agreement:
(a) All costs, fees and expenses incurred by the Authority (including
attorney's fees) in connection with:
(i) the authorization, issuance and sale of the Bonds;
(ii) the ownership, operation or use of the Project, whether owned by
the Authority or the Borrower; and
(iii) prepayment or redemption of the Bonds.
(b) Administrative costs and expenses of the Authority, including the fees
of attorneys, accountants, engineers, appraisers or consultants, paid or
incurred by the Authority by reason of the Bonds being Outstanding or pursuant
to requirements of the Basic Documents.
(c) Such other fees and expenses of the Authority, not directly related to
the Project, but attributable to the Authority's financing of industrial or
commercial projects, including without limitation, a share of costs of the
Authority's annual audit as required by the Act, determined as follows:
(i) All costs and fees relating to the annual audit and directly
attributable to a particular applicant or project shall be charged to such
applicant; and
(ii) Any costs and fees of such audit not directly attributable to any
applicant or project shall be allocated among all applicants having bonds
outstanding, pro rata, as the amount of bonds originally issued for such
applicant bears to the total face amount of bonds issued by the Authority
of which any portion of any issue remains outstanding and unpaid.
(d) Such other of the Authority's ordinary and extraordinary general,
administrative and operating costs and expenses incurred during each year. The
Borrower's proportionate share of said costs will be the percentage which the
unpaid principal amount of the Bonds outstanding bears to the aggregate unpaid
principal amount of all notes and bonds issued by the Authority and outstanding
at the time the costs and expenses are billed or incurred, as the case may be.
(e) All costs, fees and expenses of the Remarketing Agent and its counsel,
the Trustee and its counsel, and Bond Counsel, and all other costs, fees and
expenses incident to the issuance of the Bonds and the financing of the Project.
(f) All costs, fees and expenses of surveyors, engineers, architects,
appraisers and accountants employed to make examinations or reports or to render
opinions required by the Basic Documents.
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(g) All costs, fees and other costs payable to the Trustee for services or
indemnity under the Indenture.
(h) All costs incurred in connection with the redemption or purchase of the
Bonds.
(i) All amounts which are advanced by the Authority or the Trustee under
the authority of this Agreement or the Indenture for the benefit of the
Borrower.
(j) All costs of collection and enforcement, including reasonable
attorneys' fees, incurred by the Authority or the Trustee in connection with
obtaining payment of the Bonds or payment of any other amounts or performance by
the Borrower under the Basic Documents.
(k) Any other payments required to be made pursuant to the Basic Documents.
Payments pursuant to this Section shall be made by the Borrower directly to
the persons, firms or governmental agencies entitled to such payments, or, at
the direction of the Authority or the Trustee, to the Authority or the Trustee
as reimbursement therefor. Notwithstanding anything to the contrary herein, the
aggregate amounts paid to the Authority shall not equal or exceed an amount that
would cause the "yield" on this Agreement to be "materially higher" than the
yield on the Bonds, as such terms are used in the Code.
Section 8.7 Approval of Indenture. The Borrower approves the terms and
conditions of the Indenture and agrees to perform all obligations to be
performed by it under the Indenture.
Section 8.8 Right to Purchase Tendered Bonds. On any Tender Date, the
Borrower shall have the right to elect to purchase Bonds tendered on a Tender
Date by paying to the Trustee for deposit in the Bond Purchase Account Eligible
Funds (or funds which will be Eligible Funds on the Tender Date in question) to
be used and applied to the purchase of Bonds on a Tender Date in accordance with
Section 404 of the Indenture. Notwithstanding any purchase of Bonds pursuant to
this Section, the Borrower shall continue to be obligated to make deposits into
the Bond Fund of amounts sufficient to pay when due the principal and redemption
price of, and interest on, and purchase price of, the Bonds in accordance with
Section 4.1.
Section 8.9 Notice of Act of Bankruptcy. The Borrower agrees promptly to
notify the Authority, the Trustee and, during the Letter of Credit Period, the
Letter of Credit Issuer of the occurrence of an Act of Bankruptcy with respect
to it or if it becomes aware of an Act of Bankruptcy with respect to the
Authority.
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ARTICLE IX
Events of Default and Remedies
Section 9.1 Event of Default Defined. Each of the following events, upon
its occurrence and the expiration of the applicable grace period, is hereby
declared an Event of Default:
(a) Failure of the Borrower to make any payment under Section 4.1 when the
same becomes due and payable, and the continuation of such failure for ten (10)
days;
(b) Failure of the Borrower to observe or perform any of its other
covenants, conditions or agreements hereunder for a period of thirty (30) days
after notice specifying such failure and requesting that it be remedied, given
by the Authority, the Trustee or the Letter of Credit Issuer, if any, to the
Borrower; provided, however, that in the instance of any default which by its
nature can be cured but is not susceptible of being cured within such thirty
(30) day period, then it shall not constitute an Event of Default if the
Borrower commences the cure within such thirty (30) day period and thereafter
prosecutes the same with due diligence to conclusion;
(c) The occurrence of an Act of Bankruptcy;
(d) An Event of Default under the Indenture; or
(e) If during the Letter of Credit Period, receipt by the Authority and the
Trustee of written notice from the Letter of Credit Issuer stating that an Event
of Default has occurred under the Reimbursement Agreement and demanding that the
Bonds be declared immediately due and payable.
Section 9.2 Remedies on Default. Upon the occurrence of an Event of Default
under the Agreement, the Authority or the Trustee, as assignee of the Authority,
but only if acceleration of the principal amount of the Bonds has been declared
pursuant to the Indenture, shall take any one or more of the following remedial
steps:
(a) Declare all payments hereunder to be immediately due and payable in the
amount sufficient to pay all the principal of and interest on, and all other
amounts payable under the terms of the Bonds, whereupon the same shall become
immediately due and payable without notice or demand of any kind;
(b) Take whatever action at law or in equity as may appear necessary or
desirable to collect the amounts then due and thereafter to become due or to
enforce observance, or performance of any covenants, conditions or agreements of
the Borrower in this Agreement or any of the Basic Documents;
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(c) Exercise any remedy afforded a secured party under the UCC then in
effect, to the extent that property subject to this Agreement or any other Basic
Document is property subject to the UCC;
(d) Exercise any remedy provided in the Basic Documents; or
(e) Draw upon the Letter of Credit, if any.
The Authority or the Trustee shall give notice to the Borrower, the
Remarketing Agent and the Letter of Credit Issuer, if any, of the exercise of
any of the rights or remedies under this Section.
Any balance of the moneys collected pursuant to action taken under this
Section remaining after payment of all costs and expenses of collection and
amounts due hereunder shall be used for the Payment of the Bonds; provided that
after Payment of the Bonds any such balance shall be paid to the Borrower or to
the Letter of Credit Issuer, if any, if at the time the Letter of Credit Issuer
is entitled to the benefits of the Indenture inasmuch as it has been subrogated
to the rights of the Trustee thereunder.
Section 9.3 No Remedy Exclusive. No remedy herein conferred upon or
reserved to the Authority or the Trustee is intended to be exclusive of any
other remedy, and every remedy shall be cumulative and in addition to every
other remedy herein or now or hereafter existing at law, in equity or by
statute. No delay or failure to exercise any right or power accruing upon an
Event of Default shall impair any such right or power or shall be construed to
be a waiver thereof, and any such right or power may be exercised from time to
time and as often as may be deemed expedient.
Section 9.4 Attorneys' Fees and Other Expenses. The Borrower shall on
demand pay to the Authority and the Trustee the reasonable fees of attorneys and
other reasonable expenses incurred by any of them in the collection of payments
hereunder or the enforcement of any other obligations of the Borrower upon an
Event of Default.
Section 9.5 No Additional Waiver Implied by One Waiver. If either party or
its assignee waives a default by the other party under any covenant, condition
or agreement herein, such waiver shall be limited to the particular breach
hereunder.
ARTICLE X
Miscellaneous
Section 10.1 Successors and Assigns. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the parties and their respective
successors and assigns. No assignment by the Borrower shall relieve it of its
obligations under this Agreement.
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Section 10.2 Amendments. This Agreement may not be amended except by an
instrument in writing signed by the parties and consented to by the Trustee
pursuant to Article XIII of the Indenture. The Borrower agrees that no amendment
to any of the Basic Documents shall be effective without the prior written
consent of the Trustee in accordance with the terms of the Indenture and, during
the Letter of Credit Period, the Letter of Credit Issuer.
Section 10.3 Exculpation of Authority. Notwithstanding anything in the
Bonds or the Basic Documents to the contrary, the obligations of the Authority
are not general obligations of the Authority, but are limited obligations
payable solely from the Revenues which are specifically pledged for such
purpose. Neither the Bonds nor the Basic Documents shall be deemed to create or
constitute a debt or a pledge of the faith and credit of the Commonwealth of
Virginia or any political subdivision thereof, including the County and the
Authority. Neither the Commonwealth of Virginia nor any political subdivision
thereof, including the County and the Authority is obligated to pay the Bonds or
the redemption price or purchase price thereof or the interest or premium, if
any, thereon or other costs incident thereto except from the special funds
pledged therefor and the property pledged or mortgaged therefor. No present or
future director, member, officer, employee or agent of the Authority, or any
successor or assignee of any of the foregoing, shall be liable personally with
respect to this Agreement or for any other action taken by such individual
pursuant to or in connection with the financing provided for in this Agreement.
The Authority shall be protected in acting upon any notice, request,
requisition, consent, certificate or other writing reasonably believed by it to
be genuine and correct and to have been signed or sent by the proper person or
persons.
Section 10.4 Applicable Law. This Agreement shall be governed by the
applicable laws of the Commonwealth.
Section 10.5 Severability. If any clause, provision or section of this
Agreement shall be held illegal or invalid by any court, the illegality or
invalidity of such clause, provision or section shall not affect the remainder
of this Agreement which shall be construed and enforced as if such illegal or
invalid clause, provision or section had not been contained in this Agreement.
If any agreement or obligation contained in this Agreement is held to be in
violation of law, then such agreement or obligation shall be deemed to be the
agreement or obligation of the Authority and the Borrower, as the case may be,
only to the extent permitted by law.
Section 10.6 Notices. Unless otherwise provided for herein, all demands,
notices, approvals, consents, requests, opinions, and other communications
hereunder shall be in writing and shall be deemed to have been given if given in
accordance with the provisions of Section 1405 of the Indenture.
Section 10.7 Agreements to Survive. The representations, warranties,
covenants, terms and agreements contained in this Agreement shall survive the
execution and delivery of the Bonds and the Basic Documents.
Section 10.8 Right to Cure Default. If the Borrower shall fail to make any
payment or to perform any act required of it under the Bonds or the Basic
Documents, the Authority, the
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Letter of Credit Issuer, if any, or the Trustee, without prior notice to or
demand upon the Borrower and without waiving or releasing any obligation or
default, may (but shall be under no obligation to) make such payment or perform
such act. All amounts so paid by the Authority, the Letter of Credit Issuer or
the Trustee and all costs, fees and expenses, including but not limited to
attorneys' fees, so incurred shall be secured by the Basic Documents and shall
be payable by the Borrower to the party making the payment or incurring the
cost, fee or expense as an additional obligation under the Basic Documents,
together with interest thereon at a per annum rate equal to the Prime Rate as in
effect from time to time plus one percent (1%) until paid. The Borrower's
obligation under this Section shall survive Payment of the Bonds.
Section 10.9 No Joint Venture. Nothing in this Agreement shall be construed
as making any party a partner or joint venturer with any other party.
Section 10.10 Headings. The headings of the several articles and sections
of this Agreement are inserted for convenience only and do not comprise a part
of this Agreement.
Section 10.11 Term of Agreement. This Agreement shall be effective upon its
execution and delivery, provided that the Bonds and the other Basic Documents
previously or simultaneously have been executed and delivered. Except as
otherwise specified, the Borrower's obligations under the Bonds and the Basic
Documents shall expire upon Payment of the Bonds and all other amounts payable
by the Borrower under the Basic Documents.
Section 10.12 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which together shall
constitute but one and the same instrument, except that to the extent, if any,
that this Agreement shall constitute personal property under the UCC, no
security interest in this Agreement may be created or perfected through the
transfer or possession of any counterpart other than an original counterpart,
which shall be the counterpart containing the receipt therefor, executed by the
Trustee following the signatures to this Agreement.
Section 10.13 Trustee as Assignee and Third Party Beneficiary. The
rights of the Authority under this Agreement (except for certain rights to
notices and to payment of fees and expenses and indemnification contained in
Section 8.5 and 8.6) are to be assigned to the Trustee. The Borrower consents to
such assignment and agrees that the Trustee shall be entitled to enforce this
Agreement directly against the Borrower as a third party beneficiary hereof.
-23-
<PAGE>
IN WITNESS WHEREOF, the Authority and the Borrower have caused this
Agreement to be executed in their respective names by their duly authorized
representatives, all as of the date first above written.
INDUSTRIAL DEVELOPMENT AUTHORITY
OF MECKLENBURG COUNTY, VIRGINIA
By _______________________________
Chairman
SHERWOOD FOODS, INC.
By /s/ Anat Schwartz
--------------------------------
Vice President
[Seal]
ATTEST:
By________________________________
Secretary
-24-
<PAGE>
RECEIPT
Receipt of the foregoing original counterpart of the Loan Agreement, dated
as of May 1, 1997, between the Industrial Development Authority of Mecklenburg
County, Virginia, and Sherwood Foods, Inc., is hereby acknowledged.
CRESTAR BANK, as Trustee
May __, 1997 By _______________________________
Authorized Officer
-25-
<PAGE>
IRREVOCABLE LETTER OF CREDIT
May 15, 1997
Irrevocable Letter of Credit No. SB-013200
Crestar Bank, as Trustee
Attention: Corporate Trust Bond Department
919 East Main Street
Richmond, Virginia 23219
Ladies and Gentlemen:
At the request and instruction of our customer, Sherwood Foods, Inc. (the
"Borrower"), we hereby establish, for the account of the Borrower, in your favor
as Trustee under an Indenture of Trust dated as of May 1, 1997 (the
"Indenture"), between the Industrial Development Authority of Mecklenburg
County, Virginia, a political subdivision of the Commonwealth of Virginia (the
"Authority"), and you as Trustee, pursuant to which the Authority issued its
Variable Rate Demand Revenue Bonds (Sherwood Foods, Inc. Project), Series 1997
(the "Bonds"), our Irrevocable Letter of Credit in the initial amount of Five
Hundred Eighty Nine Thousand Eight Hundred Fifty Three Dollars ($589,853.00)
(hereinafter, as reduced or reinstated from time to time in accordance with the
provisions hereof, the "Stated Amount"). This Letter of Credit is issued
pursuant to a Reimbursement Agreement dated as of May 1, 1997 (the
"Reimbursement Agreement"), among Borrower, Sherwood Brands, Inc. and us.
Of the Stated Amount, (a) up to Five Hundred Eighty Thousand Dollars
($580,000.00) (the "Principal Portion") may be drawn at any time and from time
to time with respect to (i) the purchase of Bonds for the Borrower's account or
(ii) amounts due as principal of the Bonds, whether at maturity or upon
acceleration or call for redemption; and (b) up to Nine Thousand Eight Hundred
Fifty Three Dollars ($9,853.00) (the "Interest Portion") may be drawn at any
time and from time to time with respect to payment of up to 62 days' accrued
interest on the Bonds on or prior to the stated maturity date of the Bonds,
provided, however, that any amount drawn with respect to interest may not
CONTINUED ON PAGE 2, AN INTEGRAL PART OF THIS LETTER OF CREDIT
<PAGE>
AN INTEGRAL PART OF DOCUMENTARY CREDIT No. SB-O13200
exceed the actual amount of unpaid interest accrued and to accrue on the Bonds
to the time the drawing is made.
EXPIRATION
This Letter of Credit shall expire at 5:00 P.M., Richmond, Virginia time
(hereinafter referred to as "Eastern Time"), on June 10, 2002. Notwithstanding
the foregoing, this Letter of Credit shall expire earlier than such date upon
the first to occur of (a) the date of receipt by us of notice from the Trustee
that an acceptable alternate Letter of Credit (as defined in the Indenture) has
been accepted by the Trustee in substitution for this Letter of Credit, which
notice shall be in substantially the form of Annex E hereto; (b) the date on
which we honor a drawing or drawings with respect to payment of principal of and
interest on the Bonds pursuant to any payment, prepayment, acceleration or
redemption of the Bonds in full, in which event this Letter of Credit shall
expire immediately after we honor such drawing or drawings; (c) the date on
which the Indenture is discharged; and (d) 15 days after delivery to you of
notice that an Event of Default under the Reimbursement Agreement has occurred,
with instructions to you to accelerate the Bonds and draw on this Letter of
Credit.
In the event the expiration date of this Letter of Credit, as specified in
the preceding paragraph, is not a Business Day (as hereinafter defined), this
Letter of Credit shall expire at 5:00 P.M., Eastern Time, on the next following
Business Day.
METHOD OF PAYMENT
Funds under this Letter of Credit are available to you against your sight
draft(s) drawn on us, stating on their face, "Drawn under Central Fidelity
National Bank, Irrevocable Letter of Credit No. SB-013200" and accompanied by
your written certificate purportedly signed by your authorized officer,
appropriately completed, in the form of Annex A, B or C hereto, as indicated
below. Presentation of such drafts shall be made at our office located at:
Central Fidelity National Bank
1021 East Cary Street
Richmond, Virginia 23219
Attention: International Division
or at any office in the Commonwealth of Virginia that may be designated by us by
written notice delivered to you and reasonably acceptable to you.
We hereby agree that each draft drawn under and in compliance with the
terms of this Letter of Credit will be duly honored by us upon due delivery of
the certificate, or certificates, and sight draft, as specified below, if
presented as specified below on or before the expiration date hereof:
CONTINUED ON PAGE 3, AN INTEGRAL PART OF THIS LETTER OF CREDIT
<PAGE>
AN INTEGRAL PART OF DOCUMENTARY CREDIT No. SB-O13200
(1) If a presentation in respect to payment is made by you hereunder at or
prior to 11:00 A.M., Eastern Time, on a Business Day, and provided that the
documents so presented are in the form of appropriate annexes to this Letter of
Credit, payment shall be made to you, or to your designee, of the amount
specified, in immediately available funds, not later than 4:00 P.M., Eastern
Time, on that Business Day.
(2) If a presentation in respect of payment is made by you hereunder after
11:00 A.M., Eastern Time, on a Business Day, and provided that the documents so
presented are in the form of the appropriate annexes to this Letter of Credit,
payment shall be made to you, or to your designee, of the amount specified, in
immediately available funds, not later than 4:00 P.M., Eastern Time, on the next
succeeding Business Day.
If requested by you, payment under this Letter of Credit may be made by
deposit of immediately available funds into a designated account that you
maintain with us. As used herein, Business Day shall mean any Monday, Tuesday,
Wednesday, Thursday, or Friday on which commercial banking institutions
generally are open for business at the place where our principal offices are
located and on which the New York Stock Exchange is not closed.
DRAWINGS
No drawing may be made hereunder to pay principal of, premium, if any, or
interest on, or the purchase price of, any Bonds (or principal amount of the
Bonds) owned by the Borrower.
Principal Portion Drawings. Drawings under the Principal Portion to pay
principal of the Bonds due to prepayment, redemption, acceleration or maturity
(an "A Drawing") must be accompanied by your appropriately completed written
certificate, signed by your authorized officer, in the form of Annex A hereto.
Drawings under the Principal Portion to purchase Bonds for the Borrower's
account pursuant to Sections 404 and 405(E) of the Indenture or Bonds or
portions of the Bonds that are tendered for purchase pursuant to the Indenture
(a "B Drawing"), must be accompanied by your appropriately completed written
certificate signed by your authorized officer in the form of Annex B hereto.
Interest Portion Drawings. Drawings under the Interest Portion to pay
interest due and payable on the Bonds pursuant to Section 707(a) of the
Indenture (a "C Drawing") must be accompanied by your appropriately completed
written certificate signed by your authorized officer in the form of Annex C
hereto.
REDUCTION OF STATED AMOUNT
In the case of any A Drawing or B Drawing, the Stated Amount shall
automatically be reduced by (a) an amount of the Principal Portion equal to 100%
of the amount of such drawing, and (b) an amount of the Interest Portion equal
to 62 days' interest on the
CONTINUED ON PAGE 4, AN INTEGRAL PART OF THIS LETTER OF CREDIT
<PAGE>
AN INTEGRAL PART OF DOCUMENTARY CREDIT No. SB-O13200
amount of such drawing calculated at an assumed rate of 10% per annum. In the
case of any C Drawing, the Interest Portion shall automatically be reduced by
the amount of such drawing. Upon any reduction in the Stated Amount resulting
from an A Drawing, you shall surrender this Letter of Credit to us not later
than the tenth Business Day following the effective date of such reduction,
whereupon we shall enter the reduction in Stated Amount and the new Stated
Amount on the Schedule of Reduction in Stated Amount attached hereto and shall
return the Letter of Credit to you.
REINSTATEMENT
A Drawings and B Drawings. A Drawings shall not be reinstated. Reductions
in the Principal Portion and Interest Portion resulting from a B Drawing shall
be automatically reinstated upon the resale of the Bonds as provided in Section
405(e) of the Indenture.
C Drawings. The Interest Portion shall be automatically reinstated in an
amount equal to the amount of any C Drawing upon the earlier of (i) our receipt
from the Borrower of an amount equal to the Borrower's obligations due under the
Reimbursement Agreement arising from such C Drawing, or (ii) 5:00 p.m., Eastern
Time on the tenth calendar day following the honoring of such drawing.
Notwithstanding the foregoing, such amount shall not be reinstated if you shall
have received written notice from us prior to 5:00 p.m. Eastern Time on the
tenth calendar day following the honoring of such drawing, that (a) such amount
will not be reinstated because we have not been reimbursed for such drawing or
an "Event of Default" has occurred under the Reimbursement Agreement and (b)
demand is made that the Bonds be accelerated pursuant to Section 1001(d) of the
Indenture.
DISCHARGE OF OBLIGATIONS
Only you, as Trustee, may make a drawing under this Letter of Credit. Upon
the payment to you or your account of the amount specified in sight drafts drawn
hereunder, we shall be fully discharged of our obligation under the Letter of
Credit with respect to such sight drafts and we shall not thereafter be
obligated to make any further payments under this Letter of Credit in respect to
such sight drafts to you or any other person who may have made to you or makes
to you a demand for payment of principal or purchase price of, or interest on
the Bonds.
TRANSFER
This Letter of Credit may be successively transferred in its entirety (but
not in part) to your successors, if any, as Trustee under the Indenture, upon
presentation to us of this Letter of Credit accompanied by an appropriately
completed transfer in the form of Annex D hereto.
CONTINUED ON PAGE 5, AN INTEGRAL PART OF THIS LETTER OF CREDIT
<PAGE>
AN INTEGRAL PART OF DOCUMENTARY CREDIT No. SB-O13200
MISCELLANEOUS
If a demand for payment made by you does not conform to the terms and
conditions of this Letter of Credit, we will notify you thereof, within a
reasonable time after such delivery of such demand for payment, such notice to
be promptly confirmed in writing to you, and we shall hold all documents at your
disposal or, at your option, return the same to you.
This Letter of Credit sets forth in full the terms of our undertaking and
shall not in any way be amended, amplified or limited by reference to any
document, instrument or agreement referred to herein or in which this Letter of
Credit is referred to or to which this Letter of Credit relates, except for the
certificates referred to herein; and any such reference shall not be deemed to
be incorporated herein by reference to any document, instrument or agreement
except for such certificates.
This Letter of Credit may not be modified, supplemented or amended without
the express written consent thereto of the Borrower; provided, however, that
such consent shall not be required for automatic reductions and reinstatements
of the Stated Amount as herein provided.
Our obligations hereunder are primary obligations and shall not be affected
by the performance or non-performance by the Authority under the Bonds or by the
Borrower under the Reimbursement Agreement or by the performance or
non-performance of any party under any agreement between the Authority and you,
the Authority and the Borrower, or the Authority, the Borrower and us,
including, without limitation, the Reimbursement Agreement.
This Letter of Credit, except as otherwise expressly stated herein, is
subject to the Uniform Customs and Practices for Documentary Credits (1993
Revision), International Chamber of Commerce, Publication No. 500 (the "UCP").
Except as to matters governed by the express provisions of this Letter of Credit
or by the UCP, this Letter of Credit shall be governed by the laws of the
Commonwealth of Virginia, including, without limitation, the Uniform Commercial
Code as in effect in the Commonwealth of Virginia.
Communications with respect to this Letter of Credit shall be in writing
and shall be addressed to us at the address set forth above specifically
referring to the number of this Letter of Credit.
CENTRAL FIDELITY NATIONAL BANK
By___________________________
Title________________________
CONTINUED ON PAGE 6, AN INTEGRAL PART OF THIS LETTER OF CREDIT
<PAGE>
AN INTEGRAL PART OF DOCUMENTARY CREDIT No. SB-O13200
SCHEDULE OF REDUCTION IN AMOUNT
Documentary Credit No. SB-013200
Date Amount of Reduction New Stated Amount
- ---- ------------------- -----------------
<PAGE>
Annex A to Central Fidelity National Bank Letter of Credit No. SB-013200
Certificate for "A Drawing"
For payment of principal of the Bonds due to prepayment, redemption,
acceleration or maturity.
The undersigned, a duly authorized officer of the Trustee named below (the
"Trustee"), hereby certifies to Central Fidelity National Bank (the "Bank"),
with reference to Irrevocable Letter of Credit No. SB-013200 (the "Letter of
Credit") (any capitalized term used herein and not defined shall have its
respective meaning as set forth in the Letter of Credit) issued by the Bank in
favor of the Trustee, that:
(1) The Trustee is the Trustee under the Indenture.
(2) The Trustee is making a drawing under the Principal Portion of the
Letter of Credit with respect to $______________ to be used to pay
principal on the Bonds due to prepayment, redemption, acceleration or
maturity.
(3) The amount of principal of the Bonds which is due and payable on
the date hereof is $_____________, and the amount of the drawing
referred to in paragraph (2) does not exceed such amount of principal.
(4) The amount of the sight draft(s) accompanying this Certificate (a)
does not exceed the amount available to be drawn under the Principal
Portion of the Letter of Credit, and (b) was computed in accordance
with the terms and conditions of the Bonds and the Indenture.
(5) (a) Upon receipt by the Trustee of the amount demanded hereby, the
Trustee will apply the same directly for the purpose specified in
paragraph (2), and (b) no portion of the said amount shall be applied
by the Trustee for any purpose other than as set forth in paragraph
(2) above.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate
as of the ____ day of _____________, ____.
_______________________________________
As Trustee
By_____________________________________
Title__________________________________
<PAGE>
Annex B to Central Fidelity National Bank Letter of Credit No. SB-013200
Certificate for "B Drawing"
For payment of the purchase price of Bonds tendered for purchase pursuant
to Section 405(e) of the Indenture.
The undersigned, a duly authorized officer of the Trustee named below (the
"Trustee"), hereby certifies to Central Fidelity National Bank (the "Bank"),
with reference to Irrevocable Letter of Credit No. SB-013200 (the "Letter of
Credit") (any capitalized term used herein and not defined shall have its
respective meaning as set forth in the Letter of Credit) issued by the Bank in
favor of the Trustee, that:
(1) The Trustee is the Trustee under the Indenture.
(2) The Trustee is making a drawing under the Principal Portion of the
Letter of Credit with respect to $_____________ to be used to pay the
purchase price of the Bonds to be purchased pursuant to the terms of
the Indenture.
(3) The amount of the sight draft(s) accompanying this Certificate (a)
does not exceed the amount available to be drawn under the Principal
Portion of the Letter of Credit, and (b) was computed in accordance
with the terms and conditions of the Bonds and the Indenture.
(4) (a) Upon receipt by the Trustee of the amount demanded hereby, the
Trustee shall apply the same directly for the purpose specified in
paragraph (2), and (b) no portion of said amount shall be applied by
the Trustee for any purpose other than as set forth in paragraph (2)
above.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate
as of the ____ day of _____________, ____.
_______________________________________
As Trustee
By_____________________________________
Title__________________________________
<PAGE>
Annex C to Central Fidelity National Bank Letter of Credit No. SB-013200
Certificate for "C Drawing"
For the payment of interest due and payable on the Bonds.
The undersigned, a duly authorized officer of the Trustee named below (the
"Trustee"), hereby certifies to Central Fidelity National Bank (the "Bank"),
with reference to Irrevocable Letter of Credit No. SB-013200 (the "Letter of
Credit") (any capitalized term used herein and not defined shall have its
respective meaning as set forth in the Letter of Credit) issued by the Bank in
favor of the Trustee, that:
(1) The Trustee is the Trustee under the Indenture.
(2) The Trustee is making a drawing under the Interest Portion of the
Letter of Credit with respect to $__________ to be used for a payment
of interest due and payable on the Bonds.
(3) The aggregate amount of the drawing referred to in paragraph (2)
does not exceed the amount of interest on the Bonds that will be due
and payable on the current Interest Payment Date (as defined in the
Indenture) and does not exceed an amount equal to 62 days' accrued
interest on the Bonds, computed at the actual rate of interest thereon
during the period for which this drawing is being made.
(4) The amount of the sight draft(s) accompanying this Certificate (a)
does not exceed the amount available on the date hereof to be drawn
under the Interest Portion of the Letter of Credit, and (b) was
computed in accordance with the terms and conditions of the Bonds and
the Indenture.
(5) (a) Upon receipt by the Trustee of the amount demanded hereby, the
Trustee will apply the same on the current Interest Payment Date to
the payment of the Interest accrued on the Bonds, which is so due and
payable, and (b) no portion of said amount shall be applied by the
Trustee for any purpose other than as set forth in paragraph (2)
above.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate
as of the ____ day of _____________, ____.
_______________________________________
As Trustee
By_____________________________________
Title__________________________________
<PAGE>
Annex D to Central Fidelity National Bank Letter of Credit No. SB-013200
CENTRAL FIDELITY NATIONAL BANK
1021 East Cary Street
Richmond, Virginia 23219
Attention: International Division
Date:
Gentlemen:
With reference to your Letter of Credit No. SB-013200, we hereby transfer
all rights therein to _________________________________________________________,
subject to the terms and conditions of said Letter of Credit. We hereby certify
that the transferee is the successor Trustee under the Indenture referred to in
the Letter of Credit. The transferee has acknowledged below that it is the
successor Trustee.
By this transfer, all rights of the undersigned beneficiary in such Letter
of Credit are transferred to the transferee and the transferee shall have the
sole rights as beneficiary thereof, including sole rights relating to any
amendments, whether increases or extensions or other amendments and whether now
existing or hereafter made. All amendments are to be advised directly to the
transferee without necessity of any consent of or notice to the undersigned
beneficiary.
Enclosed is the original Letter of Credit so that you may endorse the
transfer thereon.
____________________________________
As Trustee
By__________________________________
Authorized Signature
Transferee
Beneficiary____________________________
Address________________________________
_______________________________________
___________________________ hereby acknowledges that it is the successor to
____________________________ as Trustee under the Indenture.
By__________________________________
Authorized Signature
<PAGE>
Annex E to Central Fidelity National Bank Letter of Credit No. SB-013200
Certificate of Cancellation of the Letter of Credit
and Substitution of an Alternate Credit Facility
CENTRAL FIDELITY NATIONAL BANK
1021 East Cary Street
Richmond, Virginia 23219
Attention: International Division
RE: Irrevocable Letter of Credit No. SB-013200
------------------------------------------
The undersigned, a duly authorized officer of the Trustee (the "Trustee"),
hereby certifies to Central Fidelity National Bank (the "Bank"), that an
acceptable Alternate Letter of Credit (as such term is defined in the Indenture
referred to in the above-referenced Letter of Credit) has been delivered to and
accepted by the Trustee and that the Trustee is authorized to deliver this
Certificate under the Indenture, pursuant to which Five Hundred Eighty Thousand
Dollars ($580,000.00) principal amount of the Variable Rate Demand Revenue Bonds
(Sherwood Foods, Inc. Project), Series 1997 of the Industrial Development
Authority of Mecklenburg County, Virginia, a political subdivision of the
Commonwealth of Virginia, have been issued. The Trustee hereby surrenders the
above-referenced Letter of Credit to the Bank for cancellation and hereby
instructs the Bank to cancel the same, effective on the date of the Bank's
receipt of this Certificate.
By its execution hereof, Sherwood Foods, Inc. (the "Borrower"), hereby
certifies to the Bank that all conditions precedent to the cancellation of the
Letter of Credit and substitution of an Alternate Letter of Credit as set forth
in the Indenture have been satisfied and the Borrower hereby joins in the
Trustee's instructions to the Bank to cancel the referenced Letter of Credit.
IN WITNESS WHEREOF, the Trustee and the Borrower have executed and
delivered this Certificate as of the ____ day of _______________, ____.
_______________________________________
As Trustee
Sherwood Foods, Inc.
By: Anat Schwartz (SEAL)
------------------------------------
Title: Vice President
<PAGE>
Document prepared by
G. Andrew Nea, Jr.
Williams, Mullen, Christian & Dobbins
1021 East Cary Street
Richmond, Virginia 23219
AMENDED AND RESTATED
CREDIT LINE DEED OF TRUST AND SECURITY AGREEMENT
AMONG
SHERWOOD FOODS, INC.
AS GRANTOR;
AND
MICHAEL V. BRADFORD AND G. ANDREW NEA, JR.
AS TRUSTEES (GRANTEES).
Dated as of May 1, 1997
- --------------------------------------------------------------------------------
THIS IS A CREDIT LINE DEED OF TRUST within the meaning of Section 55-58.2
of the Code of Virginia (1950), as amended. For the purposes of and to the
extent required by such section, (i) the name of the noteholder secured by this
Deed of Trust is Central Fidelity National Bank, (ii) the address at which
communications may be mailed or delivered to such noteholder is set forth in
Article VII of this Deed of Trust and (iii) the maximum aggregate amount of
principal to be secured at any one time is One Million Five Hundred Forty
Thousand Seven Hundred Thirty Six Dollars ($1,540,736).
- --------------------------------------------------------------------------------
This is an amendment and restatement of existing Credit Line Deed of Trust and
security agreement among the parties hereto dated June 1, 1996 and recorded in
the Clerk's Office, Circuit Court, Mecklenberg, Virginia, in Deed Book 504 at
page 18 as supplemented by first amendment to Credit Line Deed of Trust dated
November 20, 1996 and recorded in Deed Book 512 at page 264 (collectively the
"1996 Deed of Trust"). No novation is intended.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The recording tax imposed by Virginia Code Section 58.1-803 has heretofore been
paid on the sum of $580,000.00. This is a supplemental writing within the
meaning of Section 58.1-809 of the Code of Virginia (1950) as amended. The new,
previously untaxed consideration is $9,853.00.
- --------------------------------------------------------------------------------
1
<PAGE>
TABLE OF CONTENTS
PARTIES PAGE
ARTICLE I
DEFINITIONS
Section 1.1 Definitions............................................. 2
Section 1.2 Interpretation.......................................... 6
ARTICLE II
CONVEYANCE OF SECURITY PROPERTY
Section 2.1 Grant to Trustees....................................... 6
Section 2.2 Security Agreement...................................... 7
ARTICLE III
COVENANTS
Section 3.1 Payment and Performance................................. 7
Section 3.2 Maintenance of the Project.............................. 7
Section 3.3 Use of Project; Compliance with Laws.................... 7
Section 3.4 Restrictive Covenants................................... 8
Section 3.5 Management of Project................................... 8
Section 3.6 Impositions............................................. 8
Section 3.7 Insurance............................................... 8
Section 3.8 Insurance and Tax Escrow................................ 11
Section 3.9 Sale or Encumbrance of the Project...................... 11
Section 3.10 Maintenance of Borrower's Existence.................... 11
Section 3.11 Estoppel Certificates.................................. 11
<PAGE>
Section 3.12 Payment of Filing Fees and Taxes....................... 12
Section 3.13 Right of Inspection.................................... 12
Section 3.14 Books and Records...................................... 12
Section 3.15 Financial Statements................................... 12
Section 3.16 Taxation of Deed of Trust.............................. 12
Section 3.17 Environmental Compliance............................... 12
Section 3.18 Payment of Costs....................................... 13
Section 3.19 Further Assurances..................................... 13
Section 3.20 Alteration of Improvements............................. 14
Section 3.21 Change in Zoning....................................... 14
Section 3.22 Operation of Project................................... 14
ARTICLE IV
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 4.1 Notice.................................................. 14
Section 4.2 Restoration of the Project.............................. 14
Section 4.3 Application of Insurance Proceeds....................... 14
Section 4.4 Condemnation............................................ 15
<PAGE>
ARTICLE V
DEFAULT; REMEDIES
Section 5.1 Events of Default....................................... 16
Section 5.2 Drafts under the Letter of Credit....................... 17
Section 5.3 Surrender of Possession................................. 17
Section 5.4 Right to Manage Project................................. 18
Section 5.5 Appointment of Receiver................................. 18
Section 5.6 Environmental Audit..................................... 18
Section 5.7 Right to Cure Defaults.................................. 19
Section 5.8 Foreclosure............................................. 19
Section 5.9 No Reinstatement........................................ 19
Section 5.10 Indemnification by Borrower............................ 19
Section 5.11 Remedies Cumulative.................................... 20
Section 5.12 Waiver Relating to Remedies............................ 20
Section 5.13 Costs Incurred by Bank and Trustees.................... 20
ARTICLE VI
THE TRUSTEES
Section 6.1 Any Trustees May Act; Substitution Permitted............ 21
Section 6.2 Compensation and Expenses............................... 21
Section 6.3 Performance of Duties; Liability........................ 21
<PAGE>
ARTICLE VII
MISCELLANEOUS
Section 7.1 Successors and Assigns.................................. 21
Section 7.2 Severability............................................ 21
Section 7.3 Applicable Law.......................................... 21
Section 7.4 Notices, Demands and Requests........................... 21
Section 7.5 Approvals and Consents.................................. 22
Section 7.6 Amendments.............................................. 22
Section 7.7 No Partnership.......................................... 22
Section 7.8 Renewal or Extension, Etc............................... 22
Section 7.9 Failure to Exercise Rights.............................. 23
Section 7.10 No Duty to Expend Funds................................ 23
Section 7.11 Full Release........................................... 23
Section 7.12 Granting Easements..................................... 23
Section 7.13 Joinder................................................ 24
<PAGE>
THIS IS A CREDIT LINE DEED OF TRUST
THIS AMENDED AND RESTATED CREDIT LINE DEED OF TRUST AND SECURITY AGREEMENT
(this "Deed of Trust") is made as of May 1, 1997, among SHERWOOD FOODS, INC., a
North Carolina corporation, Grantor (the "Borrower"), and MICHAEL V. BRADFORD, a
resident of Albemarle County, Virginia and G. ANDREW NEA, JR., a resident of the
City of Richmond, Virginia, trustees, Grantees (the "Trustees").
RECITALS:
1. The Industrial Development Authority of Mecklenburg County, Virginia, a
political subdivision of the Commonwealth of Virginia (the "Authority") has
issued its Variable Rate Demand Revenue Bonds (Sherwood Foods, Inc. Project),
Series 1996, in the aggregate principal amount of Nine Hundred Thirty Five
Thousand Dollars ($935,000.00) (the 1996 "Bonds") for the acquisition of an
approximately 10 acre parcel of land and the renovation and equipping of an
approximately 67,000 square foot manufacturing facility at 807 S. Main St.,
Chase City, Mecklenburg County, Virginia pursuant to an Indenture of Trust dated
as of June 1, 1996 (the 1996 Indenture) among the Authority and Crestar Bank, as
trustee (the "Indenture Trustee"), including any amendments and supplements
thereto (the "1996 Indenture").
2. Central Fidelity National Bank (the "Bank") issued a letter of credit
for the benefit of the Indenture Trustee and the holder from time to time of the
1996 Bonds in the amount of Nine Hundred Fifty Thousand Eight Hundred Eighty
Three Dollars ($950,883.00) to provide for payment of the principal of and
interest and premium, if any, on the 1996 Bonds (the "1996 Letter of Credit").
3. The Bank, Sherwood Brands, Inc., and the Borrower have entered into a
reimbursement agreement dated as of June 1, 1996 (the "1996 Reimbursement
Agreement") and the Financing Documents, as defined in the 1996 Reimbursement
Agreement.
4. The Borrower's obligations under the 1996 Reimbursement Agreement are
secured by a Credit Line Deed of Trust and Security Agreement from the Borrower
to the Trustees dated as of June 1, 1996 and recorded in the Clerk's Office,
Circuit Court Mecklenberg County, Virginia (the "Clerk's Office") in Deed Book
504 at page 18 (the "1996 Deed of Trust").
5. The 1996 Deed of Trust was supplemented by a first amendment to Credit
Line Deed of Trust and Security Agreement dated as of November 20, 1996 and
recorded in the Clerk's office in Deed Book 512 at page 264 (the "First
Amendment").
6. The First Amendment secures the Borrower's Note payable to the order of
the Bank in the principal amount of Five Hundred Eighty Thousand Dollars
($580,000.00) (the "Note").
7. In order to refinance the Note, the Authority has issued its variable
Rate Demand Revenue Bonds (Sherwood Foods, Inc. Project), Series 1997 (the "1997
Bonds") for the further equipping of the Project pursuant to an Indenture of
Trust dated as
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of the date hereof among the Authority and the Indenture Trustee, including any
amendments and supplements thereto (the "1997 Indenture").
8. The Bank has been requested to issue a letter of credit for the benefit
of the Indenture Trustee and the holders from time to time of the 1997 Bonds in
the amount of Five Hundred Eighty Nine Thousand Eight Hundred Fifty Three
Dollars ($589,853.00) to provide for the payment of the principal of and
interest and premium, if any, on the 1997 Bonds (the "1997 Letter of Credit").
9. The Bank, Sherwood Brands, Inc., and the Borrower have entered into an
amended and restated Reimbursement Agreement dated as of the date hereof,
restating the 1996 Reimbursement Agreement to provide for the 1996 Letter of
Credit and the 1997 Letter of Credit (the "Reimbursement Agreement").
10. The terms defined in the Reimbursement Agreement and used herein,
unless otherwise defined herein, shall have the same meaning as defined in the
Reimbursement Agreement.
11 This Deed of Trust shall secure the payment of the Obligations, as
hereinafter defined, and the performance by the Borrower of the Borrower's
obligations under the Financing Documents. No novation is intended.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Deed of Trust the terms listed
below shall have the indicated meanings unless otherwise required by the
context.
Accounts shall mean all now owned or hereinafter acquired accounts as
defined by the UCC arising out of the use or operation of the Project and all
proceeds thereof.
Assignment of Contracts shall mean the assignment of contracts and
documents between the Borrower and the Bank, dated as June 1, 1996, assigning
the contracts, licenses and operating agreements related to the Project as
security for the Obligations.
Authority shall mean the Industrial Development Authority of Mecklenburg
County, Virginia a political subdivision of the Commonwealth of Virginia, its
successors or assigns.
1996 Bond or Bonds shall mean the Variable Rate Demand Revenue Bonds
(Sherwood Foods, Inc. Project), Series 1996, in the aggregate principal sum of
Nine Hundred Thirty Five Thousand Dollars ($935,000.00).
1996 Commitment shall mean the commitment letter dated May 15, 1996 from
the Bank to the Borrower and all amendments thereto.
1997 Commitment shall mean the commitment letter dated February 6, 1997
from the Bank the Borrower and all amendments thereto.
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Commitments shall mean the 1996 Commitment and the 1997 Commitment.
Condemnation shall mean any taking of or damage to the Project or any
interest therein by sale in lieu of the exercise of such power.
Default shall mean any event or circumstance which, with the lapse of time,
the giving of notice, or both, would constitute an Event of Default.
Equipment shall mean all equipment, as defined by the UCC, together with
all proceeds thereof.
Event of Default shall mean any of the events set forth in Section 5.1 of
this Deed of Trust or in Section 7.1 of the Reimbursement Agreement.
Financing Documents shall mean this Deed of Trust, the Reimbursement
Agreement, the Commitments, the Assignment of Contracts, the Indentures, the
Pledge Agreements, the Guaranty and all other documents, whether now or
hereafter executed, evidencing or securing the Obligations or the reimbursement
of the Bank for sums expended or drafts paid on account of the Letter of Credit
or given by the Borrower in connection therewith, all as the same may be
amended, modified or supplemented from time to time.
General Intangibles shall mean all general intangibles, as defined by the
UCC, now owned or hereafter acquired by the Borrower and used in connection with
the ownership or operation of the Project together with all proceeds thereof.
Impositions shall mean all real estate and other taxes, fees, assessments,
levies, utility charges, insurance premiums payable on any insurance the
Borrower is required to maintain hereunder, amounts required to be paid to
obtain or renew Permits and other similar charges (whether or not required by a
governmental body) which are assessed, levied or imposed against the Project or
the Borrower's interest therein or incurred in the construction, ownership,
operation, occupancy, maintenance and use of the Project.
Improvements shall mean all buildings, improvements, structures and
fixtures now or hereafter located on the Land and all replacements thereof and
additions thereto.
Income shall mean all of the rents, benefits, accounts, revenues, profits
and other sums now or hereafter due, or to which the Borrower may now be or
hereafter become entitled, arising from or issuing out of the Leases, whether or
not yet earned by performance.
Indentures shall mean the 1996 Indenture and the 1997 Indenture.
1996 Indenture shall mean the Indenture of Trust, dated as of June 1, 1996
between the Authority and the Trustee, including any amendments and supplements
thereto.
1997 Indenture shall mean the Indenture of Trust dated as of the date
hereof
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between the Authority and the Trustee, including any amendments and supplements
thereto.
Indenture Trustee shall mean Crestar Bank, Corporate Trust Division, as
Indenture Trustee under the Indentures, and any successor to the Indenture
Trustee under the Indenture.
Land shall mean the real estate described on Schedule A attached hereto,
together with all easements, rights-of-way and appurtenances thereto belonging,
including, without limitation, all reversionary interests therein and all of the
Borrower's right, title and interest in any street, road, avenue or alley,
opened or proposed, which adjoins such real estate.
Leases shall mean all leases, tenant contracts, rental agreements,
franchise agreements or other occupancy agreements, whether oral or written, now
existing or hereafter entered into, for the use or occupancy of all or any part
of the Project, together with all modifications or renewals thereof.
1996 Letter of Credit shall mean the Letter of Credit issued by the Bank to
the Indenture Trustee, in the initial stated amount of Nine Hundred Fifty
Thousand Eight Hundred Eighty Three Dollars ($950,883.00) for the 1996 Bonds,
having an expiration date of June 10, 2006.
1997 Letter of Credit shall mean the Letter of Credit issued by the Bank to
the Indenture Trustee in the initial stated amount of Five Hundred Eighty Nine
Thousand Eight Hundred Fifty Three Dollars ($589,853.00) for the 1997 Bonds,
having an expiration date of June 10, 2002.
Letters of Credit shall mean the 1996 Letter of Credit and the 1997 Letter
of Credit.
Obligations shall mean (i) the duty of the Borrower to reimburse the Bank
for all drafts paid by the Bank under both Letters of Credit, any amounts
advanced or expenses incurred under the Reimbursement Agreement and the other
Financing Documents and to perform and comply with all of the terms and
conditions of the Financing Documents and (ii) all duties, obligations, debts
and liabilities of every kind and description owing by the Borrower to the Bank,
now or hereafter existing, whether matured or unmatured, direct or indirect,
otherwise secured or unsecured, original, extended or renewed, absolute or
contingent, originally contracted with or acquired by the Bank, contracted with
the Bank alone or jointly with others and whether or not evidenced by negotiable
instruments or other written agreements, including lines of credit and
obligations arising in connection with letters of credit or drafts presented in
connection therewith; provided, however, the total amount of the Obligations to
which the Project may be subjected for payment may not exceed the sum of the
aggregate principal amount outstanding of One Million Five Hundred Forty
Thousand Seven Hundred Thirty Six Dollars ($1,540,736), plus, without
limitation, as to amount, (A) interest on such principal amount at the Advance
Rate provided in the Reimbursement Agreement from time to time, and (B) all
costs, expenses and reasonable attorney's fees incurred by the Bank in
connection with the collection of any of the foregoing or the protection of any
of the Bank's rights or the protection of any of the Security Property, or the
enforcement of any of the Bank's remedies under any of the Financing Documents.
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Obligors shall mean the Borrower, any guarantor and any co-maker, endorser,
surety or other party obligated to pay any sum pursuant to the provisions of or
to perform any act in order to comply with the provisions of any of the
Financing Documents.
Permits shall mean all permits, licenses, registrations, certificates,
authorizations and approvals now or hereafter issued or required to be issued by
any governmental or quasi-governmental authority in connection with the
ownership, use, or operation of the Project.
1996 Pledge Agreement shall mean the Pledge Agreement dated as June 1, 1996
hereof between the Borrower and the Bank pledging certain 1996 Bonds to the
Bank.
1997 Pledge Agreement shall mean the Pledge Agreement dated as of the date
hereof between the Borrower and the Bank pledging certain 1997 Bonds to the
Bank.
Pledge Agreements shall mean the 1996 Pledge Agreement and the 1997 Pledge
Agreement.
Project shall mean the Land, the Improvements and the Equipment.
Reimbursement Agreement shall mean the amended and restated reimbursement
agreement dated as of the date hereof between the Bank, Sherwood Brands, Inc.
and the Borrower, pursuant to which the Bank has agreed to issue the Letters of
Credit to finance the Project.
Security Agreement shall mean the Security Agreement from the Borrower in
favor of the Bank dated November 20, 1996.
Security Property shall mean any and all of the property of the Borrower
referred to in Section 2.1.
UCC shall mean the Uniform Commercial Code as adopted in Virginia, as it
may be amended from time to time.
UCC Property shall mean (i) the Equipment, (ii) all materials intended for
the construction, alteration, repair or restoration of the Improvements, (iii)
the General Intangibles, including, without limitation, all intellectual
property, including names, logos, trademarks and service marks, whether or not
registered, or used or to be used by the Borrower in connection with the
ownership or operation of the Project, (iv) the Accounts, (v) the Inventory, and
(vi) all proceeds of the foregoing.
Section 1.2 Interpretation. For the purpose of construing this Deed of
Trust, unless the context indicates otherwise, words in the singular number
shall be deemed to include words in the plural number, and vice versa, and words
in one gender shall be deemed to include words in the other genders. The table
of contents, titles to articles and section headings are for convenience only
and neither limit nor amplify the provisions of this Deed of Trust itself. The
Recitals are incorporated in this Deed of Trust.
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ARTICLE II
CONVEYANCE OF SECURITY PROPERTY
Section 2.1 Grant to Trustees. The Borrower hereby grants and conveys to
the Trustees with General Warranty and English Covenants of Title in trust to
secure the Obligations, the following described property, whether now owned or
hereafter acquired, together with any substitutions or replacements therefor and
any additions thereto:
(i) the Land on Schedule A attached hereto;
(ii) the Improvements;
(iii) the Equipment;
(iv) the General Intangibles;
(v) the Accounts;
(vi) the Income;
(vii) the Leases;
(viii) the Permits;
(ix) the UCC Property; and
(x) the proceeds of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims, including, without
limitation, all proceeds payable under any policy of insurance with respect
to the damage or destruction of all or any part of the Project, all
proceeds from any Condemnation and all proceeds as defined by the UCC.
Section 2.2 Security Agreement. The Borrower hereby assigns, conveys,
transfers and grants a continuing security interest to the Bank in the UCC
Property, and this Deed of Trust shall be a security agreement between the
Borrower and the Bank encumbering each and every item of the UCC Property to
secure the Obligations. The Borrower agrees to execute and file in the
appropriate office in the jurisdiction in which the Project is located, and in
such other offices or jurisdictions as the Bank may require, financing or
continuation statements meeting the requirements of the UCC to perfect the
security interests hereby granted. The remedies for any violation of this
security agreement shall be, at the option of the Bank, (i) those hereinafter
set forth in this Deed of Trust, (ii) those prescribed by general law, (iii)
those contained in the UCC or (iv) any combination of the foregoing, it being
the understanding of the parties that upon the occurrence of an Event of
Default, the Bank may proceed as to both real and personal property in
accordance with the rights and remedies granted herein with respect to real
property. All substitutions for, replacements of and additions to the UCC
Property, and the proceeds thereof and of the UCC Property, shall immediately be
subject to the security interest hereinabove granted, and the Borrower agrees to
maintain such property free and clear of liens, encumbrances and security
interests of others.
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ARTICLE III
COVENANTS
Section 3.1 Payment and Performance. The Borrower shall (i) reimburse the
Bank without offset or deduction for all required amounts provided in the
Reimbursement Agreement, (ii) pay all amounts owed and perform all other
obligations secured by any other lien now or hereafter placed on the Project,
(iii) pay all other sums due under the Financing Documents and (iv) comply with
all of the other Obligations.
Section 3.2 Maintenance of the Project. The Borrower shall keep the Project
in good condition and repair and shall not (i) commit or permit waste to be
committed thereon, (ii) make or allow any alterations thereto without the prior
written consent of the Bank or (iii) do or suffer to be done any act which will
or may render the Project less valuable, including, without limitation, the
abandonment of all or any portion of the Project.
Section 3.3 Use of Project; Compliance with Laws. The Borrower shall cause
the Project to be used and operated as set forth in the Reimbursement Agreement,
and shall comply with all lawful requirements of any governmental authority
affecting the Project, including, without limitation, the Chesapeake Bay Act,
the Environmental Protection Act, the Resource Conservation and Recovery Act,
the Comprehensive Environmental Response Compensation Act, the Americans with
Disabilities Act, the Occupational Safety and Health Act and all other
environmental, land use or subdivision laws, rules and regulations, whether now
existing or later enacted, whether foreseen or unforeseen, and whether involving
any change in governmental policy or requiring structural or other changes to
the Project, irrespective of the cost of making the same.
Section 3.4 Restrictive Covenants. The Borrower shall at all times comply
with its obligations under all recorded restrictions, conditions, easements and
covenants ("Restrictive Covenants") encumbering the Project and shall duly
enforce the Borrower's rights under all Restrictive Covenants encumbering other
property for the benefit of the Land and/or the Improvements. If the Borrower
receives any notice (whether oral or written) that any Restrictive Covenant has
been violated, the Borrower shall promptly notify the Bank.
Section 3.5 Management of Project. If the Project is not managed by the
Borrower, the Borrower shall cause the Project to be managed by a professional
property manager experienced in the management of properties similar to the
Project, reasonably acceptable to the Bank.
Section 3.6 Impositions. The Borrower shall pay when due all Impositions.
However, after giving the Bank ten (10) days' notice of its intention to do so
and evidence satisfactory to the Bank of its ability to pay such Imposition in
the event of an adverse ruling, the Borrower may, in good faith, at the
Borrower's own expense and in the Borrower's own name, contest any Impositions
other than an insurance premium. In the event of such a contest, the Borrower
may permit the Imposition being contested to remain unpaid during the period of
the contest and any subsequent appeal unless, in the reasonable opinion of the
Bank, such action may impair the lien of this Deed of Trust or any security
interest hereby granted, in which event the Borrower shall satisfy such
Imposition promptly or the payment thereof shall be secured by posting with the
Bank a
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bond with surety or a letter of credit, either of which must be issued by an
institution approved by and in a form and amount approved by the Bank. Upon
request, the Borrower shall furnish the Bank proof of payment of all
Impositions.
Section 3.7 Insurance. This Section 3.7 sets forth the requirements for the
insurance relating to the Project.
(a) Types of Insurance. The Borrower shall, until all of the Obligations
are satisfied, maintain, at the Borrower's expense and for the benefit of the
Bank, such insurance policies with respect to the Project as the Bank may
reasonably require, including, without limitation, the types of insurance listed
below:
(i) Insurance against all risks of physical loss and damage to the
Improvements and the Equipment (including builder's risk during
construction, flood insurance if the Project is located in a flood plain)
in the amount of the full replacement cost thereof without reduction for
depreciation. The Borrower shall obtain all necessary endorsements to
extend the coverage under the policy or policies required by this Section
3.7(a)(i) to cover the risks excluded by the basic policy form (except for
risks excluded by standard War Risk Exclusions and Nuclear Exclusions) and
shall also obtain, at the Bank's election, boiler and machinery insurance.
Under no circumstances shall the risks of fire, lightning, windstorm,
explosion, aircraft, smoke, vandalism, malicious mischief, water damage or
flood (if the Project is in a flood plain) be excluded from coverage;
(ii) Insurance against all liability that workers' compensation laws
may impose on the Borrower with respect to the Project;
(iii) Insurance against liability for bodily injury (and death
resulting therefrom) to the extent of at least $1,000,000 per person,
$2,000,000 per occurrence. If coverage for injury to employees of the
Borrower is excluded under any such liability policy, it shall be provided
under an employer's liability portion of the workers' compensation policy
or an employer's liability stop-gap endorsement;
(iv) Insurance against liability for damage to property to the extent
of at least $500,000 per occurrence;
(v) Business interruption insurance to cover up to six months debt
service on the Project; and
(vi) Such other policies or coverage as may customarily be carried by
businesses of a size and nature similar to the business to be conducted at
the Project.
(b) Requirements as to Insurance Policies. The policies of insurance which
the Borrower is required to carry pursuant to the provisions of subsection (a)
of this Section 3.7 shall comply with the requirements listed below:
(i) Each such policy shall provide that it may not be canceled,
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modified or allowed to lapse at the end of a policy period without at least
thirty (30) days' prior written notice to the Bank.
(ii) Each liability insurance policy shall name the Bank as an
additional insured.
(iii) Each property insurance policy shall contain a standard
mortgagee clause in favor of the Bank. The property insurance policies
shall also provide that any loss shall be payable in accordance with the
terms of such policy notwithstanding any act of the Borrower which might
otherwise result in forfeiture of such insurance and that the insurer
waives all rights of set-off, counterclaim, deduction or subrogation
against the Borrower.
(iv) Each insurance policy shall be written by an insurer with a Best
Rating Guide rating of BB+ and otherwise acceptable to the Bank. The Bank
may withdraw approval of any insurer should a situation arise in which the
financial soundness of such insurer may reasonably be questioned, in which
event the Borrower shall immediately obtain replacement insurance written
by an insurer approved by the Bank.
(v) In the event of loss, the Borrower shall use the Borrower's best
efforts to collect the maximum amount due under any policy of insurance of
which the Borrower is the beneficiary. However, the Bank or the Trustees
are authorized, in their discretion, to adjust, collect or compromise all
claims under any policies of insurance required to be maintained by the
provisions of this Section 3.7 and to execute and deliver on behalf of the
Borrower all necessary proofs of loss, receipts, vouchers and releases
required by the insurers. Each insurer is hereby authorized and directed to
make payment under such policies directly to the Bank, instead of to the
Bank and the Borrower jointly, and the Borrower hereby irrevocably appoints
the Bank as the Borrower's attorney-in-fact to endorse and transfer such
proceeds if any insurer fails to disburse directly to Bank. Any insurance
proceeds from damage to or destruction of the Project received by the Bank
shall be held in a interest-bearing account for the benefit of the Borrower
until disbursed in the manner provided in Article IV.
(vi) The following types of insurance or insurance policies will not
be acceptable to the Bank unless the Borrower has specifically requested
the Bank to approve such types and the Bank has approved the same: (A)
policies of insurance written on a claims-made basis; (B) co-insurance,
self-insured layers of insurance or deductibles or self-insured retentions
exceeding $10,000; (C) insurance written by insurers not admitted to do
business in Virginia; and (D) insurance provided by captive insurance
companies, risk-retention groups, self-insurance programs and group
self-insurance.
(c) Blanket Policies. Any insurance required by this Section 3.7 may be
supplied by means of a blanket or umbrella insurance policy, so long as the
protection provided by such blanket or umbrella insurance policy against each
risk specified in this
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Section 3.7 cannot be reduced by claims for other risks to amounts less than
those specified in this Section 3.7, and so long as there is compliance with the
other provisions of this Article.
(d) Acceptance of Policies. The Bank owes no duty to the Borrower to
examine any policy of insurance or certificate presented to it to ascertain
compliance with this Section 3.7, and the acceptance of any policy of insurance
or certificate not conforming to such requirements does not and will not
constitute a waiver of the provisions of this Section 3.7. Any waiver that may
be granted with respect to the requirements of this Section 3.7 may be revoked
by the Bank at any time by giving notice to the Borrower.
(e) Delivery of Policies or Certificates of Insurance. The Borrower shall
deliver to the Bank originals or certified copies of all policies of insurance
it is required to maintain. The Bank may, at its option, accept certificates of
insurance issued by insurers in lieu of policies, but the Bank may, at any time,
require the delivery to it of the policies themselves and such other documents
as the Bank may require to satisfy itself that the insurance maintained by the
Borrower complies with the requirements of this Section 3.7.
Section 3.8 Insurance and Tax Escrow. If required by the Bank, the Borrower
shall pay the Bank monthly, together with and in addition to the payments, under
the Reimbursement Agreement and any sums due under any of the other Financing
Documents, an amount determined by the Bank to be necessary to enable the Bank
to pay each Imposition one month before it comes due. If the total payments made
to the Bank pursuant to the preceding sentence are less than the amount required
to pay any Imposition one month before it becomes due, the Borrower shall pay
the Bank, on demand, the amount necessary to make up such deficiency. If there
is an excess of such payments, the excess will reduce subsequent payments
required under this Section 3.8. The Bank shall not be required to pay interest
on any sums held pursuant to this Section 3.8. If an Event of Default has
occurred, the Bank may at its option apply any amounts received pursuant to this
Section 3.8 to the payment of the Obligations in such order as the Bank may
elect.
Section 3.9 Sale or Encumbrance of the Project. Except for subordinate
liens in the aggregate amount of $650,000 in favor of the Industrial Development
Authority of Mecklenburg County, Virginia and Lake Country Development Corp.,
the Borrower shall not, without the prior written consent of the Bank, (i)
lease, sell or transfer the Project or any portion thereof or any interest
therein, (ii) encumber or pledge the Project or any interest therein, in whole
or in part, (iii) grant a lien or security interest in the Project or any
portion thereof or (iv) except as otherwise provided in the Reimbursement
Agreement, permit to exist any recorded mechanic's, materialman's, laborer's
statutory or other lien (whether or not junior to the liens created by this Deed
of Trust) upon all or any part of the Project.
Section 3.10 Maintenance of Borrower's Existence. The Borrower will keep in
full force and effect its existence, franchises, rights and privileges as a
corporation under the laws of Virginia, and will do or will cause to be done all
things necessary to preserve and keep in full force and effect its right to own
property and enforce its contracts and will not dissolve, merge or consolidate
with any other Person or entity or change its Articles of Incorporation, except
as permitted by the Reimbursement Agreement.
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Section 3.11 Estoppel Certificates. The Borrower shall, within ten (10)
days after receipt of a written request of the Bank so to do, furnish to the
Bank or any other Person (as defined in the Reimbursement Agreement) designated
by the Bank, a certificate setting forth (i) whether or not any offsets or
defenses against the payment of principal and interest or any other sum under
the Reimbursement Agreement exist, (ii) whether or not any Default then exists
or any Event of Default has occurred and is continuing and (iii) such other
matters as the Bank may reasonably request.
Section 3.12 Payment of Filing Fees and Taxes. The Borrower will pay all
fees, taxes and expenses incident to the execution, acknowledgment, recording
and filing of any of the Financing Documents or any amendment or supplement
hereto, any financing statement, continuation statement or security agreement
with respect to the UCC Property and any instrument of further assurance
relating to the Borrower's compliance with the terms, conditions and covenants
contained in any of the Financing Documents.
Section 3.13 Right of Inspection. The Bank and the Trustees shall have the
right to enter upon and inspect the Project at such reasonable time or times as
they may desire, either in person or through their duly authorized agents or
representatives.
Section 3.14 Books and Records. The Borrower shall keep and maintain, or
shall cause to be kept and maintained, at its expense and in accordance with
generally accepted auditing principles consistently applied, proper and accurate
books, records and accounts reflecting all items of income and expense in
connection with the operation of the Project. The Bank, the Trustees and their
agents, accountants and attorneys shall have the right at any time and from time
to time, upon reasonable notice to Borrower, to examine such books, records and
accounts at the office of the Borrower, to make such copies or extracts thereof
as they shall deem appropriate and to discuss the Borrower's affairs, finances
and accounts with the Borrower and the Borrower's employees, accountants and
agents.
Section 3.15 Financial Statements. The Borrower shall provide the Bank
within the times specified, with the financial statements and other financial
information required by the Reimbursement Agreement.
Section 3.16 Taxation of Deed of Trust. In the event of the passage after
the date of this Deed of Trust of any law changing in any way the laws for the
taxation of deeds of trust or debts secured thereby, or the manner of the
collection of any such taxes, so as to adversely affect the Bank, the Borrower
shall, upon thirty (30) days' prior written request from the Bank assume and
agree, in writing, to pay any additional amount which the Bank would otherwise
be required to pay because of such change, and thereafter such amount shall be
deemed an Imposition.
Section 3.17 Environmental Compliance.
(a) Maintenance of the Project. The Borrower shall maintain the Project at
all times so that (i) there are no "hazardous substances" (as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Sections 9601 et seq., as amended) at the Project except those kept and
used in accordance with applicable law, which shall be kept current and shall
identify the type,
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quantity and location of each such hazardous substance; (ii) there has been no
release or is no threat of release of any hazardous substance; (iii) the Project
is not subject to any action or enforcement proceeding under governmental law,
rule or regulation or subject to liability to any person because of the presence
of (A) stored, leaked or spilled petroleum products, (B) underground storage
tanks or (C) an accumulation of rubbish, debris or other solid waste, or because
of the presence, release, threat of release, discharge, storage, treatment,
generation or disposal of any "hazardous waste" (as defined by the Resource
Conservation Act, 15 U.S.C. Section 2601 et seq., as amended), including but not
limited to asbestos and items or equipment containing polychlorinated biphenyls
(PCBs) in excess of 50 parts per million; and (iv) no condition exists which is
or may be characterized by any governmental authority as an actual or potential
danger to the environment or public health.
(b) Notices of Violations, Etc. The Borrower shall provide to the Bank,
within five (5) days after the Borrower's receipt thereof, copies of all notices
from governmental authorities alleging any threat to the environment or
violation of any environmental statute, regulation or rule or requesting
information regarding the Project's compliance with the same or regarding
environmental conditions of the Project or the Borrower's practices with respect
to such conditions. The Borrower also shall promptly notify the Bank of any
Default which exists with respect to the Borrower's obligations under Section
3.17(a). If any such Default exists or if the Bank has reason to believe that
such a Default exists, the Bank shall have the right at any time thereafter to
conduct an environmental audit and site inspection of the Project, and the
Borrower shall cooperate with the Bank in conducting such audit and inspection.
In addition, the Bank may undertake any voluntary remediation in response to the
action or threat of action by any third party including a governmental authority
with respect to the matters specified in Section 3.17(a) if the Borrower shall
fail to undertake voluntary remediation after direction from any governmental
entity having jurisdiction. Any costs incurred by the Bank in conducting such
audit and inspection or in such remediation efforts and interest thereon at a
rate equal to the Advance Rate set forth in the Reimbursement Agreement, shall
be payable on demand and shall be secured by this Deed of Trust.
Section 3.18 Payment of Costs. In addition to such other amounts as the
Borrower has agreed to pay pursuant to the provisions of this Deed of Trust and
the other Financing Documents, the Borrower shall pay all expenses, including
reasonable attorney's fees, incurred by the Bank or the Trustees in (i) the
collection of any sum, the payment of which is secured hereby, (ii) preserving
the Security Property or disposing of all or any part of the same, whether by
foreclosure or otherwise, (iii) participating in any litigation or
administrative proceeding involving the Project or the Financing Documents,
whether as a plaintiff or a defendant, or (iv) conducting any additional title
examinations requested by the Trustees or the Bank. All of such expenses and
fees and interests thereon at the Advance Rate set forth in the Reimbursement
Agreement, shall be payable on demand and shall be secured by this Deed of
Trust.
Section 3.19 Further Assurances. The Borrower shall, at the Borrower's
expense, perform such further acts and execute, acknowledge and deliver all such
documents as the Bank shall, from time to time, reasonably require to assure the
Bank that the Borrower is complying with all of the Obligations and that the
liens and security interests granted by this Deed of Trust are perfected and
preserved.
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Section 3.20 Alteration of Improvements. Following the construction of the
Improvements contemplated by the Reimbursement Agreement, without the prior
written consent of the Bank, which consent shall not be unreasonably withheld,
no additional Improvements may be constructed hereafter on the Land. In
addition, without the prior written consent of the Bank, the Borrower shall not
change the architectural design of any Improvements or other structures now or
hereafter situated on the Land and shall not alter or remove the structural
portions of any Improvements now or hereafter situated thereon.
Section 3.21 Change in Zoning. The Borrower will not initiate or knowingly
acquiesce in any change in zoning or other land use classification now or
hereafter in effect and affecting the Land without in each case obtaining the
Bank's prior written consent thereto. The Borrower will promptly notify the Bank
of any such change proposed by others.
Section 3.22 Operation of Project. The Borrower will cause the Project to
be maintained and operated as a manufacturing facility in compliance with all
applicable laws, rules and regulations.
ARTICLE IV
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 4.1 Notice. In the case of (i) any damage to or destruction of all
or any part of the Project, (ii) a Condemnation of all or any part of the
Project, (iii) the loss of all or any part of the Project because of failure of
title or (iv) the commencement of any proceeding or negotiation which might
result in such a Condemnation or loss, the Borrower shall promptly give notice
thereof to the Bank describing generally the nature and extent of such damage,
destruction, Condemnation, loss, proceeding or negotiation.
Section 4.2 Restoration of the Project. If all or any part of the Project
is destroyed or damaged, the Borrower shall promptly repair or restore the same
to its condition immediately before such damage or destruction, with such
alterations and additions as the Bank may approve, regardless of the
availability of insurance proceeds to accomplish such repair or restoration.
Section 4.3 Application of Insurance Proceeds. If all or any part of the
Project is destroyed or damaged, the Bank will, after deducting the reasonable
expenses incurred in the collection and administration of the proceeds of any
insurance paid because of such damage or destruction (including reasonable
attorney's fees), make the remainder of such proceeds available to the Borrower
for the purpose of repairing or restoring the Project as required by Section 4.2
of this Deed of Trust provided that:
(1) There shall exist no Event of Default (hereinafter defined);
(2) Bank shall first be given satisfactory proof that the Improvements
have been fully restored or that, by application of such proceeds and other
funds of the Borrower available for the purpose, the Improvements will be
fully restored to its condition prior to the damage or destruction, free
and clear of all liens, except the lien of this Deed of Trust
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and any other lien in favor of the Bank; and
(3) There shall remain sufficient time to complete the restoration of
the Improvements in the reasonable judgment of the Bank prior to the
Termination Date of the 1996 Letter of Credit as to the Improvements and
Equipment financed by the 1996 Bonds and of the 1997 Letter of Credit as to
Equipment financed by the 1997 Bonds.
Unless the Bank approves of a different procedure, each disbursement of any
insurance proceeds shall be made as if it were, and shall be subject to the
conditions customarily applicable to, an advance of principal made pursuant to a
construction loan made by the Bank. Any balance of such insurance proceeds
remaining after the completion of the repair or restoration work, or all of the
insurance proceeds of the repair or restoration work, or all of the insurance
proceeds if the Bank elects not to make them available for repair or
restoration, due to the failure of any of the above conditions, shall be applied
to the payment of the Obligations in such order as the Bank may determine.
Section 4.4 Condemnation. If all or any substantial portion of the Project
shall be damaged, taken or transferred through Condemnation, then at the option
of the Bank, the Bank can request that a draft be presented under the Letter of
Credit for the prepayment of an amount equal to the compensation received for
such Condemnation. Unless the Bank shall otherwise agree, the term "substantial
portion of the Project" as used in this Section 4.4 shall mean $50,000 or more.
All compensation and other amounts payable as a result of a Condemnation in
which all or any substantial portion of the Project is taken shall be applied to
the payment of the Obligations in such order as the Bank may determine. No
settlement respecting any Condemnation shall be effected without the consent of
the Bank. The Bank and the Trustees are each hereby authorized, at their option,
to commence, appear in and prosecute, in their own names or in the name of the
Borrower, any action or proceeding relating to any Condemnation, and to settle
or compromise any claim in connection therewith. If less than a substantial
portion of the Project is damaged, taken or transferred in a Condemnation, or if
the Bank does not elect to declare the Obligations immediately due and payable
as provided above or call for the presentment of a draft under both Letters of
Credit, then the Bank, after deducting from the Condemnation proceeds all of its
sums, including attorneys' fees, may require the Borrower to repair, restore or
replace the Project or the affected portion thereof as nearly as practical to
its condition immediately prior to the Condemnation, and in such event any
proceeds of the Condemnation shall be applied to the costs of such repair,
restoration or replacement on the same terms and conditions as are specified in
Section 4.3 of this Deed of Trust regarding the application of insurance
proceeds.
ARTICLE V
DEFAULT; REMEDIES
Section 5.1 Events of Default. Each of the following shall constitute an
"Event of Default" under this Deed of Trust, whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body:
(a) Failure to pay any sum secured by this Deed of Trust or any other sum
due
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and payable under any of the Financing Documents and the continuation of such
failure for ten (10) days after the Bank sends written notice thereof to the
Borrower;
(b) The failure to maintain at all times the insurance required by Section
3.7 of this Deed of Trust, the failure to comply with the provisions of Sections
3.9 or 3.10 of this Deed of Trust or the Assignment of Contracts or the failure
of the Borrower to notify the Bank of any Default with respect to the Borrower's
obligations under Section 3.17(a) of this Deed of Trust;
(c) Failure of any Obligor to comply with any of the other terms and
conditions contained in this Deed of Trust or in the other Financing Documents
to which such Obligor is a party and the continuation of such failure for thirty
(30) days after the Bank sends notice of such failure to the Borrower (or such
other period as may be specified in this Deed of Trust or in the Reimbursement
Agreement);
(d) The fact that any representation or warranty of any Obligor in any of
the Financing Documents proves to be untrue or misleading in any material
respect as of the time it is made or deemed to be made;
(e) Any Obligor shall: (i) make general assignment for the benefit of
creditors; (ii) fail to pay such Obligor's debts generally as they become due;
(iii) admit in writing its inability to pay such Obligor's debts generally as
they become due; (iv) file a petition, pleading or motion under any bankruptcy
or other law for the relief or aid of debtors seeking for such Obligor
reorganization, liquidation, dissolution or other relief as a debtor; (v)
default in the payment when due of any borrowed money, or (vi) consent to or
acquiesce in the appointment of a receiver, custodian, liquidator, trustee or
other similar official for such Obligor, for the whole or any substantial part
of its assets, or any part of the Project;
(f) A petition, pleading or motion shall be filed (i) against any Obligor
or under any bankruptcy or other law for the relief or aid of debtors seeking
for such Obligor reorganization, liquidation, dissolution or other relief as a
debtor or (ii) seeking to appoint a receiver, custodian, liquidator, trustee or
other similar official for any Obligor for the whole or any substantial part of
such Obligor's assets, or for any part of the Project, and such petition,
pleading or motion is not dismissed within forty-five (45) days of the filing
thereof, or any order for relief or appointment entered as a result of the
filing of such petition, pleading or motion is not stayed within seven (7)
business days after the entry thereof;
(g) The filing of a lien against the Project or any part thereof (other
than a mechanics' or materialmen's lien satisfied or secured as provided in the
Reimbursement Agreement) or the entry of a judgment for the payment of money
against any Obligor and the failure, within a 30-day period after the filing or
entry thereof, to have the same discharged or the execution thereof stayed,
provided that if the execution thereof is stayed, then within ten (10) days upon
the expiration of the stay, arrangements shall be made to discharge the same;
(h) The occurrence of any default under any of the documents evidencing any
indebtedness secured by a lien against the Security Property or any part thereof
which is either subordinate or prior to the lien of this Deed of Trust and the
failure to cure such
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default within the applicable grace period, if any; and
(i) The occurrence of any default with respect to any loan then outstanding
between the Bank and any of the Obligors or between the Bank and an entity in
which any of the Obligors directly or indirectly have a material interest, and
the failure to cure such default within the applicable grace period, if any, or
the acceleration of the maturity of such loan as a result of such default;
The Borrower in order to secure the benefit of any of the grace periods
provided for herein for a non-monetary Event of Default must first have given
notice of the occurrence of such Event of Default to the Bank within a
reasonable time from the time the Borrower has notice of the occurrence of such
Event of Default. The Borrower may not claim the benefit of any of the grace
periods provided for herein for the same Event of Default more than once in any
one calendar year. Nothing contained herein shall be construed so as to compound
or stack any of the grace periods provided for herein.
Section 5.2 Drafts under the Letters of Credit. In addition to any and all
rights and remedies available either in law or in equity, upon the occurrence of
an Event of Default, the Bank shall be entitled to call for the presentation of
drafts on both Letters of Credit in the then full amount outstanding under the
Bonds as provided in the Indentures.
Section 5.3 Surrender of Possession. Upon the occurrence of an Event of
Default, the Borrower shall, upon demand of the Bank, promptly surrender to the
Bank or the Trustees, or their employees or agents, the actual possession of the
Project (the term "Project" as hereinafter used in this Article V shall mean the
entire Project or any part thereof), and the Bank or the Trustees, or their
employees or agents, may enter and take possession of the Project, without the
appointment of a receiver or filing an application therefor, and may exclude the
Borrower and its employees and agents wholly therefrom. If the Borrower shall
fail, upon demand, to surrender the Project, the Bank or the Trustees may obtain
a judgment or decree requiring the Borrower to surrender immediate possession of
the same.
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Section 5.4 Right to Manage Project.
(a) Right to Manage, Etc. Upon any entering or taking possession of the
Project pursuant to Section 5.3 of this Deed of Trust, the Bank or the Trustees
may use, manage, operate and control the Project and, in so doing, shall have
access to the books, papers and accounts of the Borrower relating to the Project
and may collect all of the Income from the Project. In addition, the Bank or the
Trustees may: (i) complete the construction of the Project; (ii) maintain and
restore the Project and make such repairs, additions and improvements thereto
and thereon, and purchase or otherwise acquire such additional fixtures,
equipment and other property as they may deem necessary to facilitate the
operation of the business of the Project; (iii) contest or compromise any claim
or encumbrance against the Project (including, without limitation, any lien
prior or subordinate to the lien of this Deed of trust); (iv) employ such
counsel, accountants, contractors and other persons as any of them shall deem
necessary to assist it; (v) insure or keep the Project insured; (vi) perform all
acts required of the Borrower with respect to the Project, including acts
required of it under any Lease; (vii) use any funds of the Borrower on deposit
with the Bank for the purpose of protecting the Project; (viii) pay, settle or
compromise all existing bills and claims which are or may be liens against the
Project, or may be necessary or desirable for the completion of any repair of
the Project or for the clearing of title; and (ix) exercise all of the rights
and powers which the Borrower possessed with respect to the Project to the same
extent as the Borrower could have exercised the same. Any amounts collected from
the Project shall, after deducting therefrom sums expended pursuant to the
provisions of this Section 5.4(a), be applied to the payment of the Obligations
in such order as the Bank may determine. Nothing herein shall be deemed to
require or obligate the Bank to preserve or repair the Project or to take any
other action whatsoever.
(b) Appointment of Attorney-in-Fact. For the purpose of carrying out the
provisions of Section 5.4(a) of this Deed of Trust, the Borrower hereby
irrevocably appoints the Bank and the Trustees, any one of whom may act, the
true and lawful attorneys-in-fact for the Borrower and authorizes them, or any
one of them, to perform any act described in Section 5.4(a) and any and all
actions necessary and incidental thereto.
Section 5.5 Appointment of Receiver. Upon the occurrence of an Event of
Default, the Bank shall, upon application to a court of competent jurisdiction,
be entitled as a matter of right and without notice to the appointment of a
receiver to take possession of and to operate the Project and to collect all
amounts assigned hereunder. The receiver shall have all of the rights and powers
permitted under the laws of Virginia.
Section 5.6 Environmental Audit. Upon the occurrence of a Default, the Bank
may undertake or direct to be undertaken a full or partial environmental audit
and site inspection of the Project, taking all reasonable measures to determine
the condition of the Project and the Borrower's compliance with applicable
environmental and other statutes, regulations and rules, and the Borrower shall
cooperate fully with such audit and inspection.
Section 5.7 Right to Cure Defaults. If any Event of Default occurs, the
Bank or the Trustees, without prior notice to or demand upon the Borrower and
without waiving or releasing such Event of Default (in addition to any other
rights and remedies they may
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have), may but shall be under no obligation to make any payment or take such
action as may be necessary to cure the Event of Default. If the Bank makes any
payment or takes any action to satisfy the requirements of any instrument
imposing a lien on the Project which is prior to the lien of this Deed of Trust,
the Bank shall be subrogated to the rights of the holder of such prior lien.
Section 5.8 Foreclosure. Upon the occurrence of an Event of Default, the
Bank, at its option, may effect the foreclosure of this Deed of Trust by
directing the Trustees to sell the Project (or such portion or portions thereof
as the Trustees may select) at public auction at such time and place and upon
such terms and conditions as may be required or permitted by applicable law,
after having first advertised the time, place and terms of sale not less than
five (5) times, which need not be successive (the last day of which may be the
day of sale) in a newspaper having general circulation in the city or county in
which the Project lies. In the event of any such sale, the Bank may bid for and
purchase the Project (or such portion thereof as may be offered for sale) and
shall be entitled to apply all or any part of the amount secured by this Deed of
Trust as a credit to the purchase price. At any foreclosure sale, such portion
of the Project as is offered for sale may, at the Bank's option, be offered for
sale for one total price, and the proceeds of such sale accounted for in one
account without distinction between the items of security or without assigning
to them any proportion of such proceeds, the Borrower hereby waiving the
application of any doctrine of marshaling.
Section 5.9 No Reinstatement. If an Event of Default shall have occurred
and the Bank or the Trustees shall have commenced to exercise any of the
remedies permitted hereunder, then a tender of payment by the Borrower or by
anyone on behalf of the Borrower of the amount necessary to satisfy all sums due
hereunder, or the acceptance by the Bank of any such payment so tendered, shall
not, without the prior consent of the Bank, constitute a reinstatement of the
Letter of Credit or this Deed of Trust.
Section 5.10 Indemnification by Borrower. The Borrower shall protect,
defend, indemnify and save harmless the Bank and the Trustees under this Deed of
Trust from and against all (as to both type and cost) liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses (including,
without limitation, attorneys' fees and expenses) imposed upon, incurred by, or
asserted against, the Bank or the Trustees on account of (i) any failure of the
Borrower to comply with any of the terms, covenants, or representations in this
Deed of Trust, or (ii) any loss or damage to the Property or any injury to, or
death of, any person that may be occasioned by any cause whatsoever pertaining
to the Property or the use, occupancy or operation thereof or any "Hazardous
Wastes", "Hazardous Substances" or "Toxic Substances" on or about the Property.
Nothing contained herein shall require the Borrower to indemnify the Bank or the
Trustees for any claim or liability resulting from its or their gross negligence
or its or their willful and wrongful acts. This covenant shall survive payment
of the Obligations, the release of this Deed of Trust or the foreclosure of the
Property by the Trustees or by a conveyance in lieu of foreclosure. The
indemnity provided for herein shall extend to the officers, directors, employees
and authorized agents of the Bank. "Hazardous Substances" shall mean all waste
materials subject to regulation under the Comprehensive Environmental Response,
Compensation and Liability Act (Superfund or CERCLA), 42 U.S.C. ss.ss. 9601 et
seq. "Hazardous Wastes" shall mean all waste materials subject to regulation
under the Resource Conservation and Recovery Act (the
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Solid Waste Disposal Act or RCRA), 42 U.S.C. ss.ss. 6901 et seq., or applicable
state law, and any other applicable federal or state laws now in force or
hereinafter enacted relating to hazardous wastes and their disposal. "Toxic
Substances" shall mean any materials present on the Property which have been
shown to have significant adverse effects on human health or which are subject
to regulation under the Toxic Substances Control Act (TSCA), 15 U.S.C. ss.ss.
2601 et seq., applicable state law, and any other applicable federal or state
laws now in force or hereafter enacted relating to toxic substances. "Toxic
Substances" includes but is not limited to asbestos, polychlorinated biphenyls
(PCBs), and lead-based paints. It does not include small quantities of such
materials present on the site in retail containers.
Section 5.11 Remedies Cumulative. No right, power or remedy conferred upon
or reserved to the Bank or the Trustee by this Deed of Trust is intended to be
exclusive of any other right, power or remedy, but each and every such right,
power and remedy shall be cumulative and concurrent and shall be in addition to
any other right, power and remedy given hereunder or under the other Financing
Documents or now or hereafter existing at law or in equity.
Section 5.12 Waiver Relating to Remedies. The Borrower (i) hereby waives,
to the fullest extent provided by law, any requirement that the Bank or the
Trustees present evidence or otherwise proceed before any court, clerk or other
judicial or quasi-judicial body before exercising the power of sale contained in
this Deed of Trust and (ii) agrees that upon the occurrence of an Event of
Default, neither the Borrower anyone claiming through or under the Borrower will
seek to take advantage of any moratorium, reinstatement, forbearance,
appraisement, valuation, stay, extension, homestead exemption or redemption law
now or hereafter in force in order to prevent or hinder the enforcement of the
provisions of this Deed of Trust and hereby waives the benefit of all such laws
to the fullest extent that it may lawfully so do.
Section 5.13 Costs Incurred by Bank and Trustees. Any and all costs and
fees (including reasonable attorneys' fees) incurred by the Bank and/or Trustees
in exercising their rights and remedies under this Article V, including, without
limitation, the costs of the environmental audit set forth in Section 5.6 above,
together with interest thereon at the Involuntary Advance Rate set forth in the
Reimbursement Agreement, shall be payable by the Borrower on demand and shall be
secured by this Deed of Trust.
ARTICLE VI
THE TRUSTEES
Section 6.1 Any Trustees May Act; Substitution Permitted. The powers of the
Trustees may be exercised by either Trustee or by any successor trustee or
trustees with the same effects as if exercised jointly by both of them. The
Borrower hereby grants to the Bank, in its sole discretion, the right and power
to appoint a substitute trustee or trustees for any reason whatsoever. Such
substitution shall be made by an instrument duly executed and acknowledged and
recorded where this Deed of Trust is recorded.
Section 6.2 Compensation and Expenses. If an Event of Default shall occur,
the Borrower shall pay the Trustees just compensation for any and all services
performed and all their expenses, charges, counsel fees and other obligations
incurred in the
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administration and execution of the trusts hereby created and the performance of
their duties and powers hereunder, which compensation, expenses, fees and
disbursements shall constitute a part of the Obligations secured hereby.
Section 6.3 Performance of Duties; Liability. The Trustees shall perform
and fulfill faithfully their obligations hereunder, but they shall be under no
duty to act until they receive notice of the occurrence of an Event of Default
from the Bank and arrangements have been made which are satisfactory to them for
the indemnification to which they are entitled, the payment of their
compensation and the reimbursement of any expenses they may incur in the
performance of their duties. They shall have no liability for their acts unless
they are guilty of willful misconduct or gross negligence.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Successors and Assigns. This Deed of Trust shall inure to the
benefit of and be binding on the parties hereto and their respective heirs,
personal representatives, successors and assigns.
Section 7.2 Severability. If any provision of this Deed of Trust, or the
application thereof in any circumstance, is deemed to be unenforceable, the
remainder shall not be affected thereby and shall remain enforceable.
Section 7.3 Applicable Law. This Deed of Trust shall be governed by the
laws of Virginia.
Section 7.4 Notices, Demands and Requests. All notices, demands, requests
and other communications required or permitted hereunder shall be in writing and
shall be deemed to have been given when delivered in person or three (3)
business days after being sent by registered or certified mail, postage prepaid,
return receipt requested, to the person and at the addresses set forth below or
to such other persons or addresses as the party entitled to notice shall have
specified in writing to the other parties hereto from time to time, subject to
Section 55-58.2 of the Code of Virginia (1950) as amended.
(a) To the Bank:
Central Fidelity National Bank
Centerville Shopping Center
U. S. Highway 501
South Boston, VA 25492
(b) To the Borrower:
Sherwood Foods, Inc.
6110 Executive Boulevard
Rockville, MD 20852
and
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807 S. Main Street
Chase City, VA 23924
(c) To the Trustees:
c/o Central Fidelity National Bank
Centerville Shopping Center
U. S. Highway 501
South Boston, VA 25492
Section 7.5 Approvals and Consents. All approvals and consents required or
permitted by the Deed of trust shall be in writing, shall be signed by the party
from whom the consent or approval is sought and, unless otherwise provided
herein, may be withheld by such party in its sole discretion.
Section 7.6 Amendments. This Deed of Trust may be amended, supplemented or
terminated only in writing, signed by all of the parties hereto.
Section 7.7 No Partnership. Nothing in this Deed of Trust shall be
construed as making any party a partner or joint venturer with any other party.
Section 7.8 Renewal or Extension, Etc. The Borrower hereby agrees that
without in any way affecting their responsibility or that any of the other
Obligors, whether as surety or otherwise, (i) the Obligations, or any part
thereof, may be renewed or extended beyond maturity as often as may be desired
by agreement between the Bank and any Obligor or between the Bank and any
subsequent owner of the Land, (ii) the Bank may release any Obligor other than
the Borrower from such Obligor's Obligations and (iii) the Bank may permit the
substitution, exchange or release of any of the Security Property. The Borrower
further waives any right they may have to require the Bank to proceed against
any other party or foreclose on any collateral given to secure the payment of
the sums provided in the Reimbursement Agreement, before exercising any other
remedies herein granted to the Bank.
Section 7.9 Failure to Exercise Rights. The failure of the Bank or the
Trustees to exercise any right, power or remedy available to them upon the
occurrence of a Default or an Event of Default shall not be deemed a waiver of
the right to exercise such right, power or remedy upon the occurrence of a
subsequent Default or Event of Default.
Section 7.10 No Duty to Expend Funds. Nothing in this Deed of Trust shall
be construed to impose any obligation upon either the Bank or the Trustees to
expend any money or to take any other discretionary act herein permitted, and
neither the Bank nor the Trustees shall have any liability or obligation for any
delay or failure to take any discretionary act.
Section 7.11 Full Release. Upon full payment of all sums due under the
Obligations secured hereby and the cancellation of the Letter of Credit, the
Trustee shall, upon the request of, and at the cost of the Borrower, execute a
proper release of this Deed of Trust.
Anything in this Deed of Trust or any of the Obligations to the contrary
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notwithstanding, and subject to any penalty or premium provided in an
Obligation, at any time the Borrower shall have the right to repay (i) the
entire principal of, interest and premium, if any, then owing, on any of the
Obligations, and (ii) all other sums and amounts then owing to the Bank
hereunder. Upon payment of all of the Obligations, and the payment and
performance by the Borrower of each and every one of the Borrower's Obligations
hereunder, at the Borrower's expense, the Bank shall execute and deliver, or
cause to be executed and delivered, such instruments of satisfaction or
termination with respect to all liens in favor of the Bank created hereby, in
proper form for recording or filing, as may be appropriate to evidence such
satisfaction and termination. The Bank's obligation to so execute and deliver,
or cause such execution and delivery of such instruments, shall be subject to
fulfillment of one of the following conditions precedent to the satisfaction of
the Bank:
(A) The Bank shall have been fully satisfied that the Borrower and any
Obligor liable on the Obligations is not insolvent as of the time of, and
after giving effect to, such payments; or
(B) As of the time of such payments, the Borrower and any Obligor
liable on the Obligations, consistent with the Borrower's or such Obligor's
Obligations to the Bank, is paying the Borrower's or such Obligor's debts
generally as such debts become due, and that the funds utilized for such
payment were legitimately obtained.
Section 7.12 Granting Easements. Provided there shall have occurred no
Default, the Borrower may grant easements, licenses, rights-of-way (including
the dedication of public highways) and other rights or privileges in the nature
of easements with respect to the Property free from the lien of the Deed of
Trust, or release existing easements, licenses, rights-of-way and other rights
or privileges, with or without consideration, provided that the Borrower
delivers to the Bank the following if requested by the Bank:
(A) A copy of the instrument of grant or release.
(B) A written application signed by the Borrower requesting such
instrument.
(C) A certificate, dated as of the date of its delivery and signed by
the Borrower stating that as of the date of such certificate no event or
condition has happened or existed, or is happening or existing, which
constitutes, or which, with notice or the lapse of time or both, would
constitute a Default or an Event of Default.
(D) An opinion, dated within 30 days of the filing of the application
required by subsection (B) hereof, of an architect, surveyor or engineer
licensed in Virginia acceptable to the Bank stating that such grant or
release is in accordance with all applicable laws, rules and regulations.
(E) A certification satisfactory to the Bank that the value of the
Property is not materially impaired. The Bank shall have the right to
require such certification to be made by an appraiser, acceptable to the
Bank, if the Bank deems such certification reasonably necessary.
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Upon fulfillment of each of the foregoing conditions, the Bank shall
promptly cause to be executed and delivered at the Borrower's expense any
instrument necessary to release the same from the lien of the Deed of Trust.
Section 7.13. Joinder. At the request of the Borrower and the Bank one of
the Trustees joins into the execution and delivery of this Deed of Trust to
consent to its amendment and restatement. No novation is intended as to the
liens and security interests created by the 1996 Deed of Trust as supplemented.
All of the liens and security interests under the 1996 Deed of Trust as
supplemented are ratified and reaffirmed.
NOTICE: THE DEBT SECURED HEREBY IS SUBJECT TO CALL IN FULL OR THE TERMS THEREOF
BEING MODIFIED IN THE EVENT OF SALE OR CONVEYANCE OF THE PROPERTY
CONVEYED.
23
<PAGE>
WITNESS the following duly authorized signature.
SHERWOOD FOODS, INC.
By: /s/ Anat Schwartz (SEAL)
---------------------------
Title: Vice President
ATTEST:
- -----------------------------------
CENTRAL FIDELITY NATIONAL BANK
By:___________________________(SEAL)
Title:______________________________
Sole Acting Trustee
STATE OF ___________________ )
) to-wit:
CITY/COUNTY OF _____________ )
The foregoing instrument was acknowledged before me this ____ day of May,
1997, by ________________________, the _______________ of Sherwood Foods, Inc.,
a North Carolina corporation, on behalf of the corporation.
My commission expires: __________________________________.
---------------------------------------
Notary Public
STATE OF VIRGINIA )
) to-wit:
CITY/COUNTY OF ____________ )
The foregoing instrument was acknowledged before me this ____ day of May,
1997, by ________________________, the _______________ of Central Fidelity
National Bank.
My commission expires: __________________________________.
------------------------------------------
Notary Public
24
<PAGE>
STATE OF VIRGINIA )
) to-wit:
CITY/COUNTY OF ____________ )
The foregoing instrument was acknowledged before me this ____ day of May,
1997, by ________________________, Sole Acting Trustee.
My commission expires: __________________________________.
-----------------------------------
Notary Public
25
<PAGE>
SCHEDULE A
The Land
[To be provided and attached by the Title Company]
<PAGE>
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement"), is dated as of May
1, 1997, by and between SHERWOOD FOODS, INC., a North Carolina corporation (the
"Borrower"); and CENTRAL FIDELITY NATIONAL BANK, a national banking association
organized under the laws of the United States of America (the "Bank"), as
contemplated by the Reimbursement Agreement dated as of the date hereof, among
the Borrower, Sherwood Brands, Inc. and the Bank (the "Reimbursement
Agreement"):
W I T N E S S E T H:
WHEREAS, the Industrial Development Authority of Mecklenburg County,
Virginia, a political subdivision of the Commonwealth of Virginia (the
"Authority"), has issued its Variable Rate Demand Revenue Bonds (Sherwood Foods,
Inc. Project), Series 1997, in the principal amount of Five Hundred Eighty
Thousand Dollars ($580,000.00) (the "Bonds") under an Indenture of Trust (the
"Indenture") dated as of the date hereof between the Authority and Crestar Bank,
as trustee (the "Trustee"); and
WHEREAS, the Bonds were issued for the further equipping of an
approximately 67,000 square foot manufacturing facility at 807 S. Main St.,
Chase City, Mecklenburg County, Virginia (the "Project"); and
WHEREAS, the Indenture requires that Bonds deemed tendered by the holders
thereof to the remarketing agent appointed pursuant to the Indenture (the
"Remarketing Agent") or the Trustee pursuant to Section 405(e) of the Indenture
may be purchased under certain circumstances with the proceeds of "B Drawings"
under the Reimbursement Agreement (the "Tendered Bonds"); and
WHEREAS, the Bonds will be secured by an irrevocable letter of credit
issued by the Bank (the "Letter of Credit") pursuant to the terms of the
Reimbursement Agreement; and
<PAGE>
WHEREAS, the Borrower will be the owner of the Tendered Bonds; and
WHEREAS, it is a condition precedent to the obligation of the Bank to enter
into the Reimbursement Agreement and to issue the Letter of Credit that the
Borrower shall have executed and delivered this Agreement;
NOW, THEREFORE, in consideration of the premises and in order to induce the
Bank to enter into the Reimbursement Agreement and issue the Letter of Credit
thereunder and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Borrower hereby agrees with the
Bank as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in the
Reimbursement Agreement shall have such defined meanings when used herein.
2. Pledge. The Borrower hereby pledges, assigns, hypothecates, transfers
and delivers to the Bank all its right, title and interest in and to the
Tendered Bonds, now owned or hereafter acquired, and hereby grants to the Bank,
a first lien on, and security interest in, the Borrower's right, title and
interest in and to the Tendered Bonds, now owned or hereafter acquired, and in
all proceeds thereof (whether cash or otherwise), as collateral security for the
prompt and complete payment when due of all amounts due in respect of the
reimbursement obligations of the Borrower set forth in the Reimbursement
Agreement and interest on such amounts at the Advance Rate as set forth in the
Reimbursement Agreement, together with all indebtedness, obligations and
liabilities of the Borrower to the Bank under any of the Financing Documents,
whether now existing or hereafter incurred, however evidenced, whether matured
or unmatured, whether direct or indirect, whether absolute or contingent,
whether liquidated or unliquidated, whether secured or unsecured, whether
original, renewed or extended, whether contracted by the Borrower, alone or
jointly and/or severally with another or others, whether originally contracted
with the Bank or acquired by the Bank by negotiation, assignment, transfer or
-2-
<PAGE>
otherwise from another or others, and whether or not represented by notes,
instruments or other writings including, without limitation, the payment and/or
performance of the following:
(a) The Bonds, with interest, premium if any, and penalty, if any, thereon
as therein provided;
(b) The Borrower's obligations under the Reimbursement Agreement and the
other Financing Documents; and
(c) Any and all additional sums which may hereafter be advanced to the
Borrower or expended by the Bank on behalf of the Borrower for any purpose
whatsoever with interest thereon at an annual rate equal to the Advance Rate as
set forth on the Reimbursement Agreement, whether evidenced by notes, drafts,
open account or otherwise, including, without limitation, any expenditures under
the Reimbursement Agreement and the Obligations and any overdrafts which the
Bank may permit the Borrower to make (the making of any such advances or
expenditures and the permitting of any such overdrafts are not obligatory and
are in the absolute discretion of the Bank), and also the payment and
performance of any and all other present and future liabilities, obligations and
indebtedness of the Borrower to the Bank under the Financing Documents;
(d) All costs, expenses, charges, liabilities, commissions,
half-commissions and attorneys' fees now or hereafter chargeable to, or incurred
by, or disbursed by, or payable to, the Bank pursuant to this Agreement, the
Bonds, the Reimbursement Agreement, any other of the Obligations, any other of
the Financing Documents, or any other document or instrument providing the Bank
with any security for the payment and performance of the Bonds, the
Reimbursement Agreement or any other of the Obligations or applicable law;
-3-
<PAGE>
(e) The performance of, observance of and compliance with all of the terms,
covenants, conditions, stipulations and agreements contained in this Agreement,
the Bonds, the Reimbursement Agreement, the Financing Documents and any and all
other documents and instruments which the Borrower or any third party or parties
have executed and delivered, or may hereafter execute and deliver, in connection
with the Bonds or to evidence or secure the Bonds, the Reimbursement Agreement
or any other of the Obligations or any part thereof; and
(f) Any note or other instrument given in curtailment, renewal or extension
of all or any part of the Bonds or any other of the Obligations (unlimited
renewal, curtailment or extension of all or any part of the Bonds or any other
of the Obligations being expressly permitted) together with all interest and
charges incurred therein, whether before or after maturity (all the foregoing
being hereinafter called for the purpose of this Agreement the "Obligations").
3. Registration of, and Interest and Principal on, the Tendered Bonds.
Pursuant to Section 405(e) of the Indenture, Tendered Bonds shall be registered
in the name of the Borrower or as otherwise directed by the Bank pursuant to the
Indenture and held by the Trustee as agent and bailee for the benefit of the
Bank as pledgee. Except after the occurrence of an Event of Default and while
the same is continuing, and except after any portion of the Obligations has been
declared or has otherwise become due and payable and had not been paid, the
Borrower shall be entitled to receive and retain interest and principal payments
in respect of the Tendered Bonds and the Bank shall promptly pay over to the
order of the Borrower any interest and principal received by the Bank with
respect to such Tendered Bonds.
4. Collateral. All property at any time pledged with the Bank or in which
the Bank has a security interest hereunder (whether described herein or not) and
all income
-4-
<PAGE>
therefrom, proceeds thereof, and substitutions therefor, are herein sometimes
collectively referred to as the "Collateral."
5. Release of Tendered Bonds. Upon a remarketing of the Tendered Bonds as
provided in the Indenture, the Bank agrees to release from the lien of this
Agreement, and assign and transfer to the Borrower (or its order) or to the
purchaser of such Bonds as designated by the Remarketing Agent (if payment of
the purchase price of such Bonds is made by the Remarketing Agent on behalf of
the purchaser thereof) Tendered Bonds, the principal amount of which is equal to
the amount of the payment so made.
6. Rights of the Bank. The Bank shall not be liable for failure to collect
or realize upon the Obligations or any collateral security or guarantee
therefor, or any part thereof, or for any delay in so doing nor shall it be
under any obligation to take any action whatsoever with regard thereto. If an
Event of Default has occurred and is continuing, the Bank may thereafter
exercise all rights, privileges or options pertaining to any Tendered Bonds as
if it were the absolute owner thereof (except, before any portion of the
Obligations has been declared or has otherwise become due and payable and has
not been paid, the right to sell the Tendered Bonds), upon such terms and
conditions as it may determine, all without liability except to account for
property or funds actually received by it, but the Bank shall have no duty to
exercise any of the aforesaid rights, privileges or options and shall not be
responsible for any failure to do so or delay in so doing.
7. Remedies. In the event that any portion of the Obligations has been
declared or has otherwise become due and payable, and has not been paid, or upon
the occurrence of an Event of Default, the Bank, without demand of performance
or other demand, advertisement or notice of any kind (except notices required
under the Reimbursement Agreement and the notice specified below of time and
place of public or
-5-
<PAGE>
time after which a private sale will be held) to or upon the Borrower or any
other Person (all and each of which demands, advertisements and/or notices are
hereby expressly waived), may forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase, contract to sell or otherwise
dispose of and deliver the Collateral, or any part thereof, in one or more
parcels or lots at public or private sale or sales, at any exchange or broker's
board or at any of the Bank's offices or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk,
with the right to the Bank upon any such sale or sales, public or private, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in the Borrower, which right or equity is hereby expressly
waived or released. The Bank shall apply the net proceeds of any collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care, safekeeping or otherwise of any and all of the Collateral or in any
way relating to the rights of the Bank hereunder, including reasonable
attorneys' fees and legal expenses, to the payment in whole or in part of the
Obligations in such order as the Bank may elect, and only after such application
of such net proceeds and after the payment by the Bank of any other amount
required by any provision of law, need the Bank account for the surplus, if any,
to the Borrower. The Borrower agrees that the Bank need not give more than ten
days notice of the time and place of any public sale or of the time after which
a private sale or other intended disposition may occur. In addition to the
rights and remedies granted to it herein and in any other instrument or
agreement securing, evidencing or relating to any of the Obligations, the Bank
shall have all the rights and remedies of a secured party under the Uniform
Commercial Code of the Commonwealth of Virginia.
-6-
<PAGE>
8. Sale of Collateral. The Borrower agrees to do or cause to be done all
such other acts and things as may be necessary to make any sale or sales of any
portion or all of the Tendered Bonds contemplated by Section 7 hereof valid and
binding and in compliance with any and all applicable laws, regulations, orders,
writs, injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales, all at the Borrower's expense.
9. Amendments, Modifications and Waivers with Respect to Obligations. The
Borrower hereby consents that, without the necessity of any reservation of
rights against the Borrower, and without notice to or further assent by the
Borrower, any demand for payment of any of the Obligations made by the Bank may
be rescinded by the Bank and any of the Obligations, and the Obligations, or the
liability of the Borrower or any other Person upon or for any part thereof, or
any collateral security or guarantee therefor or right of offset with respect
thereof, may from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered, or released by
the Bank and the Reimbursement Agreement, any Financing Document or any
collateral security documents or guarantees or documents in connection therewith
may be amended, modified, supplemented or terminated, in whole or in part, as
the Bank may deem advisable from time to time, and any collateral security at
any time held by the Bank for the payment of the Obligations may be sold,
exchanged, waived, surrendered or released, all without the necessity of any
reservation of rights against the Borrower and without notice to or further
assent by the Borrower, which will remain bound hereunder, notwithstanding any
such renewal, extension, modification, acceleration, compromise, amendment,
supplement, termination, sale, exchange, waiver, surrender or release. The Bank
shall have no obligation to protect, secure, perfect or insure any other
collateral
-7-
<PAGE>
security document or property subject thereto at any time held as security for
the Obligations. The Borrower waives any and all notice of the creation,
renewal, extension supplement or modification of any of the Obligations and
notice of or proof of reliance by the Bank upon this Agreement, and the
Obligations, and any of them shall conclusively be deemed to have been created,
contracted or incurred in reliance upon this Agreement, and all dealings between
the Borrower and the Bank shall likewise be conclusively presumed to have been
had or consummated in reliance upon this Agreement. The Borrower waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon the Borrower with respect to the Obligations.
10. Events of Default. The failure of the Borrower to observe or perform
any of the terms or conditions of this Agreement or the occurrence of an Event
of Default under the Reimbursement Agreement shall constitute an Event of
Default hereunder.
11. Further Assurances. The Borrower agrees that any time and from time to
time upon the written request of the Bank, the Borrower will execute and deliver
such further documents and do such further acts and things as the Bank may
reasonably request in order to effect the purposes of this Agreement, including,
without limitation, the perfection of the Bank's security interest in Tendered
Bonds.
12. Severability. If any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or enforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
13. No Waiver; Cumulative Remedies. The Bank shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder and no waiver shall be valid unless in writing, signed by the Bank,
and then only to the
-8-
<PAGE>
extent herein set forth. A waiver by the Bank of any right or remedy hereunder
on any one occasion shall not be construed as a bar to any right or remedy which
the Bank would otherwise have on any future occasion. No failure to exercise nor
any delay in exercising on the part of the Bank, any right, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights or remedies provided
by law.
14. Waivers, Amendments; Applicable Law. None of the terms or provisions of
this Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by the Bank and the Borrower. This
Agreement and all obligations of the Borrower hereunder shall be binding upon
the successors and assigns of the Borrower, and shall, together with the rights
and remedies of the Bank hereunder, inure to the benefit of the Bank and its
successors and assigns. This Agreement shall be governed by, and be construed
and interpreted in accordance with, the laws of the Commonwealth of Virginia.
WITNESS the following duly authorized signatures
SHERWOOD FOODS, INC.
By: /s/ Anat Schwartz [SEAL]
-------------------------
Title: Vice President
ATTEST:
- -------------------------------
-9-
<PAGE>
GUARANTY
THIS GUARANTY (this "Guaranty") is made as of May 1, 1997, between Uziel
Frydman (the "Individual Guarantor") and Sherwood Brands, Inc., a North Carolina
corporation (the "Corporate Guarantor") (each, any and all of whom are hereafter
collectively called the "Guarantor", and who will be jointly and severally bound
hereunder) and CENTRAL FIDELITY NATIONAL BANK, a national banking association
(the "Bank").
RECITALS:
1. The Industrial Development Authority of Mecklenburg County, Virginia, a
political subdivision of the Commonwealth of Virginia (the "Authority") has
issued its Variable Rate Demand Revenue Bonds (Sherwood Foods, Inc. Project),
Series 1996, in the aggregate principal amount of Nine Hundred Thirty Five
Thousand Dollars ($935,000) (the "1996 Bonds") for the acquisition, renovation
and equipping of a manufacturing facility at 807 S. Main Street, Chase City,
Mecklenburg County, Virginia (the "Project"), pursuant to an Indenture of Trust
dated as of June 1, 1996 between the Authority and Crestar Bank, as trustee (the
"Trustee") including any amendments and supplements thereto.
2. At the request of the Borrower, the Bank issued a letter of credit (the
"1996 Letter of Credit") for the benefit of the Trustee and the holders from
time to time of the 1996 Bonds in the amount of Nine Hundred Fifty Thousand
Eight Hundred Eighty Three Dollars ($950,883) to provide for payment of the
principal of and interest and premium, if any, on the 1996 Bonds.
3. The Authority has also issued its Variable Rate Demand Revenue Bonds
(Sherwood Foods, Inc. Project), Series 1997 in the aggregate principal amount of
Five Hundred Eighty Thousand Dollars ($580,000.00) pursuant to an Indenture of
Trust dated as of May 1, 1997 between the Authority and the Trustee, including
any amendments or supplements thereto for the further equipping of the Project.
4. The Borrower has requested that the Bank issue a letter of credit (the
"1997 Letter of Credit") for the benefit of the Trustee and the holders from
time to time of the 1997 Bonds in the amount of Five Hundred Eighty Nine
Thousand Eight Hundred Fifty Three Dollars ($589,853.00) to provide for payment
of the principal of and interest and premium, if any, on the 1997 Bonds.
5. The Borrower, the Corporate Guarantor and the Bank have entered into a
Reimbursement Agreement dated as of May 1, 1997 (the "Reimbursement Agreement")
and the Financing Documents as described and defined in the Reimbursement
Agreement.
6. As a condition of the Bank's issuance of the 1997 Letter of Credit, the
Bank has required that the Guarantor execute and deliver this Guaranty.
7. This Guaranty is executed in substitution of the Guarantor's Guaranty of
June 1, 1996.
<PAGE>
AGREEMENT:
NOW THEREFORE, for and in consideration of the premises, Ten Dollars
($10.00) cash, in hand paid, and other good and valuable consideration, the
receipt and adequacy of which the parties hereby acknowledge, the parties
covenant and agree as follows:
Section 1. Definitions and Interpretation. Capitalized terms that are used
but not defined in this Guaranty and that are defined in the Reimbursement
Agreement will, for the purpose of this Guaranty, have the meanings set forth in
the Reimbursement Agreement unless the context indicates otherwise. Unless the
context indicates otherwise, words used in this Guaranty in the singular number
will be deemed to include words in the plural number, and vice versa, and words
in one gender will be deemed to include words in the other genders. The section
headings are for convenience only and neither limit nor amplify the provisions
of this Guaranty.
Section 2. Guaranty. The Guarantor hereby absolutely, unconditionally,
jointly and severally guarantees to the Bank without offset or reduction (i) the
full and prompt payment when due, whether at maturity, by acceleration or
otherwise, of all sums due under the Reimbursement Agreement and the other
Financing Documents, with respect to both the 1996 Letter of Credit and the 1997
Letter of Credit and (ii) the full and prompt performance by the Borrower of the
Borrower's Obligations and other covenants, agreements and undertakings under
the Financing Documents, whether matured or unmatured and whether absolute or
contingent, direct or indirect, secured or unsecured, original, extended or
renewed, absolute or contingent, originally contracted with or acquired by the
Bank, contracted with the Bank alone or jointly with others and whether or not
evidenced by negotiable instruments or other written agreements, (individually,
a "Liability" and collectively, the "Liabilities"). The term "Liabilities" shall
include all of the foregoing matters, relating to both the 1996 Bonds and the
1997 Bonds and the 1996 Letter of Credit and the 1997 Letter of Credit whether
they are from time to time reduced, thereafter increased or entirely
extinguished and thereafter reincurred. This is an unconditional guaranty of
payment and performance and not merely of collection. The Guarantor further
agrees to pay all costs and expenses, including, without limitation, reasonable
attorney's fees, paid or incurred by the Bank in enforcing the payment and
performance of the Liabilities and of the Guarantor's obligations hereunder, all
of which shall be included within the definition of the term "Liabilities". Each
failure on the part of a Guarantor to pay or perform any Liability will give
rise to a separate cause of action hereunder.
Section 3. Guaranty Unconditional. The obligations of the Guarantor
hereunder will be absolute, continuing and unconditional and, without limiting
the generality of the foregoing, will not be released, discharged or otherwise
affected by:
(a) any extension, renewal, compromise, settlement, waiver or release
of any of the obligations of any other Obligor under any of the Financing
Documents;
(b) any amendment, modification or supplement to the Guaranty or any
other Financing Document;
-2-
<PAGE>
(c) any failure to perfect a lien granted by any of the Financing
Documents with respect to any of the Security Property, the release of any
such lien or the substitution or exchange of any Security Property;
(d) any change in the structure, existence or ownership of the
Borrower, or the filing or entry of a final order in any insolvency,
bankruptcy, reorganization or other similar proceeding affecting the
Borrower or its assets or releasing any Obligor from any of its obligations
under any of the Financing Documents;
(e) the existence of any claim, set-off or other right that the
Guarantor may have at any time against the Borrower, the Company, the Bank
or any Obligor, whether arising from the execution of any of the Financing
Documents or otherwise, provided that nothing contained herein will prevent
the assertion of such a claim in a separate suit;
(f) the unenforceability, for any reason, of any of the obligations of
any Obligor under any of the Financing Documents;
(g) the failure of the Bank: (1) to file or enforce a claim against
any other Obligor (or its estate in a bankruptcy or other proceeding); (2)
to give notice of the creation or incurring by any Obligor of any new or
additional indebtedness or obligation with respect to the Project or under
the Financing Documents; (3) to commence any action against any Obligor;
(4) to disclose to the Guarantor any facts that the Bank may now or
hereafter know with regard to the Project or its construction; or (5) to
proceed with due diligence to collect any amount due to it under any of the
Financing Documents or to realize upon any of the Security Property; or
(h) any other act, failure to act or delay of any kind by the
Borrower, any Obligor or the Bank that might, but for the provisions of
this Section, constitute a legal or equitable discharge of the Guarantor's
obligations hereunder.
Section 4. Discharge; Reinstatement in Certain Circumstances. This Guaranty
will remain in full force and effect until the principal and interest of the
Note and all of the other Liabilities have been paid or performed in full and
until a period of one (1) year, beginning with the date of the last payment made
by or on behalf of the Borrower, has elapsed during which no petition in
bankruptcy has been filed by or against the Borrower or any other Obligor. If at
any time any payment or performance by the Borrower under any of the Financing
Documents is rescinded or is required to be restored or returned because of
insolvency, bankruptcy, reorganization or otherwise, the Guarantor's obligations
hereunder with respect to such payment or performance will be reinstated as
though such payment had been due or performance required, but not paid or
performed at the time of such rescission or requirement. The Guarantor agrees
that payment or performance of any of the Liabilities or other acts that toll
any statute of limitations applicable to the Liabilities will also toll the
statute of limitations applicable to the Guarantor's liability hereunder.
Section 5. Waiver of Subrogation. Notwithstanding any other provision of
this Guaranty, if the Guarantor is an "insider" of the Borrower within the
meaning of the Bankruptcy Code, the Guarantor hereby irrevocably waives any
right to assert, enforce, or otherwise exercise any right of subrogation to any
of the rights, security interests, claims
-3-
<PAGE>
or liens of the Bank, its successors or assignees or any other beneficiary
against the Borrower or any other Obligor or on any collateral or other security
for the payment and performance of the Liabilities, and the Guarantor shall have
no right of recourse, reimbursement, contribution, indemnification, or similar
right (pursuant to contract or otherwise) against the Borrower or any other
Obligor, and Guarantor hereby irrevocably waives any and all of the foregoing
rights and also irrevocably waives the benefit of, and any right to participate
in, any collateral or other security given to the Bank or any other beneficiary
to secure payment and performance of the Liabilities.
Section 6. Subordination. The Guarantor hereby subordinates all
indebtedness of the Borrower owing to the Guarantor, whether now existing or
hereafter arising, to the full and prompt payment and performance, as and when
due, of all of the Liabilities, together with all interest thereon and all
costs, expenses and reasonable attorneys' fees in connection therewith. Any
amount received by the Guarantor as payment on or with respect to the
subordinated indebtedness subsequent to any default in the payment or
performance of the Liabilities will be retained and held in trust by the
Guarantor solely for the benefit of the Bank.
Section 7. Stay of Acceleration. If acceleration of the time for payment of
any amount payable by the Borrower pursuant to the Financing Documents is stayed
upon insolvency or bankruptcy, such amount and all other amounts subject to
acceleration under the terms of the Financing Documents will, nevertheless, be
due and payable by the Guarantor on demand by the Bank.
Section 8. Rights of Bank Not Impaired. No act or omission of any kind or
at any time by the Bank in respect of any matter whatsoever will in any way
affect or impair the rights of the Bank to enforce any right, power or benefit
of the Bank under this Guaranty, and no set-off, claim, diminution of any
obligation, or defense of any kind or nature that the Guarantor has or may have
against the Bank will be available against the Bank in any suit or action
brought by the Bank to enforce any of its rights under this Guaranty. Nothing in
this Guaranty will be construed as a waiver by the Guarantor of any rights or
claims it may have against the Bank under this Guaranty or otherwise, but any
recovery upon such rights and claims will be had from the Bank separately, it
being the intent of this Guaranty that the Guarantor shall be obligated,
unconditionally and absolutely, to perform fully all of its obligations
hereunder for the benefit of the Bank.
Section 9. Borrower's Affairs. The Guarantor represents to the Bank that
the Guarantor has knowledge of the Borrower's financial condition and affairs
and agrees that the Guarantor will keep itself informed of the Borrower's
financial condition and affairs so long as this Guaranty is in force. The
Guarantor further agrees that the Bank will have no obligation to investigate
the Borrower's financial condition or affairs for the benefit of the Guarantor
or to advise the Guarantor of any fact respecting, or any change in, the
Borrower's financial condition or affairs that might come to the knowledge of
the Bank at any time, whether or not the Bank knows or believes or has reason to
know or believe that any such fact or change is unknown to the Guarantor or
might (or does) materially increase the risk of the Guarantor hereunder.
Section 10. Representations of Guarantor. The Guarantor hereby represents
and warrants the following to the Bank with the understanding that the Bank is
entitled to and will rely upon each of such representations and warranties and
that such representations
-4-
<PAGE>
and warranties will constitute a material inducement for the Bank to make and
continue to carry the Loan and to grant financial accommodation to the Borrower
at any time:
(a) The Guarantor is fully capable and empowered (being under no legal
restriction, limitation or disability) to enter into, execute and deliver
this Guaranty and to perform the Guarantor's obligations hereunder.
(b) The financial statements heretofore delivered by the Guarantor to
the Bank are true, complete and accurate in all respects, do not contain
any false or misleading statements or fail to make a statement which would
be necessary to prevent any information furnished from being false or
misleading.
(c) There has been no material adverse change in the Guarantor's
general affairs, financial condition or assets subsequent to the effective
date of all financial and other information the Guarantor has furnished to
the Bank.
(d) The Guarantor has duly executed and delivered this Guaranty, and
this Guaranty constitutes the valid and binding obligation of the Guarantor
enforceable in accordance with its terms, except as such enforceability may
be affected by bankruptcy and other insolvency laws and general principles
of equity.
(e) There are no pending or, to the best of the Guarantor's knowledge,
threatened actions, suits, proceedings or investigations of a legal,
equitable, regulatory, administrative or legislative nature that, if
adversely determined, might have a material adverse effect on the
Guarantor's business, assets, condition (financial or otherwise) or
prospects or the Guarantor's ability to perform the Guarantor's obligations
under this Guaranty.
(f) To the best of the Guarantor's knowledge, after due inquiry, no
event that would constitute a Default or Event of Default has occurred or
is continuing.
(g) The representations and warranties by the Corporate Guarantor in
the Reimbursement Agreement remain true and correct.
Section 11. Financial Statements and Covenants. The Corporate Guarantor
will furnish to the Bank the financial information required by the Reimbursement
Agreement. The Individual Guarantor will furnish to the Bank his annual signed
financial statement on the Bank's form or other form reasonably acceptable to
the Bank.
Section 12. Maintenance of Financial Standing. Until all of the Liabilities
have been paid or discharged, the Guarantor shall preserve and maintain the
Guarantor's existing assets and financial standing as set forth in the financial
information heretofore furnished by the Guarantor to the Bank. The Corporate
Guarantor covenants and agrees that the Corporate Guarantor will not sell,
lease, assign, transfer or otherwise dispose of any of the Corporate Guarantor's
now owned or hereinafter acquired assets except in the ordinary course of
business and no sale, lease, assignment or transfer shall be made for the
purpose of hindering or delaying the Bank's practical realization of the Bank's
rights and remedies under this Guaranty. The Individual Guarantor covenants and
agrees not
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<PAGE>
to make transfers or conveyances in contravention of Chapter 5 Title 55 of the
Code of Virginia (1950) as amended.
Section 13. Bank's Right of Set-Off. Upon the acceleration of the maturity
of the Bonds or the occurrence of any Event of Default, the Bank is hereby
irrevocably authorized, at any time and from time to time without notice to the
Guarantor, any such notice being expressly waived, to set off, appropriate and
apply any amount, including any deposit or claim, whether or not matured, owing
by the Bank to or for the account of the Guarantor, or any part thereof, against
the obligations of the Guarantor to the Bank hereunder. The rights of the Bank
under this Section are in addition to any other rights and remedies that the
Bank may have.
Section 14. Venue. The Guarantor agrees that any suit, action or proceeding
arising out of or relating to this Guaranty may be instituted in the Circuit
Court of Mecklenburg County, Virginia, or in the United States District Court
for the Eastern District of Virginia, Western Division (to the extent that such
court has jurisdiction), at the option of the Bank, and the Guarantor hereby
waives any objection that it may have to such venue and irrevocably submits to
the jurisdiction of either of such courts in any such suit, action or
proceeding. Nothing herein will affect the right of the Bank to proceed against
the Guarantor in any other jurisdiction.
Section 15. Subsequent/Prior Guaranty. A subsequent guaranty by the
Guarantor will not be deemed to be in lieu of or to supersede or terminate this
Guaranty, but will be construed as an additional or supplemental guaranty unless
otherwise expressly provided therein; and in the event that the Guarantor has
given the Bank a previous guaranty or guaranties, this Guaranty will be
construed to be an additional or supplemental guaranty, and not in lieu thereof
or to terminate such previous guaranty or guaranties, unless expressly so
provided herein or therein.
Section 16. Events of Default. Each of the following events shall
constitute an Event of Default under this Guaranty:
(a) Failure of any Guarantor to pay or perform any of the guaranteed
Liabilities when and as the same shall become due (whether at maturity, by
acceleration or otherwise), upon demand by the Bank to a Guarantor;
(b) Failure of any Guarantor to observe and perform any of such
Guarantor's covenants, conditions, undertakings or agreements with respect
to any Liability or under this Guaranty;
(c) Default under any of the Financing Documents;
(d) If the Borrower or any Obligor shall be involved in financial
difficulties which are evidenced: (i) by an admission in writing of any
Obligor's inability to pay such Obligor's debts generally as they become
due; (ii) by any Obligor's filing a petition in bankruptcy or for the
adoption of an arrangement under the United States Bankruptcy Code (as now
or in the future amended) or an admission seeking the relief therein
provided; (iii) by any Obligor's making an assignment for the benefit of
creditors; (iv) by any Obligor consenting to the appointment of a receiver,
custodian or trustee for all or a substantial part of any Obligor's assets
or to the filing of a petition against any Obligor
-6-
<PAGE>
under said Bankruptcy Code; (v) by any Obligor being adjudicated a
bankrupt; (vi) by the entry of a court order appointing a receiver,
custodian or trustee for all or a substantial part of the assets of any
Obligor, or approving as filed in good faith a petition filed against any
Obligor under said Bankruptcy Code; (vii) by the assumption of custody or
sequestration by a court of all or substantially all of the assets of any
Obligor; (viii) by an attachment on any of the assets of any Obligor and
such attachment is not discharged or stayed within thirty (30) days from
the date of execution; or (ix) by a judgment or decree for the payment of
money being entered against any Obligor or if any execution or levy is made
upon any Obligor's assets and the judgment, execution or levy, as the case
may be, is not discharged or stayed within thirty (30) days from the date
of the judgment, execution or levy as the case may be;
(e) Failure of any Obligor to make any payment due on any indebtedness
or other security for borrowed money, or the occurrence of any event (other
than the mere passage of time) or any condition in respect of any
indebtedness or other security for borrowed money or under any agreement
securing or relating to such indebtedness or other security for borrowed
money, the effect of which is to permit any holder of such indebtedness or
a trustee to cause such indebtedness or other security, or a portion
thereof, to become due prior to its stated maturity or prior to its
regularly scheduled dates of payment;
(f) Determination by the Bank that any representation, warranty or
other statement by or on behalf of any Guarantor contained in this
Guaranty, or any instrument, financial statement or other information
furnished to the Bank is false or misleading in any material respect in
light of the circumstances in which made;
(g) If the Bank in good faith believes that the prospect of either
payment or performance of any of the Liabilities is impaired or in good
faith believes that a material adverse change has occurred in the financial
condition of either the Borrower or any Obligor; or
(h) Any action taken by or on behalf of any Guarantor to terminate
such Guarantor's liability hereunder generally or as it may relate to any
amount payable on any Liability or any defense shall be asserted to any
liability of any Guarantor hereunder, or determination by the Bank that the
liability of any Guarantor hereunder generally or with respect to any
amount payable on an a Liability shall have been terminated for any reason
and the liability of any Guarantor hereunder shall not have been reaffirmed
in writing by such Guarantor or such Guarantor's duly qualified
representative.
Section 17. Remedies. Whenever any Event of Default shall have happened and
be continuing, the Bank or other holder of any of the Liabilities (a) may
declare the entire unpaid principal of and interest on the Liabilities to be
immediately due and payable, (b) may take whatever action under the Financing
Documents, at law or in equity as may appear necessary or desirable to collect
payments then due or thereafter to become due hereunder or to enforce observance
or performance of any covenant, condition or agreement of any Guarantor under
this Guaranty, or (c) may immediately and without further action by the Bank,
set-off against any obligation of any Guarantor to the Bank hereunder, all money
owed by the Bank in any capacity to any Guarantor and to apply the same against
the Liabilities.
-7-
<PAGE>
Section 18. Successors and Assigns. This Guaranty will inure to the benefit
of and be binding on the parties and their respective heirs, personal
representatives, successors and assigns.
Section 19. Severability. If any provision of this Guaranty or the
application thereof in any circumstance is held to be unenforceable, the
remainder of this Guaranty will not be affected thereby and will remain
enforceable.
Section 20. Applicable Law. This Guaranty will be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia.
Section 21. Notices, Demands and Requests. All notices, demands, requests
and other communications required or permitted hereunder must be in writing and
will be deemed to have been given when delivered in person or sent by registered
mail, postage prepaid, return receipt requested, (i) to the Guarantor, at the
address set forth below the Guarantor's signature, and (ii) to the Bank, at its
address set forth in the Reimbursement Agreement, or to such other persons or
addresses as the party entitled to notice has specified in writing to the other
parties from time to time.
Section 22. Waiver. The Guarantor hereby waives, to the extent permitted by
law, (i) the benefits of Sections 49-25 and 49-26 of the Code of Virginia
(1950), as amended, and any amendments thereto or any similar statutes or rules
of law, (ii) the benefit of any homestead or similar exemption, state or
federal, with respect to its obligations hereunder, (iii) notice of any of the
matters referred to in Section 3 of this Guaranty, and (iv) any demand (except
as expressly specified herein), proof or notice of nonpayment, or failure to pay
or perform any of the Obligations.
Section 23. Amendments. This Guaranty may only be amended, supplemented or
terminated in writing, signed by all of the parties.
Section 24. Number, Gender and Headings. The pronouns and verbs set forth
herein will be construed to be of such number and gender as the context may
require. The headings are for convenience only and will not limit or otherwise
affect the terms hereof.
Section 25. Entire Agreement. This Guaranty expresses the entire
understanding, and all agreements, between the parties with respect to the
subject matter hereof.
Section 26. Counterparts. This Guaranty may be executed in any number of
counterparts, each of which will be an original and all of which together will
constitute but one and the same instrument.
Section 27. Appointment of Secretary of the Commonwealth. The Corporate
Guarantor hereby appoints Anat Schwartz as its agent to accept legal service of
process in its name and on its behalf. If the Bank is unable to obtain prompt
legal service upon a Guarantor at the address shown for such Guarantor herein or
through the designated agent, each Guarantor hereby appoints the Secretary of
the Commonwealth of Virginia as each Guarantor's agent for the acceptance of
substituted service of process upon each Guarantor and it is understood and
agreed that each Guarantor hereby submits to the in
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<PAGE>
personam jurisdiction of any duly constituted Court of the Commonwealth of
Virginia (upon compliance with the procedural laws and rules of the Commonwealth
of Virginia) wherein any action may be brought by the holder of any of the
Liabilities.
Section 28. Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY LAW,
EACH GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY
RIGHTS THAT THE GUARANTOR MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
GUARANTY, THE REIMBURSEMENT AGREEMENT, ANY OTHER FINANCING DOCUMENT OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (ORAL OR WRITTEN), OR ACTIONS
OF THE BANK, THE BORROWER OR THE GUARANTOR. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE BANK TO ENTER INTO THIS GUARANTY AND TO GRANT ACCOMMODATION
AT ANY TIME TO THE BORROWER.
Section 29. Notice. YOU ARE GUARANTEEING THE LIABILITIES DESCRIBED IN THIS
GUARANTY. IF FOR ANY REASON THE BORROWER DOES NOT PAY OR PERFORM THE
LIABILITIES, YOU WILL HAVE TO PAY OR PERFORM THE LIABILITIES AT YOUR EXPENSE.
UPON DEFAULT, THE BANK CAN COLLECT ALL OF THE LIABILITIES FROM YOU WITHOUT FIRST
ATTEMPTING TO COLLECT FROM THE BORROWER OR ANY OTHER GUARANTOR. BY SIGNING THIS
GUARANTY, YOU AGREE THAT YOU HAVE RECEIVED COPIES OF AND HAVE HAD AN OPPORTUNITY
TO REVIEW ALL OF THE DOCUMENTS REFERRED TO IN THIS GUARANTY AND THE DOCUMENTS
DESCRIBED THEREIN WITH YOUR COUNSEL AND UNDERSTAND THE NATURE, EXTENT, AND LEGAL
AND PRACTICAL CONSEQUENCES OF YOUR LIABILITY UNDER THIS GUARANTY.
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<PAGE>
WITNESS the following signatures and seals.
SHERWOOD BRANDS, INC.
By:/s/ Uziel Frydman (SEAL) /s/ Uziel Frydman
------------------------------ ------------------------------------
Uziel Frydman, President Uziel Frydman, Individually
ATTEST:
/s/ Anat Schwartz (SEAL)
- --------------------
Anat Schwartz
Secretary
STATE OF ______________________)
) to wit:
CITY/COUNTY OF ________________ )
The foregoing instrument was acknowledged before me this ____ day of May,
1997, by Uziel Frydman, individually.
My Commission Expires: __________________
-----------------------------
Notary Public
STATE OF ________________________)
) to wit:
CITY/COUNTY OF _________________ )
The foregoing instrument was acknowledged before me this ____ day of May,
1997, by Uziel Frydman, the president of Sherwood Brands, Inc., a North Carolina
Corporation, behalf of the corporation.
My Commission Expires: __________________
-----------------------------
Notary Public
-10-
<PAGE>
LOAN AGREEMENT
between
INDUSTRIAL DEVELOPMENT AUTHORITY
OF MECKLENBURG COUNTY, VIRGINIA
and
SHERWOOD FOODS, INC.
Dated as of June 1, 1996
THE INDUSTRIAL DEVELOPMENT AUTHORITY OF MECKLENBURG COUNTY, VIRGINIA (THE
"AUTHORITY") HAS ASSIGNED ALL OF ITS INTEREST IN THIS AGREEMENT (EXCEPT CERTAIN
PROVISIONS RELATING TO THE PAYMENT OF EXPENSES, NOTICE AND INDEMNIFICATION
CONTAINED IN SECTIONS 8.5 AND 8.6 HEREOF) TO CRESTAR BANK AS TRUSTEE UNDER AN
INDENTURE OF TRUST, DATED AS OF JUNE 1, 1996, BETWEEN THE AUTHORITY AND THE
TRUSTEE. INFORMATION CONCERNING THE ASSIGNMENT MAY BE OBTAINED FROM THE TRUSTEE
AT ITS PRINCIPAL CORPORATE TRUST OFFICE IN RICHMOND, VIRGINIA.
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
Definitions
Section 1.1 Definitions 1
Section 1.2 Rules of Construction 1
ARTICLE II
Representations and Covenants
Section 2.1 Representations by Authority 2
Section 2.2 Representations and Covenants by Borrower 4
ARTICLE III
Issuance of the Bonds; Use of Proceeds
Section 3.1 Loan of Proceeds 5
Section 3.2 Agreement to Acquire, Construct and
Equip Facility 5
Section 3.3 Agreement to Issue Bonds 6
Section 3.4 Establishment of Completion Date 6
Section 3.5 Borrower Required Complete Construction 6
Section 3.6 Disclaimer of Warranties 6
Section 3.7 Limitation of Authority's Liability 7
ARTICLE IV
Payment by the Borrower
Section 4.1 Payments by the Borrower 7
Section 4.2 Obligations of Borrower Unconditional 9
Section 4.3 Payments Assigned 9
Section 4.4 Letter of Credit 9
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<PAGE>
PAGE
----
ARTICLE V
Operation and Use of Facility
Section 5.1 Maintenance and Operation of the Facility 10
Section 5.2 Inspection of Facility and Borrower's
Books and Records 11
ARTICLE VI
Governmental Charges and Insurance
Section 6.1 Governmental Charges 11
Section 6.2 Insurance 11
Section 6.3 Requirements of Policies 11
ARTICLE VII
Damages, Destruction or Condemnation
Section 7.1 Parties to Give Notice 12
Section 7.2 Damage and Destruction 12
Section 7.3 Condemnation and Loss of Title 13
Section 7.4 Provisions of Reimbursement Agreement
with Letter of Credit Issuer During
Letter of Credit Period 13
ARTICLE VIII
Special Covenants
Section 8.1 Use of Proceeds; Other Matters with Respect to
Project, Bonds and Tax Exemption 13
Section 8.2 Arbitrage and Rebate 16
Section 8.3 Reports 18
Section 8.4 Compliance with Tax Laws 18
Section 8.5 Indemnification by Borrower 18
Section 8.6 Payment of Expenses 20
Section 8.7 Approval of Indenture 22
Section 8.8 Right to Purchase Tendered Bonds 22
Section 8.9 Notice of Act of Bankruptcy 22
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<PAGE>
PAGE
----
ARTICLE IX
Events of Default and Remedies
Section 9.1 Event of Default Defined 22
Section 9.2 Remedies on Default 23
Section 9.3 No Remedy Exclusive 24
Section 9.4 Attorneys' Fees and Other Expenses 24
Section 9.5 No Additional Waiver Implied by One Waiver 24
ARTICLE X
Miscellaneous
Section 10.1 Successors and Assigns 24
Section 10.2 Amendments 24
Section 10.3 Exculpation of Authority 24
Section 10.4 Applicable Law 25
Section 10.5 Severability 25
Section 10.6 Notices 25
Section 10.7 Agreements to Survive 25
Section 10.8 Right to Cure Default 25
Section 10.9 No Joint Venture 26
Section 10.10 Headings 26
Section 10.11 Term of Agreement 26
Section 10.12 Counterparts 26
Section 10.13 Trustee as Assignee and Third Party
Beneficiary 26
Testimonium
Signatures
Receipt
Schedule of Definitions
- iv -
<PAGE>
THIS LOAN AGREEMENT is made as of June 1, 1996, between the INDUSTRIAL
DEVELOPMENT AUTHORITY OF MECKLENBURG COUNTY, VIRGINIA, a political subdivision
of the Commonwealth of Virginia (the "Authority"), and SHERWOOD FOODS, INC., a
North Carolina corporation (the "Borrower").
WHEREAS, on June 12, 1996, the Authority adopted a resolution (the
"Resolution") authorizing the issuance and sale of the Authority's Variable Rate
Demand Revenue Bonds (Sherwood Foods, Inc., Project), Series 1996, in the
aggregate principal amount of $935,000 (the "Bonds"), and the loan of the
proceeds of the Bonds to the Borrower to finance the acquisition, renovation and
equipping of an approximately 67,000 square foot manufacturing facility located
in the Town of Chase City in Mecklenburg County, Virginia (the "Facility"),
owned by the Borrower and used in the Borrower's business of manufacturing food
products; and
WHEREAS, the parties desire to set forth in this Agreement certain of their
agreements and understandings with respect to such refunding,
NOW, THEREFORE, for and in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. Attached to this Agreement is a Schedule of
Definitions wherein certain words and terms used herein shall have the meaning
set forth in the Schedule (which is incorporated herein by this reference)
unless the context otherwise requires. In addition to, and not as a limitation
upon, the preceding sentence, all terms used herein which are defined within the
body of any of the Basic Documents or the Bonds shall have the same meaning
herein as therein, unless the context in which such terms are used herein
clearly requires that a different meaning be ascribed to such terms.
Section 1.2 Rules of Construction. The following rules shall apply to the
construction of this Agreement unless the context otherwise requires:
(a) Singular words shall connote the plural number as well as the singular
and vice versa.
<PAGE>
(b) Words importing the redemption or calling for redemption of Bonds shall
not be deemed to refer to or connote the payment of Bonds at their stated
maturity.
(c) All references herein to particular Articles or Sections are references
to Articles or Sections of this Agreement.
(d) The headings herein are solely for convenience of reference and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
(e) The masculine, feminine and neuter genders are used solely for
convenience of reference and not as terms of limitation. Accordingly, words of
the masculine, feminine and neuter genders shall be deemed and construed to
include correlative words of the masculine, feminine and neuter gender.
ARTICLE II
Representations and Covenants
Section 2.1 Representations by Authority. The Authority makes the following
representations as the basis for its undertakings under this Agreement:
(a) The Authority has been duly organized and operating under the Act since
its creation, and no dissolution proceedings have been undertaken by it. The
Authority is, on the date of the issuance of the Bonds, a duly created and
validly existing political subdivision of the Commonwealth vested, by the Act,
with the rights and powers conferred upon industrial development authorities
under the Act.
(b) Each director of the Authority has satisfied the residency requirements
of the Act. No director of the Authority is an officer or employee of the County
and each director has taken and subscribed to the oath prescribed by Section
49-1 of the Code of Virginia of 1950, as amended.
(c) The Authority has complied in all respects with the Act and has the
legal right, power and authority to (i) adopt the Resolution and execute and
deliver the Basic Documents to which it is a party and other documents related
thereto; (ii) issue, sell and deliver the Bonds to the initial purchasers
thereof; (iii) to undertake the financing of the Facility by lending the
proceeds of the Bonds to the Borrower; and (iv) carry out and consummate all
other transactions to which it is a
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<PAGE>
party and which are contemplated by the Resolution, the Bonds and the Basic
Documents.
(d) The Bonds and the Basic Documents to which the Authority is a party
have been executed and delivered by duly authorized officers of the Authority,
were duly authorized by the Resolution and are in substantially the same form
and text as the copies of such instruments presented to the Authority at its
meeting on June 12, 1996.
(e) The Bonds constitute the only bonds or other obligations of the
Authority in any manner secured by, or payable from, the amounts due under the
Basic Documents and all revenues and receipts derived by the Authority therefrom
or from the security therefor.
(f) The Authority hereby finds and determines that the issuance of the
Bonds will serve the purposes of the Act and that the Facility constitutes an
"authority facility," within the meaning of the Act.
(g) When authenticated and delivered in accordance with the Indenture, the
Bonds will have been duly authorized, executed, issued and delivered and will
constitute legal, valid and binding limited obligations of the Authority
enforceable against the Authority in accordance with their terms.
(h) The adoption of the Resolution, the issuance of the Bonds, the
execution and delivery of the Basic Documents to which the Authority is a party
and the compliance with the provisions thereof do not, and will not, conflict
with or constitute on the part of the Authority a violation or breach of, or
default under, any statute (except that no representation is made as to any
federal tax or securities law), ordinance, bylaw, indenture, mortgage, deed of
trust, resolution, bond, note or other agreement or instrument to which the
Authority is a party or by which it is bound or, to its knowledge, any judgment,
decree, order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Authority or any of the Authority's activities or
properties.
(i) To the best of the Authority's knowledge, no litigation or
investigation by any judicial or governmental body or agency is pending or
threatened against the Authority to (i) enjoin, restrain or otherwise affect the
execution, delivery or validity of the Resolution, the Bonds or the Basic
Documents, or (ii) challenge, contest or affect the constitution, existence or
powers of the Authority, the incumbency of the Authority's officers or directors
or the validity or enforceability of any action taken by the Authority with
respect to the Resolution,
- 3 -
<PAGE>
the Bonds or the Basic Documents or any transactions authorized thereby or
related thereto. To the best of the Authority's knowledge, no litigation or
investigation by any judicial or governmental body or agency is pending or
threatened against the Authority which challenges or contests the collection of
revenues or receipts under the Basic Documents or the payment thereof to the
registered owners of the Bonds. To the best of the Authority's knowledge, there
is no litigation or investigation by any judicial or governmental body or agency
pending or threatened against the Authority or any of the property or assets
under the control of the Authority which involves the possibility of any
judgment or liability which may adversely affect the Facility or the security
for the Bonds.
Section 2.2 Representations and Covenants by Borrower. The Borrower makes
the following representations and covenants in connection with its undertakings
hereunder:
(a) The execution and delivery of the Basic Documents to which it is a
party and the performance by the Borrower of its obligations hereunder and
thereunder do not and will not (1) constitute a default under the articles of
incorporation or bylaws of the Borrower or any agreement or other instrument to
which the Borrower is a party or by which it is bound, or (2) result in a
violation of any agreement or other instrument to which the Borrower is a party
or by which it is bound or, to the best of the Borrower's knowledge, any
constitutional or statutory provision or order, rule, regulation, decree or
ordinance of any court, government or governmental authority having jurisdiction
over the Borrower or its property.
(b) It has duly authorized, executed and delivered the Basic Documents to
which it is a party, and such Basic Documents, when so executed and delivered by
other parties thereto, will constitute the valid and legally binding obligations
of the Borrower, enforceable in accordance with the provisions thereof.
(c) There are no pending or, to the best of its knowledge, threatened
actions, suits, proceedings, or investigations of a legal, equitable,
regulatory, administrative or legislative nature, the judgment, order or
resolution of which may have a materially adverse effect on the Borrower or its
business, assets, condition (financial or otherwise), operations or prospects or
on its ability to perform its obligations under the Basic Documents.
(d) It is not in default in the payment of the principal of or interest on
any of its indebtedness for borrowed money or any instrument under and subject
to which any indebtedness has
- 4 -
<PAGE>
been incurred, and, to the best of its knowledge, no event has occurred and is
continuing under the provisions of any such agreement that with a lapse of time
or the giving of notice, or both, would constitute a default thereunder.
(e) The Bonds are the only obligations of any state, territory or
possession of the United States, or any political subdivision of the foregoing,
or of the District of Columbia, the proceeds of which have been or are to be
used primarily with respect to a facility located or to be located in
Mecklenburg County, Virginia, or in any contiguous jurisdiction, a principal
user of which is or will be the Borrower, any other principal user(s) of the
Facility, or any "related persons" of the Borrower or such other principal
users, within the meaning of Section 144(a)(3) of the Code.
(f) The Borrower has obtained all consents, approvals, authorizations and
orders of any governmental or regulatory authority that are required to be
obtained by the Borrower as a condition precedent to the issuance of the Bonds
or the execution and delivery of the Bond Documents to which it is a party or
the performance by the Borrower of its obligations hereunder or thereunder. The
Borrower has no reason to believe that any and all approvals, certificates and
permits which are required for the acquisition, renovation, equipping or
operation of the Facility cannot be obtained when required.
(g) The undertaking of the Facility by or on behalf of the Authority
constituted an inducement to the Borrower to locate the Facility in Mecklenburg
County, Virginia.
(h) The Borrower currently intends to operate the Facility as a
manufacturing facility until the Indenture is discharged in accordance with its
terms.
(i) No document or instrument executed or delivered by the Borrower, nor
any information (financial or otherwise) furnished by or on behalf of the
Borrower to the Authority or the Remarketing Agent in connection with the
negotiation of the sale of the Bonds, contains any untrue statement of a
material fact or omits a material fact necessary to make the statements
contained herein or therein not misleading. There is no fact that the Borrower
has not disclosed in writing to the Authority and the Letter of Credit Issuer
that materially adversely affects, or so far as it can now foresee, based on
facts known to it, will materially affect adversely the properties, business,
prospects, profits or condition (financial or otherwise) of the Borrower or the
ability of the Borrower to perform its obligations under the Basic Documents.
- 5 -
<PAGE>
(j) The Borrower understands that the certifications made herein and in the
Tax Compliance Agreement are to be conclusively relied upon by Bond Counsel in
giving its opinion as to the tax-exempt status of the Bonds.
ARTICLE III
Issuance of the Bonds; Use of Proceeds
Section 3.1. Loan of Proceeds. The Authority hereby lends the proceeds from
the sale of the Bonds pursuant to this Loan Agreement to the Borrower, and the
Borrower hereby borrows the same from the Authority as evidenced by this Loan
Agreement. The Borrower covenants to use such proceeds to pay Costs of the
Project.
Section 3.2 Agreement to Acquire, Renovate and Equip Facility. The Borrower
shall cause the acquisition, renovation and equipping of the Facility
substantially as described to the Authority in its application to the Authority.
The Borrower agrees to obtain all licenses, permits and consents required for
the acquisition, renovation and equipping of the Facility, and the Authority
shall have no responsibility therefor.
Section 3.3 Agreement to Issue Bonds. In order to provide funds for payment
of all or a portion of the Cost of the Project, the Authority shall
simultaneously with the execution and delivery hereof proceed with the issuance
and sale of the Bonds bearing interest, maturing and having the other terms and
provisions set forth in the Indenture. The obligation of the Authority to pay
for the Cost of the Project shall be limited to the proceeds in the Construction
Fund derived from the sale of the Bonds in accordance with the Indenture.
Section 3.4. Establishment of Completion Date. The Completion Date shall be
evidenced to the Authority and the Trustee by a certificate signed by an
Authorized Representative of the Borrower stating (a) the Cost of the Project,
(b) that the acquisition, renovation and equipping of the Facility have been
completed substantially in accordance with Section 3.2, and (c) that, except for
amounts retained by the Trustee for the Cost of the Project not then due and
payable, the full Cost of the Project has been paid. Notwithstanding the
foregoing, such certificate shall state that it is given without prejudice to
any rights against third parties which exist at the date of such certificate or
which may subsequently come into being.
Section 3.5. Borrower Required to Complete Construction. The Authority
makes no warranty or promise, express or implied,
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that the proceeds of the sale of the Bonds will be sufficient to pay the Cost of
the Project in full. If the proceeds derived from the sale of the Bonds are not
sufficient to pay in full the Cost of the Project, the Borrower shall pay so
much of the cost thereof as may be in excess of the moneys available therefor or
shall pay over to the Trustee such moneys as are necessary to provide for
payment of such Cost. The Borrower agrees that if, after exhaustion of the
proceeds derived from the sale of the Bonds, the Borrower should pay any portion
of the Cost of the Project pursuant to the provisions of this section, it shall
not be entitled to any reimbursement therefor from the Authority or the Trustee
nor shall it be entitled to any abatement, diminution or postponement of its
payments hereunder.
Section 3.6. Disclaimer of Warranties. The Borrower recognizes that since
the Facility has been or will be acquired, renovated and equipped by the
Borrower and by contractors and suppliers selected by the Borrower in accordance
with plans and specifications prepared by architects or engineers selected by
the Borrower, THE AUTHORITY MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, WITH RESPECT TO THE MERCHANTABILITY, CONDITION OR WORKMANSHIP OF ANY
PART OF THE PROJECT OR ITS SUITABILITY FOR THE BORROWER'S PURPOSES OR THE EXTENT
TO WHICH PROCEEDS DERIVED FROM THE SALE OF THE BONDS WILL PAY THE COST TO BE
INCURRED IN CONNECTION THEREWITH.
Section 3.7 Limitation of Authority's Liability. THE BONDS AND THE
REDEMPTION PRICE THEREOF, AND INTEREST THEREON AND THE PURCHASE PRICE THEREOF
SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR A PLEDGE OF THE FAITH AND CREDIT OF
THE COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE COUNTY.
NEITHER THE COMMONWEALTH OF VIRGINIA NOR ANY POLITICAL SUBDIVISION THEREOF,
INCLUDING THE AUTHORITY AND THE COUNTY, SHALL BE OBLIGATED TO PAY THE PRINCIPAL
OR REDEMPTION PRICE OF, OR INTEREST ON, OR THE PURCHASE PRICE OF, THE BONDS OR
OTHER COSTS INCIDENT THERETO, EXCEPT FROM THE REVENUES AND MONEYS PLEDGED
THEREFOR, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE
COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY AND
THE COUNTY, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OR REDEMPTION PRICE OF,
OR INTEREST ON, OR THE PURCHASE PRICE OF, THE BONDS OR OTHER COSTS INCIDENT
THERETO.
ARTICLE IV
Payment by the Borrower
Section 4.1 Payments by the Borrower. In consideration of the Authority's
issuance of the Bonds to finance the Project,
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the Borrower agrees to pay, at the times hereinafter specified, amounts
sufficient to pay in Eligible Funds on each date when due the principal or
redemption price of, and interest on, and purchase price of the Bonds, whether
at maturity, upon redemption, including mandatory redemption as provided in
Section 405(c) of the Indenture, on acceleration, on tender for purchase or
otherwise.
(a) Until Payment of the Bonds, the Borrower agrees to deposit on each
Interest Payment Date into the Payments Account the amount, if any, necessary to
make the amount then on deposit in the Payments Account equal to the amount
needed for the payment of interest on the Bonds on such Interest Payment Date.
(b) Commencing on July 1, 1996, and continuing on the first day of each
month thereafter until Payment of the Bonds, the Borrower agrees to make monthly
deposits into the Payments Account (such monthly payments to be approximately
equal during the year preceding each June 1) so that on June 1 of each year
thereafter an amount equal to the aggregate principal amount of the Bonds which
is scheduled to be redeemed pursuant to Section 405(c) of the Indenture on such
June 1 will be on deposit in the Payments Account prior to such June 1.
(c) The Borrower agrees to pay to the Trustee for deposit into the Payments
Account an amount sufficient to pay 100% of the principal of the Bonds and
interest accrued thereon to the redemption date due as a result of (i) the
mandatory redemption of the Bonds upon taxability in accordance with Section
405(a) of the Indenture or (ii) the mandatory redemption of the Bonds upon the
expiration of the Letter of Credit in accordance with Section 405(d) of the
Indenture. Such payment shall not relieve the Borrower of its continuing
obligation to make payments with respect to the interest due on the Bonds until
there is on deposit with the Trustee sufficient Eligible Funds to pay the
principal of and all interest accrued on the Bonds to the redemption date.
(d) In the event of an acceleration of the Bonds under Section 1002 of the
Indenture, the Borrower agrees immediately to pay to the Trustee for deposit
into the Payments Account an amount sufficient to pay in full the principal of
and interest on the Bonds.
(e) The Borrower shall be entitled to a credit in full against the amounts
required to be paid pursuant to subsections (a), (b), (c) and (d) above so long
as there is in force a Letter of Credit meeting the requirements of Section 4.4
and the issuer of such Letter of Credit has not failed or refused to honor any
drawing thereunder.
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(f) The Borrower may exercise its right to direct the optional redemption
of Bonds in accordance with Section 405(b) of the Indenture, provided that, (i)
on or prior to the date of the proposed redemption, the Borrower shall have paid
or caused to be paid to the Trustee for deposit in the Payments Account amounts
(which will be Eligible Funds on the redemption date) or caused to be paid to
the Trustee for deposit in the Letter of Credit Account amounts drawn under the
Letter of Credit, in either case in an amount equal to the principal of the
Bonds to be redeemed plus interest accrued thereon to the redemption date, which
funds will be available to pay the principal of, and interest accrued on, the
Bonds to be redeemed on the redemption date and (ii) the Borrower shall have
given the Trustee and the Authority at least 30 days' notice of the exercise of
its optional redemption right.
(g) Subject to a credit in the aggregate amount of Eligible Funds or
proceeds of the remarketing of Bonds (pursuant to Section 404(a) of the
Indenture) on deposit in the Bond Purchase Account on a Tender Date, the
Borrower shall pay the Trustee all amounts necessary to pay in Eligible Funds
the purchase price of Bonds tendered on any Tender Date.
(h) The Borrower shall receive a credit against its obligation to make the
next succeeding payment due with respect to the principal or redemption price
of, or interest on, or the purchase price of, the Bonds, whether at maturity,
upon redemption, on acceleration, on purchase or otherwise, in an amount equal
to any interest or income derived from the investment of money in the Payments
Account or the Bond Purchase Account and amounts on deposit from the investment
thereof, provided such interest, income or amounts have not previously been
applied as a credit with respect to any payment and will be available to make
the corresponding payment on the Bonds; and provided, further, that whenever
this Agreement, the Indenture or the Bonds requires payment of the principal or
redemption price of, or interest on, or the purchase price of, the Bonds in
Eligible Funds, such credit will not be effective until such time as such
interest or income has become Eligible Funds.
Section 4.2 Obligations of Borrower Unconditional. The obligations of the
Borrower to make all payments pursuant to this Agreement and to observe and
perform all other covenants, conditions and agreements under the Basic Documents
shall be absolute and unconditional, irrespective of any rights of setoff,
recoupment or counterclaim the Borrower might otherwise have against the
Authority or the Trustee. Subject to prepayment as provided in this Agreement,
the Borrower shall not suspend or discontinue any such payment or fail to
observe and
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perform any of its other covenants, conditions and agreements under the Basic
Documents for any cause, including without limitation any acts or circumstances
that may constitute an eviction or constructive eviction, failure of
consideration, failure of title to any part or all of the Facility, or
commercial frustration of purpose, or any damage to or destruction or
condemnation of all or any part of the Facility or any change in the tax or
other laws of the United States, the Commonwealth or any political subdivision
of either or any failure of the Authority or any other person to observe and
perform any covenant, condition or agreement, whether express or implied, or any
duty, liability or obligation arising out of or in connection with the Basic
Documents.
Section 4.3 Payments Assigned. The Borrower consents to the assignment of
the rights of the Authority assigned under this Agreement to the Trustee and
agrees to pay to the Trustee all amounts payable by the Borrower pursuant to the
Basic Documents, except for amounts payable directly to the Authority and others
pursuant to Sections 8.5 and 8.6 of this Agreement.
Section 4.4 Letter of Credit. At all times while the Bonds are Outstanding,
the Borrower shall cause a Letter of Credit to be in effect. On the Closing
Date, in order to commence the Letter of Credit Period, the Borrower shall
deliver to the Trustee a Letter of Credit having a stated expiration date no
earlier than June 10, 2006. Thereafter, any replacement Letter of Credit must be
delivered to the Trustee on or before a date which is at least 40 days prior to
the stated expiration date of the Letter of Credit being replaced and having an
effective date no later than June 1 in the year in which it is delivered and an
expiration date which is the earlier of June 10 in the next succeeding year or
June 10, 2011.
Any Letter of Credit shall be an irrevocable Letter of Credit or other
irrevocable and unconditional credit facility, and it shall permit drawings
thereunder by the Trustee in accordance with the Indenture of amounts not less
than (i) the aggregate principal amount of the Bonds outstanding and (ii)
sixty-two (62) days interest (at an assumed rate of 10% per annum) on the Bonds
Outstanding. On or before the date of delivery of any replacement Letter of
Credit to the Trustee, the Borrower shall cause to be delivered to the Trustee
(i) an Opinion of Counsel stating that the delivery of the Letter of Credit to
the Trustee is authorized under and complies in all respects with the provisions
of this Agreement and the Indenture, (ii) an Opinion of Counsel stating that the
Letter of Credit constitutes a legal, valid and binding obligation of the Letter
of Credit Issuer to pay the amounts provided therein and is enforceable in
accordance with its terms, subject to
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customary exceptions and qualifications, and (iii) if delivery of the Letter of
Credit will commence a Rated Period, or if a replacement Letter of Credit is
being delivered during a Rated Period, written evidence that the Rating Agency
has received a true copy of the Letter of Credit and that it will not, by
itself, result in a rating on the Bonds lower than the Rating Agency's
prevailing rating on the Bonds at the time such replacement Letter of Credit is
delivered to the Trustee, or (iv) if not commencing or during a Rated Period,
written evidence satisfactory to the Trustee that the proposed Letter of Credit
Issuer has a rating by a Rating Agency of either its long-term or short-term
senior debt obligations at least equal to the corresponding rating of the Letter
of Credit Issuer whose Letter of Credit is then outstanding.
ARTICLE V
Operation and Use of Facility
Section 5.1 Maintenance and Operation of the Facility. The Borrower shall,
at its expense, keep the Facility in good repair and operating condition and
free and clear of all encumbrances except Permitted Encumbrances, as defined in
the Reimbursement Agreement, making from time to time all necessary repairs,
renewals and replacements. The Borrower may, at its expense, make any additions,
modifications or improvements to the Facility that it may deem desirable for its
efficient operation as a manufacturing facility and that do not substantially
impair the revenue producing capability of the Facility, provided that all such
additions, modifications or improvements are located wholly on the Land and
comply with all Federal, state and local codes as applied to the Facility. All
such renewals, replacements, additions, modifications and improvements shall
become part of the Facility.
The Borrower shall (a) use, maintain and operate the Facility as a
manufacturing facility; (b) comply with all laws, rules and regulations of any
governmental body applicable to the condition and operation of the Facility,
whether existing or later enacted or foreseen or unforeseen and whether
involving any change in governmental policy or requiring structural or other
changes to the Facility; (c) neither commit nor suffer others to commit a
nuisance in or about the Facility, except with respect to the Environmental
Matter, for which the Borrower is not responsible; and (d) provide at its own
cost and expense, to the extent not included within the Facility, the other
personal property required for the proper use, maintenance and operation of the
Facility in an economical and efficient manner.
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Section 5.2 Inspection of Facility and Borrower's Books and Records. The
Authority and its duly authorized representatives and agents shall have such
reasonable rights of access to the Facility during normal business hours as may
be necessary to determine whether the Borrower is in compliance with the
requirements of the Basic Documents and shall have the right at all reasonable
times and upon reasonable prior notice to the Borrower to examine and copy the
books and records of the Borrower insofar as such books and records relate to
the Facility. The Authority shall not be deemed to have any duty to inspect the
Facility and the books and records related thereto or to have any obligation to
take any actions with respect to any of its findings upon such inspection.
ARTICLE VI
Governmental Charges and Insurance
Section 6.1 Governmental Charges. The Borrower shall pay when due
Governmental Charges. The Borrower, however, at its expense and in its name, may
contest in good faith any Governmental Charges. In the event of such a contest,
the Borrower may permit the same to remain unpaid during the period of the
contest and any subsequent appeal, so long as such nonpayment is otherwise
permitted by applicable law.
Section 6.2 Insurance. The Borrower shall continuously maintain insurance
against such risks as are customarily insured against by businesses similar in
size and character to the Facility, paying when due all premiums with respect
thereto; provided, however, that during any Letter of Credit Period, compliance
with the insurance requirements of the Reimbursement Agreement then in effect
shall be deemed compliance with this Section and Section 6.3.
Section 6.3 Requirements of Policies. All insurance required by Section 6.2
shall be maintained with generally recognized responsible insurance companies
qualified to do business in the Commonwealth of Virginia and selected by the
Borrower. Such insurance may be written with deductible amounts comparable to
those on similar policies carried by other businesses of like size and character
to the Facility. In each policy, other than policies of worker's compensation
insurance, the Authority and the Trustee shall be named as insureds, additional
insureds or loss payees, as appropriate, as their interests may appear.
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ARTICLE VII
Damage, Destruction or Condemnation
Section 7.1 Parties to Give Notice. In case of (i) any damage to, or
destruction of, any material part of the Facility, (ii) a taking of all or any
material part of the Facility or any right thereunder under the exercise of the
power of eminent domain, (iii) any loss of all or any material part of the
Facility because of failure of title or (iv) the commencement of any proceedings
or negotiations which might result in such a taking or loss, the Borrower shall
give prompt notice thereof to the Authority, the Letter of Credit Issuer, if
any, and the Trustee describing generally the nature and extent of such damage,
destruction, taking, loss, proceedings or negotiations.
Section 7.2 Damage and Destruction. Unless Payment of the Bonds has
occurred or the Borrower has provided for the redemption of all of the Bonds
pursuant to an optional redemption, in accordance with Section 405(b) of the
Indenture, if all or any part of the Facility is destroyed or damaged by fire or
other casualty, then the Borrower shall restore promptly the property damaged or
destroyed to substantially the same condition as before such damage or
destruction, with such alterations and additions as the Borrower may determine
and which will not impair the capacity or character of the Facility for the
purpose for which it then is being used or is intended to be used. Any Net
Proceeds paid to the Trustee shall be deposited in a sub-account of the Bond
Fund created for this purpose. The Borrower may apply so much as may be
necessary of the Net Proceeds of insurance received on account of any such
damage or destruction to payment of the cost of such restoration, either on
completion or as the work progresses but only after delivery to the Trustee and
the Letter of Credit Issuer of a certificate or certificates from the Borrower
containing such information regarding the restoration as the Trustee and the
Letter of Credit Issuer may reasonably require. If such Net Proceeds are not
sufficient to pay in full the cost of such restoration, then the Borrower shall
pay so much of the cost as may be in excess of such Net Proceeds. Any balance of
Net Proceeds held by the Trustee, after payment of the cost of such restoration
shall be deposited in a separate segregated sub-account in the Bond Fund,
invested in accordance with Section 801 of the Indenture and used by the Trustee
to redeem Bonds in accordance with Section 405(b) of the Indenture. The Borrower
hereby agrees that it will direct the optional redemption required by the
preceding sentence.
Section 7.3 Condemnation and Loss of Title. Unless Payment of the Bonds has
occurred or the Borrower has provided for the redemption of all of the Bonds
pursuant to an optional
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redemption in accordance with Section 405(b) of the Indenture, if title to, or
the temporary use of, all or any part of the Facility shall be taken under the
power of eminent domain or lost because of failure of title, then the Borrower
shall cause the Net Proceeds from any such condemnation award or from title
insurance to be paid over to the Trustee to be held by it in a sub-account of
the Bond Fund to be created for such purpose and applied to the restoration of
the Facility to substantially its condition before the exercise of such power of
eminent domain or failure of title but only upon delivery to the Trustee and the
Letter of Credit Issuer of a certificate or certificates from the Borrower to
contain such information as the Trustee and the Letter of Credit Issuer may
reasonably require. Any balance of Net Proceeds remaining after payment of the
cost of such restoration shall be deposited in a separate segregated sub-account
in the Bond Fund, invested in accordance with Section 801 of the Indenture and
used by the Trustee to redeem Bonds in accordance with Section 405(b) of the
Indenture. The Borrower hereby agrees that it will direct the optional
redemption required by the preceding sentence.
Section 7.4 Provisions of Reimbursement Agreement with Letter of Credit
Issuer During Letter of Credit Period. If, during the Letter of Credit Period,
the provisions of this Article VII and the provisions of the Reimbursement
Agreement are in conflict, then the provisions of the Reimbursement Agreement
shall control.
ARTICLE VIII
Special Covenants
Section 8.1. Use of Proceeds; Other Matters with Respect to Project, Bonds
and Tax Exemption. (a) Use of Proceeds; Prohibited Uses of Facility, etc.
Neither the Authority knowingly nor the Borrower shall cause any proceeds of the
Bonds to be expended except pursuant to the Indenture. The Borrower shall not
(i) requisition or otherwise allow any payment out of proceeds of the Bonds (A)
if such payment is to be used for the acquisition of any property (or an
interest therein) unless the first use of such property is pursuant to such
acquisition, provided that this clause (A) shall not apply to any building if
the "rehabilitation expenditures", as defined in Section 147(d) of the Code,
with respect to the building equal or exceed 15% of the portion of the cost of
acquiring the building financed with the proceeds of the Bonds, (B) if as a
result of such payment, 25% or more of the proceeds of the Bonds would be
considered as having been used directly or indirectly for the acquisition of
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land (or an interest therein), (C) if, as a result of such payment, less than
95% of the net proceeds of the Bonds, expended at the time of such requisition
would be considered as having been used for costs of the acquisition,
construction or improvement of land or property of a character subject to the
allowance for depreciation and for a "manufacturing facility," all within the
meaning of Section 144(a)(1)(A) of the Code ("Qualifying Costs") or (D) if such
payment is used to pay issuance costs (including counsel fees and placement
fees) in excess of an amount equal to 2% of the principal amount of the Bonds;
(ii) take or omit, or permit to be taken or omitted, any other action with
respect to the use of such proceeds the taking or omission of which would result
in the loss of exemption of interest on the Bonds from Federal income taxation
under Section 103(a) of the Code; or (iii) take or omit, or permit to be taken
or omitted, any other action the taking or omission of which would cause the
loss of such exemption. Without limiting the generality of the foregoing,
neither the Authority knowingly nor the Borrower shall use the proceeds of the
Bonds, or permit such proceeds to be used directly or indirectly, for the
acquisition of land (or an interest therein) to be used for farming purposes, or
to provide (x) any facility the primary purpose of which is retail food and
beverage services, automobile sales and service, the provision of recreation or
entertainment, or banks, savings and loan institutions or mortgage companies,
(y) any airplane, skybox or other private luxury box, any health club facility,
any facility primarily used for gambling, any store the principal business of
which is the sale of alcoholic beverages for consumption off premises, any
private or commercial golf course, country club, massage parlor, tennis club,
skating facility (including roller skating, skateboard and ice skating), racquet
sports facility (including any hand ball or racquet ball court), hot tub
facility, suntan facility, or race track, or (z) single or multi-family
residences. Any proceeds used for office space is for office space located at
the Project and all of the functions performed at such office are directly
related to the day-to-day operations at the Project. Those portions of the
Project that are "directly related and ancillary" to the manufacturing
operations are located at the same site as the manufacturing operations, and not
more than twenty-five percent (25%) of the net proceeds of the Bonds are to be
used to provide such facilities.
(b) Average Maturity and Economic Life. The Borrower shall not request,
approve or permit to be approved on its behalf any payment of Bond Proceeds if,
as a result of such payment, the "average maturity" of the Bonds would exceed
120 percent of the "average reasonably expected economic life" of the Project,
within the meaning of Section 147(b) of the Code.
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(c) Use by United States or its Agencies. The Borrower shall not permit the
Facility to be used or occupied, other than as a member of the general public,
in any manner for compensation by the United States or an agency or
instrumentality thereof, including any entity with statutory authority to borrow
from the United States (in any case within the meaning of Section 149(b) of the
Code) unless the Borrower shall deliver to the Trustee and the Letter of Credit
Issuer, if any, an opinion of Bond Counsel in form and substance satisfactory to
the Trustee and the Letter of Credit Issuer to the effect that such use will not
impair the exemption of interest on the Bonds from Federal income taxation.
(d) Other Bonds to be Issued. During the period commencing on the Closing
Date and ending 15 days thereafter, there shall be issued no "private activity
bonds", as defined in Section 141 of the Code, which are guaranteed or otherwise
secured by payments to be made by the Borrower or any "related person" (or
groups of "related persons") unless the Borrower shall deliver to the Trustee
and the Letter of Credit Issuer, if any, an opinion of Bond Counsel in form and
substance satisfactory to the Trustee and the Letter of Credit Issuer to the
effect that the issuance of such "private activity bonds" will not impair the
exemption of interest on the Bonds from federal income taxation. Except for the
Borrower, the Letter of Credit Issuer and the Remarketing Agent, or any "related
person" (or group of "related persons"), no person has (i) guaranteed, arranged,
participated in, assisted with or paid any portion of the cost of the issuance
of, the Bonds, or (ii) provided any property or any franchise, trademark or
trade name (within the meaning of Section 1253 of the Code) which is to be used
in connection with the Project.
(e) Limit on Amount of Bonds. The Borrower represents that on the date of
issuance of the Bonds, (i) obligations have not been assumed, expenditures have
not been made and outstanding obligations do not exist that will cause the
"aggregate face amount" of the Bonds as computed under the provisions of Section
144(a) and related sections of the Code to exceed $1,000,000, and (ii)
outstanding obligations do not exist that will cause the "aggregate face amount"
of the Bonds allocated to any "test-period beneficiary," as defined in Section
144(a)(10) of the Code, when increased by such obligations, to exceed
$40,000,000. The "aggregate authorized face amount" of the Bonds allocated to
any "test period beneficiary" (as defined in Section 144(a)(10) of the Code) of
the Project, when increased by the outstanding "tax-exempt facility related"
bonds allocated to such test period beneficiary, does not exceed $40,000,000.
The Borrower covenants that the Borrower will not allow any person or entity
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to become a test period beneficiary of the facilities financed by the Bonds, if
such act would cause such $40,000,000 limit to be exceeded, as provided in
Section 144(a)(10) of the Code.
(f) Tax Information; 8038 Form. The Borrower hereby represents and warrants
that the information that is provided by the Borrower that is contained in the
certificates, agreements or letters of representation of the Borrower with
respect to the compliance with the requirements of Section 103 of the Code,
including the information in Form 8038 (excluding the issue number and the
employer identification number of the Authority), filed by the Authority with
respect to the Bonds and the Project, is true and correct in all material
respects.
Section 8.2 Arbitrage and Rebate.
(a) The Borrower hereby covenants with, and certifies to, and for the
benefit of, the holders of the Bonds and the Authority that so long as the Bonds
remain Outstanding, moneys on deposit in any fund or account established,
maintained or permitted to be established or maintained under the Indenture or
under any of the Basic Documents in connection with the Bonds, whether or not
such moneys were derived from the proceeds of the sale of the Bonds or from any
other source, will not be used or invested in a manner which will cause the
Bonds to be classified as "arbitrage bonds" within the meaning of Section 148(a)
of the Code. The Borrower obligates itself to comply with the requirements of
Section 148 of the Code and any regulations, whether temporary or final,
promulgated thereunder or relating thereto, including but not limited to
Treasury Regulation Sections 1.148-0 through 1.148-11 (such Section 148 and such
regulations hereinafter referred to as the "Arbitrage Rules").
(b) Except with respect to earnings on funds and accounts qualifying for an
exception to the rebate requirement of Section 148 of the Code, the Borrower
will compute and pay to the United States of America the amount, if any,
required by Section 148(f)(2) of the Code (the "Rebate Amount"), as provided in
the following subsections of this section.
(c) The Authority, at the direction of the Borrower, selects June 1 as the
end of each bond year with respect to the Bonds. The fifth June 1 following the
issuance of the Bonds will be the initial installment computation date for the
Bonds pursuant to Treasury Regulations Section 1.148-3(e) (the "Initial
Installment Computation Date"), unless the Authority, at the direction of the
Borrower, delivers to the Trustee a certificate, signed by an authorized
Authority officer, selecting another date to be the installment computation date
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prior to the date on which any amount with respect to the Bonds is paid or
required to be paid to the United States of America as required by Section 148
of the Code.
(d) Within 30 days after the Initial Installment Computation Date, unless
such date is changed by the Authority pursuant to paragraph (c), and at least
once every five years thereafter, the Borrower will cause the Rebate Amount with
respect to the Bonds to be computed and will deliver a copy of such computation
(the "Rebate Amount Certificate") to the Authority and to the Trustee. Prior to
any payment of the Rebate Amount with respect to the Bonds to the United States
of America as required by Section 148 of the Code, the Rebate Amount Certificate
setting forth such Rebate Amount shall be prepared or approved by (i) an
independent certified public accountant, (ii) any recognized, independent
arbitrage rebate calculation service acceptable to the Trustee or the Authority
or (iii) Bond Counsel. The Borrower agrees to keep a record of such
determinations until at least six years after the payment of the Bonds in full.
(e) Not later than 55 days after the Initial Installment Computation Date,
the Borrower, on behalf of the Authority, shall pay to the Trustee for deposit
in the Rebate Fund and payment to the United States of America 90% of the Rebate
Amount with respect to the Bonds as set forth in the Rebate Amount Certificate
prepared with respect to the Initial Installment Computation Date. At least once
on or before 55 days after the installment computation date that is the fifth
anniversary of the Initial Installment Computation Date and on or before 55 days
after every fifth anniversary date thereafter until payment in full of the
Bonds, the Borrower, on behalf of the Authority, shall pay to the Trustee for
deposit in the Rebate Fund and payment to the United States of America the
amount, if any, by which 90% of the Rebate Amount with respect to the Bonds set
forth in the most recent Rebate Amount Certificate exceeds the aggregate of all
such payments theretofore made to the United States of America pursuant to this
section. On or before 55 days after payment in full of the Bonds, the Borrower,
on behalf of the Authority, shall pay to the Trustee for deposit in the Rebate
Fund and payment to the United States of America the amount, if any, by which
100% of the Rebate Amount with respect to the Bonds set forth in the Rebate
Amount Certificate for the date of payment of the Bonds exceeds the aggregate of
all payments theretofore made pursuant to this Section. The Borrower shall file
such forms in connection with such rebate payments as may be required by the
Internal Revenue Service.
(f) Notwithstanding anything contained herein to the contrary, no such
payment will be made if the Borrower receives
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and delivers to the Authority and the Trustee an opinion of Bond Counsel that
such payment is not required under the Code to prevent the Bonds from becoming
"arbitrage bonds" within the meaning of Section 148 of the Code.
(g) The Authority shall not be liable to the Borrower by way of
contribution, indemnification, counterclaim, set-off or otherwise for any
payment made or expense incurred by the Borrower pursuant to this Section,
notwithstanding that payments to the Authority pursuant to this Section or
investment by the Trustee of such payments may result in whole or in part in the
Borrower's liability for such payment or expense.
NOTHING CONTAINED HEREIN SHALL BE INTERPRETED OR CONSTRUED TO REQUIRE THE
AUTHORITY OR THE TRUSTEE TO CALCULATE OR TO PAY THE "REBATE AMOUNT," SAME BEING
THE SOLE AND EXCLUSIVE RESPONSIBILITY AND OBLIGATION OF THE BORROWER.
Section 8.3 Reports. The Borrower agrees that the Authority shall not be
required to prepare any documents or reports that may be required to be prepared
under the Basic Documents and that the Authority shall not be responsible for
the content thereof or any costs associated therewith. The Authority agrees that
it will execute such reports as needed and file with the Internal Revenue
Service any forms or other documents that are required to be filed with the
Internal Revenue Service.
Section 8.4 Compliance with Tax Laws. The Borrower will at its sole expense
take all action required under the Code, including but not limited to Section
148 of the Code, to prevent loss of the exclusion of interest on the Bonds from
gross income for federal income tax purposes under federal income tax law,
including but not limited to paying on behalf of the Authority the Rebate Amount
to the United States of America in accordance with the "rebate requirement"
described in Section 1.148-2 of the Treasury Regulations, and complying with the
requirements of Section 708 of the Indenture, including making the calculations
and deposits required therein. The Borrower agrees that it will comply with all
provisions of the Tax Compliance Agreement. The Borrower and the Authority agree
that the representations, warranties and covenants contained in the Tax
Compliance Agreement are hereby incorporated into this Agreement by reference
and made a part hereof. The Borrower agrees that the Letter of Credit Account
and the Payments Account of the Bond Fund and the Reimbursement Account in the
Reimbursement Agreement will be used primarily to achieve a proper matching of
revenues and debt service within each Bond Year and will be depleted at least
once a year, except for a reasonable carryover not to exceed the greater of (A)
one year's earnings on such
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accounts or (B) one-twelfth (1/12th) of the most recent annual debt service on
the Bonds.
Section 8.5 Indemnification by Borrower. The Borrower shall indemnify and
save harmless the Authority and the Trustee and their respective officers,
directors, employees and agents (hereinafter the "Indemnitees") from and against
all liabilities, obligations, claims, damages, penalties, fines, losses, costs
and expenses (hereinafter referred to as "Damages"), including without
limitation:
(a) all amounts paid in settlement of any litigation commenced or
threatened against the Indemnitees, if such settlement is effected with the
written consent of the Borrower;
(b) all expenses reasonably incurred in the investigation of, preparation
for or defense of any litigation, proceeding or investigation of any nature
whatsoever, commenced or threatened against the Borrower, the Facility or the
Indemnitees;
(c) any judgments, penalties, fines, damages, assessments, indemnities or
contributions; and
(d) the reasonable fees of attorneys, auditors, and consultants; provided
that in all cases (a) through (d) the Damages arise out of:
(i) failure by the Borrower, or its officers, directors, employees or
agents, to comply with the terms of the Basic Documents and any agreements,
covenants, obligations, or prohibitions set forth therein;
(ii) any action, suit, claim or demand contesting or affecting the
title of the Facility;
(iii) any breach by the Borrower of any representation or warranty set
forth in the Basic Documents or any certificate delivered pursuant thereto,
and any claim that any representation or warranty of the Borrower contains
or contained any untrue or misleading statement of fact or omits or omitted
to state any material facts necessary to make the statements made therein
not misleading in light of the circumstances under which they were made;
(iv) any action, suit, claim, proceeding or investigation of a
judicial, legislative, administrative or regulatory nature arising from or
in connection with the construction, acquisition, ownership, operation,
occupation or use of the Facility; or
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(v) any suit, action, administrative proceeding, enforcement action,
or governmental or private action of any kind whatsoever commenced against
the Borrower, the Facility or the Indemnitees which might adversely affect
the validity or enforceability of the Bonds, the Basic Documents, or the
performance by the Borrower or any Indemnitee of any of their respective
obligations thereunder.
If any action or proceeding (including any governmental investigation)
shall be brought or asserted against any Indemnitee, then such Indemnitee shall
promptly notify the Borrower in writing, and the Borrower shall assume the
defense thereof, including the employment of counsel satisfactory to such
Indemnitee and the payment of all expenses. Such Indemnitee shall have the right
to employ separate counsel in any such action and to participate in the defense
thereof, but the reasonable fees and expenses of its counsel shall be the
expense of such Indemnitee unless (i) the Borrower has agreed to pay such
reasonable fees and expenses, (ii) the Borrower shall have failed to assume the
defense of such action or proceeding and employed counsel satisfactory to such
Indemnitee in any such action or proceeding, or (iii) the Indemnitee shall have
been advised by counsel that there may be one or more legal defenses available
to him or it which are different from, or additional to, those available to the
Borrower, in which case, if the Indemnitee notifies the Borrower in writing that
such person elects to employ separate counsel at the expense of the Borrower,
the Borrower shall not have the right to assume the defense of the action or
proceeding on behalf of such Indemnitee, it being understood, however, that the
Borrower shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for any Indemnitee. The Borrower shall not be liable for
any settlement of such action or proceeding effected without its written
consent, but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such action or proceeding, the Borrower agrees
to indemnify and hold harmless the Indemnitee from and against any loss or
liability by reason of such settlement or judgment.
Nothing contained herein shall require the Borrower to indemnify any
Indemnitee for any claim or liability resulting from its or their gross
negligence (as to the Trustee and its officers, directors employees and agents,
under the standard of care set forth in the Indenture and as to the Authority
and its officers, directors, employees and agents, gross negligence) or its or
their willful, wrongful acts.
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Section 8.6 Payment of Expenses. The Borrower covenants to pay, either from
the proceeds of the Bonds (subject to the limitation on issuance costs set forth
in Section 601(b) of the Indenture) or from its own funds, within thirty (30)
days after receiving written demand therefor, an amount sufficient to pay the
following costs and expenses, including counsel fees, incurred by the Authority,
the Trustee and other parties described below as a result of actions taken
pursuant to the financing contemplated by this Agreement:
(a) All costs, fees and expenses incurred by the Authority (including
attorney's fees) in connection with:
(i) the authorization, issuance and sale of the Bonds;
(ii) the ownership, occupation, operation or use of the Facility,
whether owned by the Authority or the Borrower; and
(iii) prepayment or redemption of the Bonds.
(b) Administrative costs and expenses of the Authority, including the fees
of attorneys, accountants, engineers, appraisers or consultants, paid or
incurred by the Authority by reason of the Bonds being Outstanding or pursuant
to requirements of the Basic Documents.
(c) Such other fees and expenses of the Authority, not directly related to
the Facility, but attributable to the Authority's financing of industrial or
commercial projects, including without limitation, a share of costs of the
Authority's annual audit as required by the Act, determined as follows:
(i) All costs and fees relating to the annual audit and directly
attributable to a particular applicant or project shall be charged to such
applicant; and
(ii) Any costs and fees of such audit not directly attributable to any
applicant or project shall be allocated among all applicants having bonds
outstanding, pro rata, as the amount of bonds originally issued for such
applicant bears to the total face amount of bonds issued by the Authority
of which any portion of any issue remains outstanding and unpaid.
(d) Such other of the Authority's ordinary and extraordinary general,
administrative and operating costs and expenses incurred during each year. The
Borrower's proportionate share of said costs will be the percentage which the
unpaid principal amount of the Bonds outstanding bears to the aggregate unpaid
principal amount of all notes and bonds issued by the
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Authority and outstanding at the time the costs and expenses are billed or
incurred, as the case may be.
(e) All costs, fees and expenses of the Remarketing Agent and its counsel,
the Trustee and its counsel, and Bond Counsel, and all other costs, fees and
expenses incident to the issuance of the Bonds and the financing of the Project.
(f) All costs, fees and expenses of surveyors, engineers, architects,
appraisers and accountants employed to make examinations or reports or to render
opinions required by the Basic Documents.
(g) All costs, fees and other costs payable to the Trustee for services or
indemnity under the Indenture.
(h) All costs incurred in connection with the redemption or purchase of the
Bonds.
(i) All amounts which are advanced by the Authority or the Trustee under
the authority of this Agreement or the Indenture for the benefit of the
Borrower.
(j) All costs of collection and enforcement, including reasonable
attorneys' fees, incurred by the Authority or the Trustee in connection with
obtaining payment of the Bonds or payment of any other amounts or performance by
the Borrower under the Basic Documents.
(k) Any other payments required to be made pursuant to the Basic Documents.
Payments pursuant to this Section shall be made by the Borrower directly to
the persons, firms or governmental agencies entitled to such payments, or, at
the direction of the Authority or the Trustee, to the Authority or the Trustee
as reimbursement therefor. Notwithstanding anything to the contrary herein, the
aggregate amounts paid to the Authority shall not equal or exceed an amount that
would cause the "yield" on this Agreement to be "materially higher" than the
yield on the Bonds, as such terms are used in the Code.
Section 8.7 Approval of Indenture. The Borrower approves the terms and
conditions of the Indenture and agrees to perform all obligations to be
performed by it under the Indenture.
Section 8.8 Right to Purchase Tendered Bonds. On any Tender Date, the
Borrower shall have the right to elect to purchase Bonds tendered on a Tender
Date by paying to the Trustee for deposit in the Bond Purchase Account Eligible
Funds (or funds
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which will be Eligible Funds on the Tender Date in question) to be used and
applied to the purchase of Bonds on a Tender Date in accordance with Section 404
of the Indenture. Notwithstanding any purchase of Bonds pursuant to this
Section, the Borrower shall continue to be obligated to make deposits into the
Bond Fund of amounts sufficient to pay when due the principal and redemption
price of, and interest on, and purchase price of, the Bonds in accordance with
Section 4.1.
Section 8.9 Notice of Act of Bankruptcy. The Borrower agrees promptly to
notify the Authority, the Trustee and, during the Letter of Credit Period, the
Letter of Credit Issuer of the occurrence of an Act of Bankruptcy with respect
to it or if it becomes aware of an Act of Bankruptcy with respect to the
Authority.
ARTICLE IX
Events of Default and Remedies
Section 9.1 Event of Default Defined. Each of the following events, upon
its occurrence and the expiration of the applicable grace period, is hereby
declared an Event of Default:
(a) Failure of the Borrower to make any payment under Section 4.1 when the
same becomes due and payable, and the continuation of such failure for ten (10)
days;
(b) Failure of the Borrower to observe or perform any of its other
covenants, conditions or agreements hereunder for a period of thirty (30) days
after notice specifying such failure and requesting that it be remedied, given
by the Authority, the Trustee or the Letter of Credit Issuer, if any, to the
Borrower; provided, however, that in the instance of any default which by its
nature can be cured but is not susceptible of being cured within such thirty
(30) day period, then it shall not constitute an Event of Default if the
Borrower commences the cure within such thirty (30) day period and thereafter
prosecutes the same with due diligence to conclusion;
(c) The occurrence of an Act of Bankruptcy;
(d) An Event of Default under the Indenture; or
(e) If during the Letter of Credit Period, receipt by the Authority and the
Trustee of written notice from the Letter of Credit Issuer stating that an Event
of Default has occurred under the Reimbursement Agreement and demanding that the
Bonds be declared immediately due and payable.
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Section 9.2 Remedies on Default. Upon the occurrence of an Event of Default
under the Agreement, the Authority or the Trustee, as assignee of the Authority,
but only if acceleration of the principal amount of the Bonds has been declared
pursuant to the Indenture, shall take any one or more of the following remedial
steps:
(a) Declare all payments hereunder to be immediately due and payable in the
amount sufficient to pay all the principal of and interest on, and all other
amounts payable under the terms of the Bonds, whereupon the same shall become
immediately due and payable without notice or demand of any kind;
(b) Take whatever action at law or in equity as may appear necessary or
desirable to collect the amounts then due and thereafter to become due or to
enforce observance, or performance of any covenants, conditions or agreements of
the Borrower in this Agreement or any of the Basic Documents;
(c) Exercise any remedy afforded a secured party under the UCC then in
effect, to the extent that property subject to this Agreement or any other Basic
Document is property subject to the UCC;
(d) Exercise any remedy provided in the Basic Documents; or
(e) Draw upon the Letter of Credit, if any.
The Authority or the Trustee shall give notice to the Borrower, the
Remarketing Agent and the Letter of Credit Issuer, if any, of the exercise of
any of the rights or remedies under this Section.
Any balance of the moneys collected pursuant to action taken under this
Section remaining after payment of all costs and expenses of collection and
amounts due hereunder shall be used for the Payment of the Bonds; provided that
after Payment of the Bonds any such balance shall be paid to the Borrower or to
the Letter of Credit Issuer, if any, if at the time the Letter of Credit Issuer
is entitled to the benefits of the Indenture inasmuch as it has been subrogated
to the rights of the Trustee thereunder.
Section 9.3 No Remedy Exclusive. No remedy herein conferred upon or
reserved to the Authority or the Trustee is intended to be exclusive of any
other remedy, and every remedy shall be cumulative and in addition to every
other remedy herein or now or hereafter existing at law, in equity or by
statute. No delay or failure to exercise any right or power accruing upon an
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Event of Default shall impair any such right or power or shall be construed to
be a waiver thereof, and any such right or power may be exercised from time to
time and as often as may be deemed expedient.
Section 9.4 Attorneys' Fees and Other Expenses. The Borrower shall on
demand pay to the Authority and the Trustee the reasonable fees of attorneys and
other reasonable expenses incurred by any of them in the collection of payments
hereunder or the enforcement of any other obligations of the Borrower upon an
Event of Default.
Section 9.5 No Additional Waiver Implied by One Waiver. If either party or
its assignee waives a default by the other party under any covenant, condition
or agreement herein, such waiver shall be limited to the particular breach
hereunder.
ARTICLE X
Miscellaneous
Section 10.1 Successors and Assigns. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the parties and their respective
successors and assigns. No assignment by the Borrower shall relieve it of its
obligations under this Agreement.
Section 10.2 Amendments. This Agreement may not be amended except by an
instrument in writing signed by the parties and consented to by the Trustee
pursuant to Article XIII of the Indenture. The Borrower agrees that no amendment
to any of the Basic Documents shall be effective without the prior written
consent of the Trustee in accordance with the terms of the Indenture and, during
the Letter of Credit Period, the Letter of Credit Issuer.
Section 10.3 Exculpation of Authority. Notwithstanding anything in the
Bonds or the Basic Documents to the contrary, the obligations of the Authority
are not general obligations of the Authority, but are limited obligations
payable solely from the Revenues which are specifically pledged for such
purpose. Neither the Bonds nor the Basic Documents shall be deemed to create or
constitute a debt or a pledge of the faith and credit of the Commonwealth of
Virginia or any political subdivision thereof, including the County and the
Authority. Neither the Commonwealth of Virginia nor any political subdivision
thereof, including the County and the Authority is obligated to pay the Bonds or
the redemption price or purchase price thereof or the interest or premium, if
any, thereon or other costs incident
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thereto except from the special funds pledged therefor and the property pledged
or mortgaged therefor. No present or future director, member, officer, employee
or agent of the Authority, or any successor or assignee of any of the foregoing,
shall be liable personally with respect to this Agreement or for any other
action taken by such individual pursuant to or in connection with the financing
provided for in this Agreement. The Authority shall be protected in acting upon
any notice, request, requisition, consent, certificate or other writing
reasonably believed by it to be genuine and correct and to have been signed or
sent by the proper person or persons.
Section 10.4 Applicable Law. This Agreement shall be governed by the
applicable laws of the Commonwealth.
Section 10.5 Severability. If any clause, provision or section of this
Agreement shall be held illegal or invalid by any court, the illegality or
invalidity of such clause, provision or section shall not affect the remainder
of this Agreement which shall be construed and enforced as if such illegal or
invalid clause, provision or section had not been contained in this Agreement.
If any agreement or obligation contained in this Agreement is held to be in
violation of law, then such agreement or obligation shall be deemed to be the
agreement or obligation of the Authority and the Borrower, as the case may be,
only to the extent permitted by law.
Section 10.6 Notices. Unless otherwise provided for herein, all demands,
notices, approvals, consents, requests, opinions, and other communications
hereunder shall be in writing and shall be deemed to have been given if given in
accordance with the provisions of Section 1405 of the Indenture.
Section 10.7 Agreements to Survive. The representations, warranties,
covenants, terms and agreements contained in this Agreement shall survive the
execution and delivery of the Bonds and the Basic Documents.
Section 10.8 Right to Cure Default. If the Borrower shall fail to make any
payment or to perform any act required of it under the Bonds or the Basic
Documents, the Authority, the Letter of Credit Issuer, if any, or the Trustee,
without prior notice to or demand upon the Borrower and without waiving or
releasing any obligation or default, may (but shall be under no obligation to)
make such payment or perform such act. All amounts so paid by the Authority, the
Letter of Credit Issuer or the Trustee and all costs, fees and expenses,
including but not limited to attorneys' fees, so incurred shall be secured by
the Basic Documents and shall be payable by the Borrower to the party making the
payment or incurring the cost, fee or expense as an additional obligation
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under the Basic Documents, together with interest thereon at a per annum rate
equal to the Prime Rate as in effect from time to time plus one percent (1%)
until paid. The Borrower's obligation under this Section shall survive Payment
of the Bonds.
Section 10.9 No Joint Venture. Nothing in this Agreement shall be construed
as making any party a partner or joint venturer with any other party.
Section 10.10 Headings. The headings of the several articles and sections
of this Agreement are inserted for convenience only and do not comprise a part
of this Agreement.
Section 10.11 Term of Agreement. This Agreement shall be effective upon its
execution and delivery, provided that the Bonds and the other Basic Documents
previously or simultaneously have been executed and delivered. Except as
otherwise specified, the Borrower's obligations under the Bonds and the Basic
Documents shall expire upon Payment of the Bonds and all other amounts payable
by the Borrower under the Basic Documents.
Section 10.12 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which together shall
constitute but one and the same instrument, except that to the extent, if any,
that this Agreement shall constitute personal property under the UCC, no
security interest in this Agreement may be created or perfected through the
transfer or possession of any counterpart other than an original counterpart,
which shall be the counterpart containing the receipt therefor, executed by the
Trustee following the signatures to this Agreement.
Section 10.13 Trustee as Assignee and Third Party Beneficiary. The rights
of the Authority under this Agreement (except for certain rights to notices and
to payment of fees and expenses and indemnification contained in Section 8.5 and
8.6) are to be assigned to the Trustee. The Borrower consents to such assignment
and agrees that the Trustee shall be entitled to enforce this Agreement directly
against the Borrower as a third party beneficiary hereof.
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IN WITNESS WHEREOF, the Authority and the Borrower have caused this
Agreement to be executed in their respective names by their duly authorized
representatives, all as of the date first above written.
INDUSTRIAL DEVELOPMENT AUTHORITY
OF MECKLENBURG COUNTY, VIRGINIA
By _______________________________
Its Vice Chairman
SHERWOOD FOODS, INC.
By /s/ Anat Schwartz
---------------------
Its Vice President
[Seal]
ATTEST:
By
------------------------------------
Secretary
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RECEIPT
Receipt of the foregoing original counterpart of the Loan Agreement, dated
as of June 1, 1996, between the Industrial Development Authority of Mecklenburg
County, Virginia, and Sherwood Foods, Inc., is hereby acknowledged.
CRESTAR BANK, as Trustee
June __, 1996 By _______________________________
Its Authorized Officer
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IRREVOCABLE LETTER OF CREDIT
June 20, 1996
Irrevocable Letter of Credit No. SBO12845
Crestar Bank, as Trustee
Attention: Corporate Trust Bond Department
919 East Main Street
Richmond, Virginia 23219
Ladies and Gentlemen:
At the request and instruction of our customer, Sherwood Foods, Inc. (the
"Borrower"), we hereby establish, for the account of the Borrower, in your favor
as Trustee under an Indenture of Trust dated as of June 1, 1996 (the
"Indenture"), between the Industrial Development Authority of Mecklenburg
County, Virginia, a political subdivision of the Commonwealth of Virginia (the
"Authority"), and you as Trustee, pursuant to which the Authority issued its
Variable Rate Demand Revenue Bonds (Sherwood Foods, Inc. Project), Series 1996
(the "Bonds"), our Irrevocable Letter of Credit in the initial amount of Nine
Hundred Fifty Thousand Eight Hundred Eighty Three Dollars ($950,883.00)
(hereinafter, as reduced or reinstated from time to time in accordance with the
provisions hereof, the "Stated Amount"). This Letter of Credit is issued
pursuant to a Reimbursement Agreement dated as of June 1, 1996 (the
"Reimbursement Agreement"), between us and the Borrower.
Of the Stated Amount, (a) up to Nine Hundred Thirty Five Thousand Dollars
($935,000.00) (the "Principal Portion") may be drawn at any time and from time
to time with respect to (i) the purchase of Bonds for the Borrower's account or
(ii) amounts due as principal of the Bonds, whether at maturity or upon
acceleration or call for redemption; and (b) up to Fifteen Thousand Eight
Hundred Eighty Three Dollars ($15,883.00) (the "Interest Portion") may be drawn
at any time and from time to time with respect to payment of up to 62 days'
accrued interest on the Bonds on or prior to the stated maturity date of the
Bonds, provided, however, that any amount drawn with respect to interest may not
exceed the actual amount of unpaid interest accrued and to accrue on the Bonds
to the time the drawing is made.
CONTINUED ON PAGE 2, AN INTEGRAL PART OF THIS LETTER OF CREDIT
<PAGE>
AN INTEGRAL PART OF DOCUMENTARY CREDIT No. SBO12845
EXPIRATION
This Letter of Credit shall expire at 5:00 P.M., Richmond, Virginia time
(hereinafter referred to as "Eastern Time"), on June 10, 2006. Notwithstanding
the foregoing, this Letter of Credit shall expire earlier than such date upon
the first to occur of (a) the date of receipt by us of notice from the Trustee
that an acceptable alternate Letter of Credit (as defined in the Indenture) has
been accepted by the Trustee in substitution for this Letter of Credit, which
notice shall be in substantially the form of Annex E hereto; (b) the date on
which we honor a drawing or drawings with respect to payment of principal of and
interest on the Bonds pursuant to any payment, prepayment, acceleration or
redemption of the Bonds in full, in which event this Letter of Credit shall
expire immediately after we honor such drawing or drawings; (c) the date on
which the Indenture is discharged; and (d) 15 days after delivery to you of
notice that an Event of Default under the Reimbursement Agreement has occurred,
with instructions to you to accelerate the Bonds and draw on this Letter of
Credit.
In the event the expiration date of this Letter of Credit, as specified in
the preceding paragraph, is not a Business Day (as hereinafter defined), this
Letter of Credit shall expire at 5:00 P.M., Eastern Time, on the next following
Business Day.
METHOD OF PAYMENT
Funds under this Letter of Credit are available to you against your sight
draft(s) drawn on us, stating on their face, "Drawn under Central Fidelity
National Bank, Irrevocable Letter of Credit No. SBO12845" and accompanied by
your written certificate purportedly signed by your authorized officer,
appropriately completed, in the form of Annex A, B or C hereto, as indicated
below. Presentation of such drafts shall be made at our office located at:
Central Fidelity National Bank
1021 East Cary Street
Richmond, Virginia 23219
Attention: International Division
or at any office in the Commonwealth of Virginia that may be designated by us by
written notice delivered to you and reasonably acceptable to you.
We hereby agree that each draft drawn under and in compliance with the
terms of this Letter of Credit will be duly honored by us upon due delivery of
the certificate, or certificates, and sight draft, as specified below, if
presented as specified below on or before the expiration date hereof:
(1) If a presentation in respect to payment is made by you hereunder at or
prior to 11:00 A.M., Eastern Time, on a Business Day, and provided that the
documents so presented are in the form of appropriate annexes to this Letter of
Credit, payment shall be made to you, or to your designee, of the amount
specified, in immediately available funds, not later than 4:00 P.M., Eastern
Time, on that Business Day.
CONTINUED ON PAGE 3, AN INTEGRAL PART OF THIS LETTER OF CREDIT
<PAGE>
AN INTEGRAL PART OF DOCUMENTARY CREDIT No. SBO12845
(2) If a presentation in respect of payment is made by you hereunder after
11:00 A.M., Eastern Time, on a Business Day, and provided that the documents so
presented are in the form of the appropriate annexes to this Letter of Credit,
payment shall be made to you, or to your designee, of the amount specified, in
immediately available funds, not later than 4:00 P.M., Eastern Time, on the next
succeeding Business Day.
If requested by you, payment under this Letter of Credit may be made by
deposit of immediately available funds into a designated account that you
maintain with us. As used herein, Business Day shall mean any Monday, Tuesday,
Wednesday, Thursday, or Friday on which commercial banking institutions
generally are open for business at the place where our principal offices are
located and on which the New York Stock Exchange is not closed.
DRAWINGS
No drawing may be made hereunder to pay principal of, premium, if any, or
interest on, or the purchase price of, any Bonds (or principal amount of the
Bonds) owned by the Borrower.
Principal Portion Drawings. Drawings under the Principal Portion to pay
principal of the Bonds due to prepayment, redemption, acceleration or maturity
(an "A Drawing") must be accompanied by your appropriately completed written
certificate, signed by your authorized officer, in the form of Annex A hereto.
Drawings under the Principal Portion to purchase Bonds for the Borrower's
account pursuant to Sections 404 and 405(E) of the Indenture or Bonds or
portions of the Bonds that are tendered for purchase pursuant to the Indenture
(a "B Drawing"), must be accompanied by your appropriately completed written
certificate signed by your authorized officer in the form of Annex B hereto.
Interest Portion Drawings. Drawings under the Interest Portion to pay
interest due and payable on the Bonds pursuant to Section 707(a) of the
Indenture (a "C Drawing") must be accompanied by your appropriately completed
written certificate signed by your authorized officer in the form of Annex C
hereto.
REDUCTION OF STATED AMOUNT
In the case of any A Drawing or B Drawing, the Stated Amount shall
automatically be reduced by (a) an amount of the Principal Portion equal to 100%
of the amount of such drawing, and (b) an amount of the Interest Portion equal
to 62 days' interest on the amount of such drawing calculated at an assumed rate
of 10% per annum. In the case of any C Drawing, the Interest Portion shall
automatically be reduced by the amount of such drawing. Upon any reduction in
the Stated Amount resulting from an A Drawing, you shall surrender this Letter
of Credit to us not later than the tenth Business Day following the effective
date of such reduction, whereupon we shall enter the reduction in Stated Amount
and the new Stated Amount on the Schedule of Reduction in Stated Amount attached
hereto and shall return the Letter of Credit to you.
REINSTATEMENT
CONTINUED ON PAGE 4, AN INTEGRAL PART OF THIS LETTER OF CREDIT
<PAGE>
AN INTEGRAL PART OF DOCUMENTARY CREDIT No. SBO12845
A Drawings and B Drawings. A Drawings shall not be reinstated. Reductions
in the Principal Portion and Interest Portion resulting from a B Drawing shall
be automatically reinstated upon the resale of the Bonds as provided in Section
405(e) of the Indenture.
C Drawings. The Interest Portion shall be automatically reinstated in an
amount equal to the amount of any C Drawing upon the earlier of (i) our receipt
from the Borrower of an amount equal to the Borrower's obligations due under the
Reimbursement Agreement arising from such C Drawing, or (ii) 5:00 p.m., Eastern
Time on the tenth calendar day following the honoring of such drawing.
Notwithstanding the foregoing, such amount shall not be reinstated if you shall
have received written notice from us prior to 5:00 p.m. Eastern Time on the
tenth calendar day following the honoring of such drawing, that (a) such amount
will not be reinstated because we have not been reimbursed for such drawing or
an "Event of Default" has occurred under the Reimbursement Agreement and (b)
demand is made that the Bonds be accelerated pursuant to Section 1001(d) of the
Indenture.
DISCHARGE OF OBLIGATIONS
Only you, as Trustee, may make a drawing under this Letter of Credit. Upon
the payment to you or your account of the amount specified in sight drafts drawn
hereunder, we shall be fully discharged of our obligation under the Letter of
Credit with respect to such sight drafts and we shall not thereafter be
obligated to make any further payments under this Letter of Credit in respect to
such sight drafts to you or any other person who may have made to you or makes
to you a demand for payment of principal or purchase price of, or interest on
the Bonds.
TRANSFER
This Letter of Credit may be successively transferred in its entirety (but
not in part) to your successors, if any, as Trustee under the Indenture, upon
presentation to us of this Letter of Credit accompanied by an appropriately
completed transfer in the form of Annex D hereto.
MISCELLANEOUS
If a demand for payment made by you does not conform to the terms and
conditions of this Letter of Credit, we will notify you thereof, within a
reasonable time after such delivery of such demand for payment, such notice to
be promptly confirmed in writing to you, and we shall hold all documents at your
disposal or, at your option, return the same to you.
This Letter of Credit sets forth in full the terms of our undertaking and
shall not in any way be amended, amplified or limited by reference to any
document, instrument or agreement referred to herein or in which this Letter of
Credit is referred to or to which this Letter of Credit relates, except for the
certificates referred to herein; and any such reference shall not be deemed to
be incorporated herein by reference any document,
CONTINUED ON PAGE 5, AN INTEGRAL PART OF THIS LETTER OF CREDIT
<PAGE>
AN INTEGRAL PART OF DOCUMENTARY CREDIT No. SBO12845
instrument or agreement except for such certificates.
This Letter of Credit may not be modified, supplemented or amended without
the express written consent thereto of the Borrower; provided, however, that
such consent shall not be required for automatic reductions and reinstatements
of the Stated Amount as herein provided.
Our obligations hereunder are primary obligations and shall not be affected
by the performance or non-performance by the Authority under the Bonds or by the
Borrower under the Reimbursement Agreement or by the performance or
non-performance of any party under any agreement between the Authority and you,
the Authority and the Borrower, or the Authority, the Borrower and us,
including, without limitation, the Reimbursement Agreement.
This Letter of Credit, except as otherwise expressly stated herein, is
subject to the Uniform Customs and Practices for Documentary Credits (1993
Revision), International Chamber of Commerce, Publication No. 500 (the "UCP").
Except as to matters governed by the express provisions of this Letter of Credit
or by the UCP, this Letter of Credit shall be governed by the laws of the
Commonwealth of Virginia, including, without limitation, the Uniform Commercial
Code as in effect in the Commonwealth of Virginia.
Communications with respect to this Letter of Credit shall be in writing
and shall be addressed to us at the address set forth above specifically
referring to the number of this Letter of Credit.
CENTRAL FIDELITY NATIONAL BANK
By________________________________
Title_____________________________
<PAGE>
SCHEDULE OF REDUCTION IN AMOUNT
Documentary Credit No. SBO12845
Date Amount of Reduction New Stated Amount
- ---- ------------------- -----------------
<PAGE>
Annex A to Central Fidelity National Bank Letter of Credit No. SBO12845
Certificate for "A Drawing"
For payment of principal of the Bonds due to prepayment, redemption,
acceleration or maturity.
The undersigned, a duly authorized officer of the Trustee named below (the
"Trustee"), hereby certifies to Central Fidelity National Bank (the "Bank"),
with reference to Irrevocable Letter of Credit No. SBO12845 (the "Letter of
Credit") (any capitalized term used herein and not defined shall have its
respective meaning as set forth in the Letter of Credit) issued by the Bank in
favor of the Trustee, that:
(1) The Trustee is the Trustee under the Indenture.
(2) The Trustee is making a drawing under the Principal Portion
of the Letter of Credit with respect to $______________ to be
used to pay principal on the Bonds due to prepayment, redemption,
acceleration or maturity.
(3) The amount of principal of the Bonds which is due and payable
on the date hereof is $_____________, and the amount of the
drawing referred to in paragraph (2) does not exceed such amount
of principal.
(4) The amount of the sight draft(s) accompanying this
Certificate (a) does not exceed the amount available to be drawn
under the Principal Portion of the Letter of Credit, and (b) was
computed in accordance with the terms and conditions of the Bonds
and the Indenture.
(5) (a) Upon receipt by the Trustee of the amount demanded
hereby, the Trustee will apply the same directly for the purpose
specified in paragraph (2), and (b) no portion of the said amount
shall be applied by the Trustee for any purpose other than as set
forth in paragraph (2) above.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate
as of the ____ day of _____________, ____.
__________________________________
As Trustee
By________________________________
Title_____________________________
<PAGE>
Annex B to Central Fidelity National Bank Letter of Credit No. SBO12845
Certificate for "B Drawing"
For payment of the purchase price of Bonds tendered for purchase pursuant
to Section 405(e) of the Indenture.
The undersigned, a duly authorized officer of the Trustee named below (the
"Trustee"), hereby certifies to Central Fidelity National Bank (the "Bank"),
with reference to Irrevocable Letter of Credit No. SBO12845 (the "Letter of
Credit") (any capitalized term used herein and not defined shall have its
respective meaning as set forth in the Letter of Credit) issued by the Bank in
favor of the Trustee, that:
(1) The Trustee is the Trustee under the Indenture.
(2) The Trustee is making a drawing under the Principal Portion
of the Letter of Credit with respect to $_____________ to be used
to pay the purchase price of the Bonds to be purchased pursuant
to the terms of the Indenture.
(3) The amount of the sight draft(s) accompanying this
Certificate (a) does not exceed the amount available to be drawn
under the Principal Portion of the Letter of Credit, and (b) was
computed in accordance with the terms and conditions of the Bonds
and the Indenture.
(4) (a) Upon receipt by the Trustee of the amount demanded
hereby, the Trustee shall apply the same directly for the purpose
specified in paragraph (2), and (b) no portion of said amount
shall be applied by the Trustee for any purpose other than as set
forth in paragraph (2) above.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate
as of the ____ day of _____________, ____.
__________________________________
As Trustee
By________________________________
Title_____________________________
<PAGE>
Annex C to Central Fidelity National Bank Letter of Credit No. SBO12845
Certificate for "C Drawing"
For the payment of interest due and payable on the Bonds.
The undersigned, a duly authorized officer of the Trustee named below (the
"Trustee"), hereby certifies to Central Fidelity National Bank (the "Bank"),
with reference to Irrevocable Letter of Credit No. SBO12845 (the "Letter of
Credit") (any capitalized term used herein and not defined shall have its
respective meaning as set forth in the Letter of Credit) issued by the Bank in
favor of the Trustee, that:
(1) The Trustee is the Trustee under the Indenture.
(2) The Trustee is making a drawing under the Interest Portion of
the Letter of Credit with respect to $__________ to be used for a
payment of interest due and payable on the Bonds.
(3) The aggregate amount of the drawing referred to in paragraph
(2) does not exceed the amount of interest on the Bonds that will
be due and payable on the current Interest Payment Date (as
defined in the Indenture) and does not exceed an amount equal to
62 days' accrued interest on the Bonds, computed at the actual
rate of interest thereon during the period for which this drawing
is being made.
(4) The amount of the sight draft(s) accompanying this
Certificate (a) does not exceed the amount available on the date
hereof to be drawn under the Interest Portion of the Letter of
Credit, and (b) was computed in accordance with the terms and
conditions of the Bonds and the Indenture.
(5) (a) Upon receipt by the Trustee of the amount demanded
hereby, the Trustee will apply the same on the current Interest
Payment Date to the payment of the Interest accrued on the Bonds,
which is so due and payable, and (b) no portion of said amount
shall be applied by the Trustee for any purpose other than as set
forth in paragraph (2) above.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate
as of the ____ day of _____________, ____.
__________________________________
As Trustee
By________________________________
Title_____________________________
<PAGE>
Annex D to Central Fidelity National Bank Letter of Credit No. SBO12845
CENTRAL FIDELITY NATIONAL BANK
1021 East Cary Street
Richmond, Virginia 23219
Attention: International Division
Date:
Gentlemen:
With reference to your Letter of Credit No. SBO12845, we hereby transfer
all rights therein to
___________________________________________________________, subject to the
terms and conditions of said Letter of Credit. We hereby certify that the
transferee is the successor Trustee under the Indenture referred to in the
Letter of Credit. The transferee has acknowledged below that it is the successor
Trustee.
By this transfer, all rights of the undersigned beneficiary in such Letter
of Credit are transferred to the transferee and the transferee shall have the
sole rights as beneficiary thereof, including sole rights relating to any
amendments, whether increases or extensions or other amendments and whether now
existing or hereafter made. All amendments are to be advised directly to the
transferee without necessity of any consent of or notice to the undersigned
beneficiary.
Enclosed is the original Letter of Credit so that you may endorse the
transfer thereon.
____________________________________
As Trustee
By__________________________________
Authorized Signature
Transferee
Beneficiary_______________________
Address___________________________
__________________________________
___________________________ hereby acknowledges that it is the successor to
____________________________ as Trustee under the Indenture.
By__________________________________
Authorized Signature
<PAGE>
Annex E to Central Fidelity National Bank Letter of Credit No. SBO12845
Certificate of Cancellation of the Letter of Credit
and Substitution of an Alternate Credit Facility
CENTRAL FIDELITY NATIONAL BANK
1021 East Cary Street
Richmond, Virginia 23219
Attention: International Division
RE: Irrevocable Letter of Credit No. SBO12845
The undersigned, a duly authorized officer of the Trustee (the "Trustee"),
hereby certifies to Central Fidelity National Bank (the "Bank"), that an
acceptable Alternate Letter of Credit (as such term is defined in the Indenture
referred to in the above-referenced Letter of Credit) has been delivered to and
accepted by the Trustee and that the Trustee is authorized to deliver this
Certificate under the Indenture, pursuant to which Nine Hundred Thirty Five
Thousand Dollars ($935,000.00) principal amount of the Variable Rate Demand
Revenue Bonds (Sherwood Foods, Inc. Project), Series 1996 of the Industrial
Development Authority of Mecklenburg County, Virginia, a political subdivision
of the Commonwealth of Virginia, have been issued. The Trustee hereby surrenders
the above-referenced Letter of Credit to the Bank for cancellation and hereby
instructs the Bank to cancel the same, effective on the date of the Bank's
receipt of this Certificate.
By its execution hereof, Sherwood Foods, Inc. (the "Borrower"), hereby
certifies to the Bank that all conditions precedent to the cancellation of the
Letter of Credit and substitution of an Alternate Letter of Credit as set forth
in the Indenture have been satisfied and the Borrower hereby joins in the
Trustee's instructions to the Bank to cancel the referenced Letter of Credit.
IN WITNESS WHEREOF, the Trustee and the Borrower have executed and
delivered this Certificate as of the ____ day of _______________, ____.
__________________________________
As Trustee
Sherwood Foods, Inc.
By: /s/Anat Schwartz (SEAL)
-------------------------------
Title: Vice President
<PAGE>
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement"), is dated as of June
1, 1996, by and between SHERWOOD FOODS, INC., a North Carolina corporation (the
"Borrower"); and CENTRAL FIDELITY NATIONAL BANK, a national banking association
organized under the laws of the United States of America (the "Bank"), as
contemplated by the Reimbursement Agreement dated as of the date hereof, among
the Borrower and the Bank (the "Reimbursement Agreement"):
W I T N E S S E T H:
WHEREAS, the Industrial Development Authority of Mecklenburg County,
Virginia, a political subdivision of the Commonwealth of Virginia (the
"Authority"), has issued its Variable Rate Demand Revenue Bonds (Sherwood Foods,
Inc. Project), Series 1996, in the principal amount of Nine Hundred Thirty Five
Thousand Dollars ($935,000.00) (the "Bonds") under an Indenture of Trust (the
"Indenture") dated as of the date hereof between the Authority and Crestar Bank,
as trustee (the "Trustee"); and
WHEREAS, the Bonds were issued for the further equipping of an
approximately 10 acre parcel of land and the construction thereon of an
approximately 67,000 square foot manufacturing facility at 807 S. Main St.,
Chase City, Mecklenburg County, Virginia (the "Project"); and
WHEREAS, the Indenture requires that Bonds deemed tendered by the holders
thereof to the remarketing agent appointed pursuant to the Indenture (the
"Remarketing Agent") or the Trustee pursuant to Section 405(e) of the Indenture
may be purchased under certain circumstances with the proceeds of "B Drawings"
under the Reimbursement Agreement (the "Tendered Bonds"); and
WHEREAS, the Bonds will be secured by an irrevocable letter of credit
issued by the Bank (the "Letter of Credit") pursuant to the terms of the
Reimbursement Agreement; and
<PAGE>
WHEREAS, the Borrower will be the owner of the Tendered Bonds; and
WHEREAS, it is a condition precedent to the obligation of the Bank to enter
into the Reimbursement Agreement and to issue the Letter of Credit that the
Borrower shall have executed and delivered this Agreement;
NOW, THEREFORE, in consideration of the premises and in order to induce the
Bank to enter into the Reimbursement Agreement and issue the Letter of Credit
thereunder and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Borrower hereby agrees with the
Bank as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in the
Reimbursement Agreement shall have such defined meanings when used herein.
2. Pledge. The Borrower hereby pledges, assigns, hypothecates, transfers
and delivers to the Bank all its right, title and interest in and to the
Tendered Bonds, now owned or hereafter acquired, and hereby grants to the Bank,
a first lien on, and security interest in, the Borrower's right, title and
interest in and to the Tendered Bonds, now owned or hereafter acquired, and in
all proceeds thereof (whether cash or otherwise), as collateral security for the
prompt and complete payment when due of all amounts due in respect of the
reimbursement obligations of the Borrower set forth in the Reimbursement
Agreement and interest on such amounts at the Advance Rate as set forth in the
Reimbursement Agreement, together with all indebtedness, obligations and
liabilities of the Borrower to the Bank under any of the Financing Documents,
whether now existing or hereafter incurred, however evidenced, whether matured
or unmatured, whether direct or indirect, whether absolute or contingent,
whether liquidated or unliquidated, whether secured or unsecured, whether
original, renewed or extended, whether contracted by the Borrower, alone or
jointly and/or severally with another or others, whether originally contracted
with the Bank or acquired by the Bank by negotiation, assignment, transfer or
- 2 -
<PAGE>
otherwise from another or others, and whether or not represented by notes,
instruments or other writings including, without limitation, the payment and/or
performance of the following:
(a) The Bonds, with interest, premium if any, and penalty, if any,
thereon as therein provided;
(b) The Borrower's obligations under the Reimbursement Agreement and
the other Financing Documents; and
(c) Any and all additional sums which may hereafter be advanced to the
Borrower or expended by the Bank on behalf of the Borrower for any purpose
whatsoever with interest thereon at an annual rate equal to the Advance
Rate as set forth on the Reimbursement Agreement, whether evidenced by
notes, drafts, open account or otherwise, including, without limitation,
any expenditures under the Reimbursement Agreement and the Obligations and
any overdrafts which the Bank may permit the Borrower to make (the making
of any such advances or expenditures and the permitting of any such
overdrafts are not obligatory and are in the absolute discretion of the
Bank), and also the payment and performance of any and all other present
and future liabilities, obligations and indebtedness of the Borrower to the
Bank under the Financing Documents;
(d) All costs, expenses, charges, liabilities, commissions,
half-commissions and attorneys' fees now or hereafter chargeable to, or
incurred by, or disbursed by, or payable to, the Bank pursuant to this
Agreement, the Bonds, the Reimbursement Agreement, any other of the
Obligations, any other of the Financing Documents, or any other document or
instrument providing the Bank with any security for the payment and
performance of the Bonds, the Reimbursement Agreement or any other of the
Obligations or applicable law;
- 3 -
<PAGE>
(e) The performance of, observance of and compliance with all of the terms,
covenants, conditions, stipulations and agreements contained in this Agreement,
the Bonds, the Reimbursement Agreement, the Financing Documents and any and all
other documents and instruments which the Borrower or any third party or parties
have executed and delivered, or may hereafter execute and deliver, in connection
with the Bonds or to evidence or secure the Bonds, the Reimbursement Agreement
or any other of the Obligations or any part thereof; and
(f) Any note or other instrument given in curtailment, renewal or extension
of all or any part of the Bonds or any other of the Obligations (unlimited
renewal, curtailment or extension of all or any part of the Bonds or any other
of the Obligations being expressly permitted) together with all interest and
charges incurred therein, whether before or after maturity (all the foregoing
being hereinafter called for the purpose of this Agreement the "Obligations").
3. Registration of, and Interest and Principal on, the Tendered Bonds.
Pursuant to Section 405(e) of the Indenture, Tendered Bonds shall be registered
in the name of the Borrower or as otherwise directed by the Bank pursuant to the
Indenture and held by the Trustee as agent and bailee for the benefit of the
Bank as pledgee. Except after the occurrence of an Event of Default and while
the same is continuing, and except after any portion of the Obligations has been
declared or has otherwise become due and payable and had not been paid, the
Borrower shall be entitled to receive and retain interest and principal payments
in respect of the Tendered Bonds and the Bank shall promptly pay over to the
order of the Borrower any interest and principal received by the Bank with
respect to such Tendered Bonds.
4. Collateral. All property at any time pledged with the Bank or in which
the Bank has a security interest hereunder (whether described herein or not) and
all income
- 4 -
<PAGE>
therefrom, proceeds thereof, and substitutions therefor, are herein sometimes
collectively referred to as the "Collateral."
5. Release of Tendered Bonds. Upon a remarketing of the Tendered Bonds as
provided in the Indenture, the Bank agrees to release from the lien of this
Agreement, and assign and transfer to the Borrower (or its order) or to the
purchaser of such Bonds as designated by the Remarketing Agent (if payment of
the purchase price of such Bonds is made by the Remarketing Agent on behalf of
the purchaser thereof) Tendered Bonds, the principal amount of which is equal to
the amount of the payment so made.
6. Rights of the Bank. The Bank shall not be liable for failure to collect
or realize upon the Obligations or any collateral security or guarantee
therefor, or any part thereof, or for any delay in so doing nor shall it be
under any obligation to take any action whatsoever with regard thereto. If an
Event of Default has occurred and is continuing, the Bank may thereafter
exercise all rights, privileges or options pertaining to any Tendered Bonds as
if it were the absolute owner thereof (except, before any portion of the
Obligations has been declared or has otherwise become due and payable and has
not been paid, the right to sell the Tendered Bonds), upon such terms and
conditions as it may determine, all without liability except to account for
property or funds actually received by it, but the Bank shall have no duty to
exercise any of the aforesaid rights, privileges or options and shall not be
responsible for any failure to do so or delay in so doing.
7. Remedies. In the event that any portion of the Obligations has been
declared or has otherwise become due and payable, and has not been paid, or upon
the occurrence of an Event of Default, the Bank, without demand of performance
or other demand, advertisement or notice of any kind (except notices required
under the Reimbursement Agreement and the notice specified below of time and
place of public or
- 5 -
<PAGE>
time after which a private sale will be held) to or upon the Borrower or any
other Person (all and each of which demands, advertisements and/or notices are
hereby expressly waived), may forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase, contract to sell or otherwise
dispose of and deliver the Collateral, or any part thereof, in one or more
parcels or lots at public or private sale or sales, at any exchange or broker's
board or at any of the Bank's offices or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk,
with the right to the Bank upon any such sale or sales, public or private, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in the Borrower, which right or equity is hereby expressly
waived or released. The Bank shall apply the net proceeds of any collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care, safekeeping or otherwise of any and all of the Collateral or in any
way relating to the rights of the Bank hereunder, including reasonable
attorneys' fees and legal expenses, to the payment in whole or in part of the
Obligations in such order as the Bank may elect, and only after such application
of such net proceeds and after the payment by the Bank of any other amount
required by any provision of law, need the Bank account for the surplus, if any,
to the Borrower. The Borrower agrees that the Bank need not give more than ten
days notice of the time and place of any public sale or of the time after which
a private sale or other intended disposition may occur. In addition to the
rights and remedies granted to it herein and in any other instrument or
agreement securing, evidencing or relating to any of the Obligations, the Bank
shall have all the rights and remedies of a secured party under the Uniform
Commercial Code of the Commonwealth of Virginia.
- 6 -
<PAGE>
8. Sale of Collateral. The Borrower agrees to do or cause to be done all
such other acts and things as may be necessary to make any sale or sales of any
portion or all of the Tendered Bonds contemplated by Section 7 hereof valid and
binding and in compliance with any and all applicable laws, regulations, orders,
writs, injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales, all at the Borrower's expense.
9. Amendments, Modifications and Waivers with Respect to Obligations. The
Borrower hereby consents that, without the necessity of any reservation of
rights against the Borrower, and without notice to or further assent by the
Borrower, any demand for payment of any of the Obligations made by the Bank may
be rescinded by the Bank and any of the Obligations, and the Obligations, or the
liability of the Borrower or any other Person upon or for any part thereof, or
any collateral security or guarantee therefor or right of offset with respect
thereof, may from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered, or released by
the Bank and the Reimbursement Agreement, any Financing Document or any
collateral security documents or guarantees or documents in connection therewith
may be amended, modified, supplemented or terminated, in whole or in part, as
the Bank may deem advisable from time to time, and any collateral security at
any time held by the Bank for the payment of the Obligations may be sold,
exchanged, waived, surrendered or released, all without the necessity of any
reservation of rights against the Borrower and without notice to or further
assent by the Borrower, which will remain bound hereunder, notwithstanding any
such renewal, extension, modification, acceleration, compromise, amendment,
supplement, termination, sale, exchange, waiver, surrender or release. The Bank
shall have no obligation to protect, secure, perfect or insure any other
collateral
- 7 -
<PAGE>
security document or property subject thereto at any time held as security for
the Obligations. The Borrower waives any and all notice of the creation,
renewal, extension supplement or modification of any of the Obligations and
notice of or proof of reliance by the Bank upon this Agreement, and the
Obligations, and any of them shall conclusively be deemed to have been created,
contracted or incurred in reliance upon this Agreement, and all dealings between
the Borrower and the Bank shall likewise be conclusively presumed to have been
had or consummated in reliance upon this Agreement. The Borrower waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon the Borrower with respect to the Obligations.
10. Events of Default. The failure of the Borrower to observe or perform
any of the terms or conditions of this Agreement or the occurrence of an Event
of Default under the Reimbursement Agreement shall constitute an Event of
Default hereunder.
11. Further Assurances. The Borrower agrees that any time and from time to
time upon the written request of the Bank, the Borrower will execute and deliver
such further documents and do such further acts and things as the Bank may
reasonably request in order to effect the purposes of this Agreement, including,
without limitation, the perfection of the Bank's security interest in Tendered
Bonds.
12. Severability. If any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or enforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
13. No Waiver; Cumulative Remedies. The Bank shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder and no waiver shall be valid unless in writing, signed by the Bank,
and then only to the
- 8 -
<PAGE>
extent herein set forth. A waiver by the Bank of any right or remedy hereunder
on any one occasion shall not be construed as a bar to any right or remedy which
the Bank would otherwise have on any future occasion. No failure to exercise nor
any delay in exercising on the part of the Bank, any right, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights or remedies provided
by law.
14. Waivers, Amendments; Applicable Law. None of the terms or provisions of
this Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by the Bank and the Borrower. This
Agreement and all obligations of the Borrower hereunder shall be binding upon
the successors and assigns of the Borrower, and shall, together with the rights
and remedies of the Bank hereunder, inure to the benefit of the Bank and its
successors and assigns. This Agreement shall be governed by, and be construed
and interpreted in accordance with, the laws of the Commonwealth of Virginia.
WITNESS the following duly authorized signatures
SHERWOOD FOODS, INC.
By: Anat Schwartz [SEAL]
---------------------
Title: Vice President
ATTEST:
_______________________________
<PAGE>
ECONOMIC DEVELOPMENT REVOLVING LOAN FUND
COMPANY LOAN AGREEMENT
THIS COMPANY LOAN AGREEMENT is made as of June 20, 1996, between the
INDUSTRIAL DEVELOPMENT AUTHORITY OF MECKLENBURG COUNTY, VIRGINIA, a political
subdivision of the Commonwealth of Virginia, P. 0. Box 307, Boydton, Virginia
23917 (the "Authority") and SHERWOOD FOODS, INC., a North Carolina corporation,
which has its principal place of business at 6110 Executive Boulevard, Suite
1080, Rockville, Maryland 20852, which is qualified to transact business in the
Commonwealth of Virginia (the "Company"), and SHERWOOD BRANDS, INC., a North
Carolina corporation, and UZIEL FRYDMAN, individually, jointly and severally,
the "Guarantors."
PREAMBLE:
A. The Authority, established by ordinance of the County of Mecklenburg,
Virginia under the Industrial Development and Revenue Bond Act, Chapter 33,
Title 15.1 of the Code of Virginia, 1950, as amended (the "Act"), is authorized
and empowered
"...to borrow money and to accept contributions, grants and other financial
assistance from ... the Commonwealth, of any political subdivision, agency,
or public instrumentality of the Commonwealth, for or in aid of the
construction, acquisition, ownership, maintenance or repair of the
authority facilities, for the payment of principal of any bond of the
authority, interest thereon, or other cost incident thereto, or in order to
make loans in furtherance of the purposes of this chapter of such money,
contributions, grants, and other financial assistance, and to this end the
authority shall have the power to comply with such conditions and to
execute such agreements, trust indentures, and other legal instruments as
may be necessary, convenient or desirable and to agree to such terms and
conditions as may be imposed."
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B. The Authority has received from The Virginia Small Business Financing
Authority (the "VSBFA") a loan in the principal sum of Four Hundred Thousand
Dollars ($400,000) from certain moneys allocated by the General Assembly of the
Commonwealth of Virginia. The Authority will loan the $400,000 to the Company so
that the Company may acquire certain machinery and equipment for its business.
C. The Company has acquired, now owns, and intends to renovate, improve,
and equip a manufacturing facility on approximately ten acres located at 807
South Main Street, in the Town of Chase City, Mecklenburg County, Virginia,
shown on Exhibit A attached, to produce food products and confectionery (the
"Project") which qualifies the plant as a manufacturing facility as described in
the Act. The Company will create fifty (50) full-time jobs within a two-year
period from the date of this Company Loan Agreement.
D. The Authority will loan the $400,000 to the Company for a period of five
years, amortized over a ten year period at an annual percentage rate of seven
percent (7%) (the "Company Loan"). The Company Loan will be secured by a shared
second lien security interest of equal dignity for a $250,000 loan (the "Lake
Country Loan") previously made to the Company by Lake Country Development
Corporation ("Lake Country") in accordance with the provisions of a Revolving
Loan Fund Loan Agreement dated as of May 15, 1996, between the Company and Lake
Country on the Project and the machinery and equipment being purchased in whole
or in part with
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the proceeds of the Company Loan (the "Equipment"), as more fully described in
Exhibit B. The Company Loan will also be guaranteed, jointly and severally, by
Uziel Frydman (the "Individual Guarantor") and Sherwood Brands, Inc., a North
Carolina corporation (the "Corporate Guarantor").
The Authority is willing to fund the Company Loan upon the following terms
and conditions:
NOW, THEREFORE, in consideration of the benefits accruing to the public
generally, and to the citizens of Mecklenburg County, Virginia, the Authority
and the Company agree, each with the other, as follows:
ARTICLE I. THE COMPANY LOAN
Section 1. TRANSFER OF FUNDS AND CLOSING DATE
The Authority hereby agrees to transfer, set over, and loan to the Company
on the Company Loan closing date, the sum of Four Hundred Thousand Dollars
($400,000), to be used to promote the health, welfare, safety and economic
well-being and development of the citizens of the Commonwealth through the
creation of fifty (50) full-time jobs by the Company.
Section 2. CLOSING DATE TIMING
It is understood that the Company Loan closing date shall be set as soon as
possible and that VSBFA will be notified of such date one week prior to closing.
Section 3. COMPANY LOAN TERMS
The Company Loan, in the principal sum of $400,000 with interest at seven
percent (7%) per annum, shall be amortized over
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a term of ten years, payable in fifty-nine (59) consecutive, equal monthly
installments of principal and interest commencing thirty (30) days next after
the date of this Company Loan Agreement and one final sixtieth (60th) payment
on the fifth (5th) anniversary date of this Company Loan Agreement in the total
of the then outstanding unpaid principal balance, accrued unpaid interest, and
penalty, if any. The Authority shall apply all payments made by the Company
first to interest and then to principal. All payments shall be made to the
Authority at the following address:
Industrial Development Authority of
Mecklenburg County, Virginia
1294 Jefferson Street (P. 0. Box 307)
Boydton, Virginia 23917
The repayment schedule for the Company Loan is shown on the attached Loan
Repayment Table (Exhibit C). The Company Loan shall be evidenced by a promissory
note in the principal amount of $400,000 duly executed by the Company and
substantially in the form attached hereto as Exhibit D (the "Promissory Note").
The Company Loan shall be secured by a shared second lien security interest of
equal dignity with Lake Country for the debt of the Company to Lake Country
evidenced by its Promissory Note of May 15, 1996, in the principal sum of
$250,000 with interest in the Project and Equipment. The Company Loan will also
be guaranteed, jointly and severally, by Uziel Frydman (the Individual
Guarantor) and Sherwood Brands, Inc. (the Corporate Guarantor). The Authority
will not make the Company Loan unless and until the Company provides the
Authority with evidence that said security has been delivered and recorded as
required by local law on or before the closing date.
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The Company shall have the right without premium or penalty to prepay the
Promissory Note, in whole or in part, at any time and from time to time,
provided that all accrued interest and penalty, if any, is paid at the time the
Promissory Note is paid in full.
Section 4. MACHINERY, EQUIPMENT AND REAL ESTATE DESCRIPTION/SECURITY INTEREST
The Company shall provide a description of the Equipment on Exhibit B.
The Company hereby grants to the Authority a security interest in the
Equipment, together with all additions thereto and all replacement parts and
substitutions therefor, and all proceeds of the Equipment. The security interest
in the Equipment and parts and substitutions therefor and proceeds therefrom is
to secure payment of the Promissory Note, the interest thereon, and any other
sums payable by the Company under this Company Loan Agreement.
Financing statements with respect to the Equipment and meeting the
requirements of the Uniform Commercial Code of Virginia shall be filed by the
Company in the Uniform Commercial Code Division of the State Corporation
Commission of Virginia and in the Clerk's Office of the Circuit Court of
Mecklenburg County, Virginia. The Company shall file updated financing
statements or continuation statements whenever deemed advisable by the Authority
or VSBFA.
Section 5. LOAN FEES/SERVICING FEES
The Company shall pay the fees of the Authority and its counsel in
connection with making the Company Loan or enforcing or interpreting this
Company Loan Agreement or the Promissory Note.
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Section 6. LOAN ASSUMPTION
The Company Loan may not be assumed or otherwise transferred by the Company
to another party without the written approval of the Authority and VSBFA.
Section 7. DISBURSEMENT OF FUNDS
The Authority shall disburse the Company Loan proceeds to the Company upon
delivery to the Authority of invoices, purchase orders or other evidence that
payment is due or has been made by the Company for the purchase of the
Equipment.
ARTICLE II. REPRESENTATION AND WARRANTIES
Section 1. DULY ORGANIZED
Prior to making the Company Loan, the Company shall provide to the
Authority evidence that the Company (A) is a corporation duly organized, validly
existing and in good standing under the laws of the State, (B) is duly qualified
to transact business in the Commonwealth of Virginia and (C) has corporate power
to enter into this Company Loan Agreement and the Promissory Note.
Section 2. DULY AUTHORIZED
Prior to making the Company Loan, the Company shall provide to the
Authority an opinion of legal counsel to the Company that the execution and
delivery of the Financing Documents, as hereinafter defined, and all other
instruments by the Company have been duly authorized by all necessary corporate
action and if applicable, action of the governing body of the Company, and will
not violate any law, rule, regulation, order, writ, judgment, decree,
determination or award presently in effect having applicability to
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the Company or any provision of the Company's Certificate of Incorporation or By
Laws or, as applicable, other governing rules, or result in a breach of, or
constitute a default under, any loan agreement between the Company and Central
Fidelity National Bank pertaining to a $935,000 loan (the "CFB Loan").
Section 3. LEGALLY BINDING INSTRUMENTS
Prior to making the Company Loan, the Company shall provide to the
Authority an opinion of legal counsel to the Company that the Company Loan
Agreement and the Promissory Note each constitute the legal, valid and binding
obligation of the Company in accordance with its terms, subject to customary
exceptions. Further, the opinion shall provide that the security interest in the
Equipment constitutes a legal, valid, and binding lien free and clear of all
prior liens and encumbrances, with the exception of the lien securing the CFB
Loan and the Lake Country Loan.
Section 4. NO LEGAL SUITS
Prior to making the Company Loan, the Company shall provide to the
Authority an opinion of legal counsel to the Company (which opinion may rely on
information provided by a search firm) or other evidence satisfactory to the
Authority that there are no legal actions, suits, or proceedings pending in the
Circuit Court of Mecklenburg County or, to the knowledge of the Company or its
counsel, threatened against the Company before any court or administrative
agency, which, if determined adversely to the Company, would have a material
adverse effect on the financial condition or business of the Company.
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<PAGE>
Section 5. ELIGIBLE TO RECEIVE FEDERAL FUNDING
Prior to making the Company Loan, the Company shall certify to the
Authority that it has not been disbarred, suspended, or otherwise excluded from
receiving federal financial assistance.
Section 6. PAYMENT OF TAXES
Prior to making the Company Loan, the Company will certify to the Authority
that it has paid all taxes due and payable to the Internal Revenue Service and
the Commonwealth of Virginia as of the closing date of the Company Loan.
Section 7. NOT LOCATED IN FLOODPLAIN
Prior to making the Company Loan, the Company shall certify to the
Authority that the real estate, either securing the Company Loan or containing
assets that secure the Company Loan, is not located in a floodplain.
Section 8. NO ADVERSE CHANGE
Prior to making the Company Loan, the Company shall certify to the
Authority that there has been no adverse change since the date of the Company
Loan application in the financial condition, organization, operation, business
prospects, fixed properties, or personnel of the Company or Sherwood Brands,
Inc.; and no adverse or material change in the financial condition of the
Individual or Corporate Guarantor.
Section 9. EQUIPMENT
Upon the distribution of the proceeds of the Company Loan to the Company,
the Company will own the Equipment. The Equipment
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will be located at the Company's plant at 807 South Main Street in the Town of
Chase City, Mecklenburg County, Virginia 23924.
ARTICLE III. CONDITIONS OF LENDING
In addition to the opinions and certifications required in Article II, the
Authority shall require the following documentation as conditions to making the
Company Loan:
Section 1. EXECUTION AND DELIVERY OF FINANCING DOCUMENTS
Prior to making the Company Loan, the Company shall have executed and
delivered to the Authority or shall have caused to be executed and delivered to
the Authority the following documents (together, the "Financing Documents") in
form satisfactory to the Authority, its legal counsel and VSBFA.
--this Company Loan Agreement;
--the Promissory Note, including the Unconditional Guaranties appended
thereto;
--The Subordinate, Second Deed of Trust and Security Agreement dated
as of June 20, 1996, from the Company as Grantor to E. Warren
Matthews, Trustee, in which the Authority and Lake Country
Development Corporation are the beneficiaries to secure equally
and proportionately the Lake Country Note in the original
principal amount of $250,000 and the Authority Note in the
original principal amount of $400,000 dated May 15, 1996, and
June 20, 1996, respectively, together with evidence that said
deed of trust has been recorded in the Clerk's Office of the
Circuit Court of Mecklenburg County, Virginia; and
--the Financing Statements, together with evidence that they have been
recorded with the Uniform Commercial Code Division of the State
Corporation Commission of Virginia and the Clerk's Office of the
Circuit Court of the County of Mecklenburg, Virginia.
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<PAGE>
Section 2. OTHER DOCUMENTATION
Prior to making the Company Loan, the Company shall provide the Authority
with:
(A) evidence that the Equipment is free and clear of all prior liens
and encumbrances, except as noted in Article II, Section 3;
(B) evidence verifying the purchase of the Equipment and machinery at
a cost of at least $950,000;
(C) a certificate of insurance coverage showing that the Company has
complied with the provisions set forth in Article IV, Section 3;
(D) a copy of a resolution adopted by its Board of Directors
authorizing the Company Loan and the execution of the Financing Documents
by the Company;
(E) written verification that the Company has made an equity
contribution to the cost of the Project in an amount of at least $300,000
and a written certification that the Company will make an additional equity
contribution in the amount of at least $300,000 to the cost of the Project
including improvements to real property of at least $200,000 on or before
August 30, 1996;
(F) written verification of a $250,000 loan from Lake Country to fund
a portion of the acquisition of real estate, fixtures, and equipment and
written verification of a commitment from Central Fidelity National Bank to
issue, on behalf of the Company, a "Letter of Credit" in an amount up to
$939,000 to provide credit enhancement and support to an issue of
tax-exempt
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bonds by the Authority to fund a portion of the cost of the Project; and
(G) a certification from the Company that the conditions precedent to
making the Company Loan have been duly satisfied as of the closing date.
ARTICLE IV. AFFIRMATIVE COVENANTS OF THE COMPANY
The Company makes the following covenants, which shall be in effect from
the closing date until the Promissory Note has been paid in full with interest,
unless VSBFA or its assigns shall otherwise consent in writing:
Section 1. LOAN PAYMENT
The Company hereby agrees and promises to pay punctually the principal and
interest on the Promissory Note according to the terms and conditions stated
therein and under any of the Financing Documents.
Section 2. PAYMENT OF OTHER INDEBTEDNESS
The Company hereby agrees to pay punctually the principal and interest due
on any other indebtedness now or hereafter at any time owed by the Company to
the Authority or any other lender.
Section 3. MAINTAIN AND INSURE PROPERTY
The Company hereby agrees at all times to maintain the Equipment in such
condition and repair that the Authority's security interest will be adequately
protected. The Company also hereby agrees to maintain during the term of the
Company Loan adequate liability and hazard insurance policies to protect the
Equipment with proper endorsements protecting the Authority as its
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interest may appear. Further, the Company hereby agrees to provide evidence of
such policies to the Authority on an annual basis. Any policies must be issued
by companies licensed in Virginia and shall contain acceptable mortgagee/loss
payee clauses in favor of the Authority.
Section 4. PAY ALL TAXES
The Company hereby agrees to pay promptly and discharge all taxes,
assessments, and governmental charges upon it or against its properties, except
that the Company shall not be required to pay any such tax, assessment or
governmental charge which is being contested by it in good faith and by
appropriate proceedings.
Section 5. RIGHT TO INSPECTION
The Company hereby agrees to grant the duly authorized representatives of
the Authority and VSBFA, until the Company Loan has been fully repaid with
interest, the right at all reasonable hours to inspect the Equipment, and the
Company further hereby agrees to provide the duly authorized representatives of
the Authority and VSBFA free access to the Company's premises for the purpose of
such inspection to determine the condition of the Equipment.
Section 6. PROVIDE FINANCIAL INFORMATION
During the first two years of the Company Loan, the Company hereby agrees
to deliver to the Authority and VSBFA a quarterly financial statement, certified
by an authorized officer of the Company, to be a true and accurate copy.
Quarterly statements
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<PAGE>
shall be delivered to the Authority and VSBFA within sixty (60) days of the
close of each quarterly accounting period.
The Company further agrees that, during the entire term of the Company
Loan, it will deliver to the Authority and VSBFA, annual reviewed financial
statements, within ninety (90) days of the close of the annual financial period,
prepared by an independent public accountant and certified by an authorized
officer of the Company to be true and accurate copies. At the request of VSBFA,
such annual financial statements must be audited, rather than reviewed.
The Company further agrees to provide copies annually or when otherwise
requested of the corporate financial statements of Sherwood Brands, Inc. and the
personal and corporate financial statements of the Individual and Corporate
Guarantors.
Section 7. REPORTING OF JOBS CREATED AND RETAINED
The Company shall provide information on a quarterly basis concerning the
number of full-time jobs created for the first two years of the Company Loan.
Section 8. NOTIFICATION OF PUBLIC HEARING
The Company hereby agrees to provide written notice to the Authority of any
public hearing or meeting before any administrative or other public agency which
may, in any manner, affect the Equipment.
Section 9. NULL AND VOID COVENANTS
The Company hereby agrees that in the event that any provision of this
Company Loan Agreement or any other Financing Document or instrument executed at
closing or the application thereof to any
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person or circumstances shall be declared null and void, invalid, or held for
any reason to be unenforceable by a court of competent jurisdiction, the
remainder of this Company Loan Agreement or other Financing Document or
instrument shall nevertheless remain in full force and effect, and to this end,
the provisions of all covenants, conditions, and agreements described herein and
therein shall be deemed separate and independent.
Section 10. NOTICE OF DEFAULT
The Company hereby agrees to give written notice to the Authority and VSBFA
of any event, within ten (10) days of the event, which shall constitute an Event
or Default under this Company Loan Agreement as described in Article VI herein,
or that would, with notice or lapse of time or both, constitute an Event or
Default under this Company Loan Agreement.
Section 11. INDEMNIFICATION
The Company hereby agrees to indemnify and save the Authority, its
directors, officers, agents, employees, or their assigns harmless against any
and all liability and cost of whatever nature, including, but not limited to,
attorneys' fees, with respect to, or resulting from, any action, breach or
default under any of the Financing Documents. This is a covenant of first
payment and defense, not merely of surety or reimbursement.
Section 12. EXPENSES OF COLLECTION OR ENFORCEMENT
The Company hereby agrees, if at any time the Company shall default on any
provision of this Company Loan Agreement, to pay the Authority or its assigns,
in addition to any other amounts that may
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be due from the Company, an amount equal to the costs and expenses of
collection, enforcement or correction or waiver of default including but not
limited to attorneys' fees.
Section 13. ELIGIBLE LENDING AREA
The Company hereby agrees to maintain its operations within the Chase City,
Mecklenburg County area. In the event that operations are moved out of
Mecklenburg County, the outstanding balance of the Company Loan will be
immediately due and payable.
Section 14. COMPLIANCE WITH FEDERAL CIVIL RIGHTS REQUIREMENTS
The Company agrees to comply with all federal civil rights requirements
that hold that no person shall on the grounds of race, color, national origin,
sex, handicap, or age be excluded from participating in, be denied the benefits
of, or be otherwise subjected to discrimination under, any activity for which
this federal financial assistance has been extended. The Company further agrees
to provide any information requested by the VSBFA and/or the Authority to insure
the Company's compliance with civil rights laws.
Section 15. CERTIFICATION OF NONRELOCATION
The Company certifies that it will not transfer one or more jobs from one
commuting area to another either by closing an operation in one commuting area
and opening a new operation within a new commuting area or curtailing its
employment in one commuting area and increasing the number of jobs in another
commuting area as a result of this Loan.
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Section 16. ENVIRONMENTAL REQUIREMENTS
The Company agrees to indemnify and hold the Economic Development
Administration, the VSBFA, and the Authority harmless from and against all
liabilities that might be incurred as a result of providing an award to assist,
directly or indirectly, in the preparation of site construction, renovation, or
repair of any facility or site, if applicable, to the extent that such
liabilities are incurred because of ground water, surface, soil, or other
conditions caused by operations of the Company or any of its predecessors on the
property.
The Company further agrees to provide a Phase I environmental audit of the
real estate held as collateral acceptable to the VSBFA and agrees to comply with
applicable laws and statutes including, but not limited to, those listed in
Exhibit E.
Section 17. NOTICE OF DEBARMENT
The Company agrees to notify the Parties immediately upon notification that
it has been debarred, suspended, or otherwise excluded from receiving federal
financial assistance.
Section 18. APPOINTMENT OF PROCESS AGENT.
Sherwood Brands, Inc., a North Carolina corporation (the Corporate
Guarantor), whose address is 6110 Executive Boulevard, Suite 1080, Rockville,
Maryland 20852, is not registered for business in the Commonwealth of Virginia.
The Individual Guarantor, Urziel Frydman, whose address is 6110 Executive
Boulevard, Suite 1080, Rockville, Maryland 20852, is a nonresident of the
Commonwealth of Virginia. Therefore, they and each of them
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irrevocably appoint Anat Schwartz as their agent to accept legal service of
process in their name and on their behalf. If the Authority is unable to obtain
prompt legal service upon a Guarantor at the address shown for such Guarantor
herein or through the designated agent, each Guarantor, jointly and severally,
irrevocably appoints the Secretary of the Commonwealth of Virginia as each
Guarantor's agent for the acceptance of substituted service of process upon each
Guarantor and it is understood and agreed that each Guarantor hereby submits to
the in personam jurisdiction of the Circuit Court of Mecklenburg County,
Virginia, (upon compliance with the procedural laws and rules of the
Commonwealth of Virginia) wherein any action may be brought by the Authority,
its successors or assigns, arising out of, resulting from, or incident to the
Promissory Note, Unconditional Guaranty, and the Company Loan Agreement.
This appointment shall survive satisfaction of the Company Loan Agreement
and payment of all indebtedness evidenced by the Promissory Note and all other
incidents of this transaction.
ARTICLE V. NEGATIVE COVENANTS OF THE COMPANY
The Company hereby covenants and agrees that from the date hereof until
payment in full of the Promissory Note, the Company shall not (A) enter into any
agreement or other commitment the performance of which would constitute a
breach of any of the covenants contained in this Company Loan Agreement
including but not limited to, any agreement or commitment which would cause an
encumbrance of or create a lien against the Equipment; (B) sell,
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convey, lease, assign, pledge, transfer or otherwise dispose of the Equipment
without prior written consent of the Authority and VSBFA; (C) change 50% or more
of the ownership of the Company without the prior written consent of the
Authority and VSBFA; or (D) change its name or the location of the Equipment
without prior written notice to the Authority and VSBFA. The Company further
covenants and agrees that it will notify the Authority and VSBFA of any change
in ownership of the Company.
ARTICLE VI. EVENTS OF DEFAULT
Section 1. EVENTS OF DEFAULT
Each of the following is an "Event of Default" under this Company Loan
Agreement:
A. NONPAYMENT OF COMPANY LOAN
Failure by the Company to make payment of any installment of principal on
the Promissory Note, or interest accrued thereon within ten (10) days after the
date such payment is due.
B. NONPAYMENT ON OTHER INDEBTEDNESS
Failure by the Company to make payment of any installment of principal or
interest on any other indebtedness of the Company within thirty (30) days of the
date of such payment is due.
C. INCORRECT REPRESENTATION OR WARRANTY
Any material inaccuracy in any representation or warranty contained in, or
made in connection with the execution and delivery of the Financing Documents or
in any certificate or instrument furnished pursuant thereto.
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D. DEFAULT IN COVENANTS
Any material default by the Company in the performance of any other term,
covenant, or agreement contained in the Financing Documents which continues
without remedy for thirty (30) days after either (i) it becomes known to an
executive officer of the Company or (ii) written notice thereof has been given
to the Company by the Authority or VSBFA.
Any material default by Sherwood Brands, Inc., or the Individual Guarantor
in the performance of any other term, covenant, or agreement contained in the
Financing Documents which continues without remedy for thirty (30) days after
either (i) it becomes known to such person or an executive officer of Sherwood
Brands, Inc., or (ii) written notice thereof has been given to such person or
Sherwood Brands, Inc. by the Authority or VSBFA.
E. DEFAULT IN JOB CREATION
Failure by the Company to create fifty (50) full-time jobs within a
two-year period from the closing date of the Company Loan, except to the extent
that such failure is attributed to adverse economic conditions.
F. OTHER DEFAULTS
(1) There is instituted by or against the Company any proceedings for an
order for relief, or if the Company consents to an order for relief against it,
or if the Company files a petition or answer or consent seeking
reorganization, arrangement, adjustment, composition or relief, under the
federal bankruptcy laws or any other similar applicable federal or state law, or
if
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the Company consents to the appointment of a receiver, liquidator, custodian,
assignee, trustee or sequestrator (or other similar official) of the Company or
of any substantial part of its property, or if the Company makes an assignment
for the `benefit of creditors or admits in writing its inability to pay its
debts generally as they become due; (2) unpaid final judgments have been entered
against the Company exceeding $10,000 that are not fully covered by liability
insurance; and (3) any lawsuit has been instituted affecting the Company or its
corporate principals which may affect the Company's ability to make payments on
the Promissory Note as and when due or affect a substantial portion of the
Equipment.
Section 2. EFFECT OF EVENT OF DEFAULT
Upon the occurrence of an Event of Default, whether voluntarily or
involuntarily, or, without limitation, brought about by operation of law or
pursuant to or in compliance with any judgment, decree or order or any court
order or any order, rule, or regulation of any administrative or governmental
body, the entire unpaid principal of the Promissory Note, and the interest then
accrued thereon, shall become immediately due and payable upon the written
demand of the Authority or its assigns. The Authority may take any other action
or pursue any other remedy permitted by law, including taking possession of the
Equipment and exercising any other remedies authorized by the Uniform Commercial
Code of Virginia. If requested by the Authority, the Company shall assemble the
Equipment and make it available to the Authority at a
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place designated by the Authority which is reasonably convenient to the
Authority and the Company.
If a default in payment under the Promissory Note remains without remedy
for more than thirty (30) days, the Authority shall notify VSBFA of the default
and shall take whatever reasonable actions are necessary, including legal
action, to secure payment of the Promissory Note. The Authority shall document
all actions taken in regard to correcting the default and shall provide
documentation to VSBFA. The VSBFA will pay the reasonable fees and expenses of
any actions or remedies pursued by the Authority or its directors, officers,
employees or agents upon a default by the Company. The moneys received from any
action taken upon an Event of Default shall first be applied to the payment of
the reasonable fees and expenses incurred by the Authority and VSBFA or their
directors, officers, employees or agents in the collection of such moneys, then
shall be applied to the payment of the Promissory Note.
ARTICLE VII. MISCELLANEOUS
Section 1. NO INDIVIDUAL LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS
OF THE AUTHORITY
No covenant, agreement or obligation in this Company Loan Agreement or in
the other Financing Documents or instruments in connection with this Company
Loan Agreement shall be deemed to be a covenant, agreement or obligation of any
present or future director, officer, employee or agent of the Authority in his
or her individual capacity, and neither the directors of the Authority nor any
officer thereof executing this Company Loan Agreement or any
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Financing Documents or any other instruments pertaining to it shall be liable
personally or be subject to any personal liability or accountability by reason
of the issuance thereof. No director, officer, employee or agent or advisor of
the Authority including any successor or assignee of any of the foregoing shall
incur any personal liability with respect to any other action taken by him or
her pursuant to this Company Loan Agreement or the Act provided he or she does
not act in good faith.
Upon request, VSBFA will submit to the Authority written instructions
regarding any actions to be taken or not to be taken under its Loan Agreement or
this Company Loan Agreement. Notwithstanding anything in this Company Loan
Agreement to the contrary, neither the Authority nor any present or future
director, officer, employee, agent, or advisor of the Authority shall incur any
liability or be personally responsible for any action taken or not taken under
its Loan Agreement or this Company Loan Agreement in the furtherance of remedies
or other activities previously discussed with VSBFA or contained in written
instructions from VSBFA, whether or not the specific action taken or not taken
was specifically discussed with VSBFA or contained in written instructions from
VSBFA and whether or not such action is deemed to have been taken or not taken
in bad faith.
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WITNESS the execution of these presents as of the date and year first above
written and duly authorized as required by applicable law.
INDUSTRIAL DEVELOPMENT AUTHORITY
OF MECKLENBURG COUNTY, VIRGINIA
BY /s/ Blaine G. Lenhart
----------------------------------
Blaine G. Lenhart, Vice Chairman
ATTEST:
BY /s/ Polly C. Johnson
- -----------------------------------
Polly C. Johnson, Secretary
(SEAL)
IN WITNESS WHEREOF Sherwood Foods, Inc., a North Carolina corporation,
causes this Economic Development Revolving Loan Fund Company Loan Agreement
dated as of June 20, 1996, to be executed in its behalf by Anat Schwartz, Vice
President, attested by Anat Schwartz, Secretary, pursuant to authority of its
Board of Directors by resolution duly adopted as its corporate act and deed as
of the date and year first above written.
SHERWOOD FOODS, INC., a North
Carolina corporation
By /s/ Anat Schwartz
-----------------------------
Anat Schwartz, Vice President
ATTEST:
/s/ Anat Schwartz
- -----------------------------
Anat Schwartz, Secretary
(SEAL)
Page 23 of 26
<PAGE>
THE GUARANTORS:
SHERWOOD FOODS, INC., a North
Carolina corporation
By /s/ Anat Schwartz
-----------------------------
Anat Schwartz, Vice President
ATTEST:
/s/ Anat Schwartz
- -----------------------------
Anat Schwartz, Secretary
(SEAL)
/s/ Uziel Frydman
--------------------------- (SEAL)
Uziel Frydman
Exhibit A -- Description of Property
Exhibit B -- Description of Equipment
Exhibit C -- Loan Repayment Table
Exhibit D -- Form of Promissory Note
Exhibit E -- Environmental Laws and Statutes
COMMONWEALTH OF VIRGINIA
COUNTY OF MECKLENBURG
I, Sarah H. Terman, a Notary Public in and for the County and State
aforesaid, do hereby certify that Blaine G. Lenhart, Vice Chairman, and Polly C.
Johnson, Secretary, of the Industrial Development Authority of Mecklenburg
County, Virginia, whose names are signed to the foregoing Company Loan Agreement
made as of June 20, 1996, have this day personally appeared before me and
acknowledge the execution thereof in my County and State aforesaid.
Given under my hand this 20th day of June, 1996.
My commission expires: April 30, 1998
Sarah H. Terman
-------------------------
Notary Public
Page 24 of 26
<PAGE>
COMMONWEALTH OF VIRGINIA
COUNTY OF MECKLENBURG
I, Sarah H. Terman, a Notary Public in and for the County and State
aforesaid certify that Anat Schwartz personally came before me this day and
acknowledged that she is Secretary of Sherwood Foods, Inc., a North Carolina
corporation, and that by authority duly given and as the act of the corporation,
the foregoing instrument was signed in its name by Anat Schwartz as Vice
President, sealed with its corporate seal and attested by Anat Schwartz, as its
Secretary.
Witness my hand and official seal this 20th day of June, 1996
My commission expires: April 30, 1998
Sarah H. Terman
-------------------------
Notary Public
COMMONWEALTH OF VIRGINIA
COUNTY OF MECKLENBURG
I, Sarah H. Terman, a Notary Public in and for the County and State
aforesaid certify that Anat Schwartz personally came before me this day and
acknowledged that she is Secretary of Sherwood Brands, Inc., a North Carolina
corporation, and that by authority duly given and as the act of the corporation,
the foregoing instrument was signed in its name by Anat Schwartz as Vice
President, sealed with its corporate seal and attested by Anat Schwartz, as its
Secretary.
Witness my hand and official seal this 20th day of June, 1996
My commission expires: April 30, 1998
Sarah H. Terman
-------------------------
Notary Public
Page 25 of 26
<PAGE>
COMMONWEALTH OF VIRGINIA
COUNTY OF MECKLENBURG
I, Sarah H. Terman, a Notary Public in and for the County and State
aforesaid, do hereby certify that Uziel Frydman whose name is signed to the
foregoing Company Loan Agreement made as of June 20, 1996, has this day
personally appeared before me and acknowledge the execution thereof in my County
and State aforesaid.
Given under my hand this 20th day of June, 1996.
My commission expires: April 30, 1998
Sarah H. Terman
-------------------------
Notary Public
Page 26 of 26
<PAGE>
THIS DEED, made this 17th day of April, 1996 by and between HAMPCO
APPAREL, INC. a Maryland Corporation, formerly known as Standard Garments, Inc.,
party of the first part (Grantor), and SHERWOOD FOODS, INC. a North Carolina
Corporation, of 6110 Executive Boulevard, Suite 1080, Rockville, Maryland 20852,
party of the second part (Grantee),
W I T N E S S E T H
That for and in consideration of the sum of TEN ($10.00) DOLLARS and other
legal and valuable considerations in hand paid the Grantor by the Grantee, at
and before the signing, sealing and delivery of this deed, the receipt of which
is hereby acknowledged, the Grantor does, by these presents, bargain, sell,
grant and convey unto SHERWOOD FOODS, INC., a North Carolina Corporation with
GENERAL WARRANTY and ENGLISH COVENANTS OF TITLE, all of the following described
real estate, to wit;
All that certain tract or parcel of land located in the Town of Chase City,
Mecklenburg County, Virginia, containing TEN AND 00/100 (10.00) ACRES, more
or less, as shown on a survey prepared by Crutchfield & Associates, Inc.,
dated April 11, 1996. Said survey is recorded in New Plat Book 8, page 277
and reference is made thereto for a more complete description of the said
10.00 acres and the metes and bounds description thereon is by reference
incorporated herein. Said property is bounded on the North by lands of
Parker Oil Company; on the East by lands of John D. and Jean S. Farmer; on
the South by lands of Okla W. Talbert; and, on the West by Virginia State
Route 92.
<PAGE>
REVOLVING LOAN FUND LOAN AGREEMENT
----------------------------------
THIS LOAN AGREEMENT, made and entered into this 15th day of May, 1996, by
and between SHERWOOD FOODS, INC., a North Carolina Corporation, (the
"Borrower"), and LAKE COUNTRY DEVELOPMENT CORPORATION, a Virginia non-stock
corporation, (the "Lender"); and SHERWOOD BRANDS, INC., a North Carolina
Corporation and UZIEL FRYDMAN, Individually, (the "Guarantors").
WHEREAS, the Borrower desires to borrow from Lender, funds to be used as
working capital for its manufacturing plant located in Chase City, Virginia (The
"Project"), the sum of Two Hundred Fifty Thousand and 00/100 Dollars
($250,000.00) to be secured as hereinafter provided; and
WHEREAS, the Borrower has agreed to secure said loan, real estate, fixtures
and equipment to be purchased for its manufacturing plant in Chase City,
Virginia, as security for said loan; and
WHEREAS, Borrower and Guarantors desire to further secure the loan by
guaranteeing the repayment thereof; and
WHEREAS, Borrower and Lender desire to set out certain terms and provisions
which will govern said loan.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH:
That for and in consideration of the loan of Two Hundred Fifty Thousand and
00/100 Dollars ($250,000.00) from Lender to Borrower and the mutual covenants
and promises hereinafter contained. Borrower and Lender agree as follows:
1. That Lender agrees to loan and does hereby loan to
Page 1 of 7 Pages
<PAGE>
Borrower the sum of Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00)
out of Lender's Revolving Loan Fund, the receipt whereof is hereby acknowledged.
2. Borrower shall make and deliver to Lender its promissory note in writing
requiring the repayment of the sum of Two Hundred Fifty Thousand and 00/100
Dollars ($250,000.00) to Lender sixty (60) months after date with interest at
the rate of five and one-quarter percent (5.25%) per annum at the office of
Lender, 200 South Mecklenburg Avenue, P. 0. Box 150, South Hill, Virginia 23970,
or at such other place as Lender may designate in writing. Payments under said
note shall be deemed late if not paid within fifteen (15) days of the due date,
and Borrower shall pay Lender a late penalty of five percent (5%) of all past
due principal and interest in the event of such late payment, calculated on the
accumulated late payments and penalties, as more particularly provided in the
Note.
3. Borrower and Lender agree that this loan shall be secured to Lender by a
lien from the Borrower securing this loan, real estate, fixtures and equipment
now acquired by its manufacturing plant in Chase City, Virginia. PROVIDED
HOWEVER this lien is subordinate to the lien of Central Fidelity Bank and the
same priority of the Virginia Revolving Loan Fund; and the default by the
borrower on the Central Fidelity Bank or the Virginia Revolving Loan Fund loan
shall constitute default on this loan.
4. Lender agrees that prepayment of principal may be made at any time
without penalty.
Page 2 of 7 Pages
<PAGE>
5. Borrower hereby covenants and agrees to maintain, or cause to be
maintained, fire and casualty insurance on the building, fixtures and equipment
which is the collateral for the land which is the subject of this agreement in
the amount of at least Two Hundred Fifty Thousand and 00/100 Dollars
($250,000.00), with Lake Country Development Corporation, or its assigns as
their interests may appear, named as an additional insured.
6. Borrower shall provide a copy of its in house financial statements to
lender on a quarterly basis. Annual audits are required by the Borrower. All
financial statements must be signed and dated.
7. Borrower will comply with the requirements and covenants as stated in
the LETTER OF CREDIT with Central Fidelity Bank dated April 17, 1996, which
letter is incorporated by reference and made a part of this agreement. (EXHIBIT
A).
8. Borrower hereby agrees to use all funds borrowed from Lake Country
Development Corporation for the purpose of working capital for the acquisition
of real estate, fixtures and equipment for its manufacturing plant located in
Chase City, Virginia, and in no event to use said funds for interest generating
purposes.
9. Borrower hereby agrees that if its facility is intended for use by the
public or for the employment of physically handicapped, it must be accessible to
the physically handicapped, pursuant to Public Law 90-480, as amended (42
U.S.C. 4151, et seq.), and the regulations issued thereunder.
10. Borrower hereby agrees to comply with all applicable
Page 3 of 7 Pages
<PAGE>
environmental protection laws and statutes including, but not limited to:
a. The Clean Air Act, as amended (42 U.S.C.7401, et seq.);
b. The Federal Water Pollution Control Act, as amended (33 U.S.C. 1251, et
seq.);
c. The Safe Drinking Water Act, Public Law 93-523, as amended (42 U.S.C.
300f-300j-9);
d. The Resource Conservation and Recovery Act of 1976, Public Law 94-580,
as amended (42 U.S.C. 6901);
e. The Comprehensive Environmental Response, Compensation and Liability Act
of 1980 (CERCLA), Public Law 96-510, as amended, by Superfund Amendments
and Reauthorization Act of 1986 (SARA) (42 U.S.C. 6091 et seq.);
f. All state and local environmental review requirements with all
applicable Federal, State and Local Standards.
11. Borrower hereby agrees that it shall be responsible for all closing
costs of this loan, and shall pay upon closing this loan to Lake Country
Development Corporation a fee of one percent (1.0 %) of the loan amount, which
fee is Two Thousand Five Hundred and 00/100 Dollars ($2,500.00), for its
administrative/service fee.
12. Sherwood Brands, Inc., Guarantor, shall provide a copy of its in house
financial statements to lender on a quarterly basis. Annual audits are required
by Sherwood Brands, Inc. A personal financial statement is also required by
Uziel Frydman on an annual basis. All financial statements must be signed and
dated.
13. If any clause, provision or section of this Revolving
Page 4 of 7 Pages
<PAGE>
Loan Fund Loan Agreement be held illegal or invalid by any court, the illegality
or invalidity of such clause, provision or section shall not affect any of the
remaining clauses, provisions or sections hereof, and this Revolving Loan Fund
Loan Agreement shall be construed and enforced as if such illegal or invalid
clause, provisions or sections had not been contained herein.
14. THE BORROWER ACKNOWLEDGES THAT THE FAILURE TO COMPLY WITH ANY PROVISION
OF THIS AGREEMENT MAY RESULT IN THE LENDER, AT ITS OPTION, ACCELERATING THE DUE
DATE OF THIS LOAN AND DECLARING THAT THE ENTIRE BALANCE, PRINCIPAL AND INTEREST,
SHALL BECOME DUE AND PAYABLE AT THE OPTION OF THE HOLDER OF THE PROMISSORY NOTE.
15. This Agreement shall be construed and interpreted according to the laws
of the Commonwealth of Virginia.
IN WITNESS WHEREOF, Lake Country Development Corporation, the Lender,
Sherwood Foods, Inc., the Borrower, and Sherwood Brands, Inc., (Guarantor), have
caused this agreement to be duly executed by their respective proper corporate
officers who have been duly and properly empowered to do so by proper resolution
of their respective boards of directors, and Uziel Frydman, (Individually), have
hereunto set their hands and seals, all on the day and year first above written.
SHERWOOD FOODS, INC.
A North Carolina Corporation
By: Uziel Frydman
------------------------------------
Title: President
---------------------------------
Page 5 of 7 Pages
<PAGE>
ATTEST:
/s/ [ILLEGIBLE]
- -------------------------------------
Secretary
LAKE COUNTRY DEVELOPMENT CORPORATION
A Virginia Non-Stock Corporation
By /s/ G. Morris Wells, Jr.
-------------------------------------
G. Morris Wells, Jr., President
ATTEST:
/s/ Joe C. Satterfield
- -------------------------------------
Joe Satterfield, Secretary
SHERWOOD BRANDS, INC.
A North Carolina Corporation, Guarantor
By /s/ Uziel Frydman
-------------------------------------
Title President
---------------------------------
ATTEST:
/s/ [ILLEGIBLE]
- -------------------------------------
Secretary
UZIEL FRYDMAN
/s/ Uziel Frydman
----------------------------------------
Individually, Guarantor
STATE OF VIRGINIA
COUNTY OF MECKLENBURG, to-wit:
The foregoing Revolving Loan Fund Loan Agreement was acknowledged before me
this 15th day of May, 1996, by UZIEL FRYDMAN, PRESIDENT, of Sherwood Foods,
Inc., a North Carolina Corporation.
/s/ Bruce E. Robinson
----------------------------------------
Notary Public
My commission expires: May 31, 1998.
Page 6 of 7 Pages
<PAGE>
STATE OF VIRGINIA
COUNTY OF MECKLENBURG, to-wit:
The foregoing Revolving Loan Fund Loan Agreement was acknowledged before me
this 15th day of May, 1996, by G. Morris Wells, Jr., President of Lake Country
Development Corporation, a Virginia Non-Stock Corporation.
/s/ Deborah B. Former
----------------------------------------
Notary Public
My commission expires: March 31, 2000.
STATE OF VIRGINIA
COUNTY OF MECKLENBURG, to-wit:
The foregoing Revolving Loan Fund Loan Agreement was acknowledged before me
this 15th day of May, 1996, by UZIEL FRYDMAN, PRESIDENT, of Sherwood Brands,
Inc., a North Carolina Corporation.
/s/ Bruce E. Robinson
----------------------------------------
Notary Public
My commission expires: May 31, 1998.
STATE OF VIRGINIA
COUNTY OF MECKLENBURG, to-wit:
The foregoing Revolving Loan Fund Loan Agreement was acknowledged before me
this 15th day of May, 1996, by Uziel Frydman, Individually.
/s/ Bruce E. Robinson
----------------------------------------
Notary Public
My commission expires: May 31, 1998.
Page 7 of 7 Pages
<PAGE>
PROMISSORY NOTE
---------------
$250,000.00 May 15, 1996
South Hill, Virginia
FOR VALUE RECEIVED, SHERWOOD FOODS, INC., a North Carolina Corporation,
promises to pay to the order of Lake County Development Corporation, a Virginia
Non-Stock Corporation, the sum of TWO HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS
($250,000.00), with interest thereon from date until paid, at Five and
One-Quarter Percent (5.25%) per annum, negotiable and payable at the office of
the payee, 200 South Mecklenburg Avenue, P. 0. Box 150, South Hill, Virginia
23970, or at such other place as the holder of the note may designate in writing
from time to time, without offset. It is further agreed by the makers and
endorsers hereof that time is of the essence. And the makers and endorsers
hereof waive the benefit of the homestead exemptions as to this debt; and waive
notice of maturity, presentment, demand, protest, and notice of nonpayment and
dishonor of this note; and agree to pay all costs of collection, including
reasonable attorney's fees, if it becomes necessary to place this note in the
hands of an attorney for collection. The makers and endorsers hereof agree that
15 days after the giving of 10 days notice to the undersigned of default (a) of
a payment of any installment hereof, or (b) in the observance of any uncured
violation of any covenant contained in the Revolving Loan Fund Loan Agreement,
or any other document executed in connection with this loan, the entire balance,
principal and interest, shall become due and payable at the option
Page 1 of 3 Pages
<PAGE>
of the holder or holders hereof. Failure to exercise said option shall not
constitute a waiver of the right to exercise the same in the event of any
subsequent default.
This note is payable in nine (9) equal monthly installments of interest
only in the amount of ONE THOUSAND NINETY THREE and 75/100 DOLLARS ($1,093.75)
each, commencing July 1, 1996 and ending March 1, 1997; and thereafter this note
is payable in fifty one (51) equal monthly payments of principal and interest of
FIVE THOUSAND FOUR HUNDRED SEVENTY NINE and 83/100 DOLLARS ($5,479.83) each,
commencing on the 1st day of April, 1997, and a like sum on the 1st day of each
and every month thereafter until paid, except if not sooner paid, the entire
indebtedness shall be due and payable on June 1, 2001.
Optional prepayment is permitted at any time in whole or in part without
penalty. Any such partial payment shall be applied to installments of principal
in inverse chronological order, but such prepayments shall not reduce the amount
of the monthly payments set forth above. Payments not received by the 15th day
of the month in which they are due shall be subject to a late charge of five
percent (5%), provided said late charge shall apply on the accumulated late
monthly installments and penalty as set forth herein or as determined in
accordance herewith, and shall not operate or be construed to apply to the
outstanding principal balance of this Note in the event the same becomes due and
payable prior to maturity.
Page 2 of 3 Pages
<PAGE>
IN WITNESS WHEREOF, SHERWOOD FOODS, INC., a North Carolina Corporation, has
caused this note to be duly executed by its proper corporate officers who have
been duly and properly empowered to do so by proper resolution of its board of
directors has exeucuted this note, this 15th day of May, 1996.
SHERWOOD FOODS, INC.,
A North Carolina Corporation
By /s/ Uziel Frydman
-------------------------------------
Title President
---------------------------------
ATTEST:
/s/ [ILLEGIBLE]
- -------------------------------------
Secretary
Page 3 of 3 Pages
<PAGE>
DEED OF TRUST
-------------
THIS DEED OF TRUST, made and entered into this 15th day of May, 1996, by
and between SHERWOOD FOODS, INC., a North Carolina Corporation, party of the
first part, and BRUCE E. ROBINSON, TRUSTEE, of South Hill, Virginia, party of
the second part;
WITNESSETH:
THAT for and in consideration of the sum of TEN DOLLARS ($10.00) cash in
hand paid, and other good and valuable consideration, the receipt of all of
which is hereby acknowledged, the said party of the first part does hereby grant
and convey with General Warranty of Title unto the said Bruce E. Robinson,
Trustee, the real estate described in the attached EXHIBIT A.
IN TRUST, to secure to Lake Country Development Corporation, a Virgina
Non-Stock Corporation, or its successors and assigns, the payment of a certain
promissory note bearing even date herewith in the principal sum of TWO HUNDRED
FIFTY THOUSAND 00/100 DOLLARS ($250,000.00) plus interest from date on the
unpaid balance until paid at the rate of Five and One-Quarter Percent (5.25%)
per annum, and made by Sherwood Foods, Inc., which loan will result in direct
financial benefits to said party of the first part. The said principal and
interest shall be payable at the office of Lake Country Development Corporation,
200 South Mecklenburg Avenue, P.O. Box 150, South Hill, Virginia 23970, or at
such other place as the holder may designate in writing, in nine (9) equal
monthly payments of interest only in the amount of ONE THOUSAND NINETY THREE and
75/100 DOLLARS ($1,093.75) each, commencing July 1, 1996 and ending
Page 1 of 5 Pages
<PAGE>
March 1, 1997; and thereafter this note is payable in fifty one (51) equal
monthly payments of principal and interest in the amount of FIVE THOUSAND FOUR
HUNDRED SEVENTY NINE and 83/100 DOLLARS ($5,479.83) each, commencing on the the
1st day of April, 1997, and a like sum on the 1st day of each and every month
thereafter until paid, except if not sooner paid, the entire indebtedness shall
be due and payable on June 1, 2001.
If all or any part of the property or an interest therein is sold or
transferred by Borrower without Lender's prior written consent, excluding (a)
the creation of a lien or encumbrance subordinate to this Deed of Trust, (b) a
transfer by devise, descent or by operation of law, or (c) the grant of any
leasehold interest of three years or less not containing an option to purchase,
Lender may, at Lender's option, declare all sums secured by this Deed of Trust
to be immediately due and payable. Lender shall have waived such option to
accelerate if, prior to the sale or transfer, Lender and the person to whom the
property is to be sold or transferred reach an agreement in writing that the
credit of such person is satisfactory to Lender and that the interest payable on
the sums secured by this Deed of Trust shall be at such rate as Lender shall
request. If Lender has waived the option to accelerate provided herein, and if
Borrower's successor in interest has executed a written assumption agreement
accepted in writing by Lender, Lender shall release Borrower from all
obligations under this Deed of Trust and Note.
If Lender exercises such option to accelerate, Lender shall
Page 2 of 5 Pages
<PAGE>
mail Borrower notice of acceleration by certified mail addressed to Borrower;
such notice shall provide a period of not less than 30 days from the date the
notice is mailed within which Borrower may pay the sums declared due. If
Borrower fails to pay such sums prior to the expiration of such period, Lender
may, without further notice or demand on Borrower, invoke any remedies permitted
by this Deed of Trust.
This Deed of Trust constitutes a second lien on this property and is
subordinate to deed of trust to Central Fidelity Bank.
This Deed of Trust is made subject to and shall be construed and executed
in accordance with Sections 55-59 and 55-60 of the Code of Virginia of 1950,
as amended, and in short form as said sections provide: Subject to all upon
default; Exemptions waived; Right of anticipation reserved; Renewal or extension
permitted; Insurance required: $250,000.00; Substitution of trustee permitted;
Advertising required: by publication for once a week for at least two
consecutive weeks in at least one newspaper of general circulation in
Mecklenburg County, Virginia, and such other as the Trustee may deem advisable.
IN WITNESS WHEREOF, Sherwood Foods, Inc., a North Carolina Corporation has
caused this agreement to be executed by its officers, all on the day and year
first above written.
SHERWOOD FOODS, INC.,
A North Carolina Corporation
By /s/ Uziel Frydman
-------------------------------------
Title President
---------------------------------
Page 3 of 5 Pages
<PAGE>
ATTEST:
/s/ [ILLEGIBLE]
- -------------------------------------
Secretary
STATE OF VIRGINIA
COUNTY OF MECKLENBURG, to-wit:
The foregoing instrument was acknowledged before me this 15th day of May,
1996, by UZIEL FRYDMAN, PRESIDENT of Sherwood Foods, Inc., a North Carolina
Corporation.
----------------------------------------
Notary Public
My commission expires:
---------------------------------.
Page 4 of 5 Pages
<PAGE>
Sherwood Foods, Inc. Deed of Trust
EXHIBIT A
ALL that certain tract or parcel of land located in the Town of Chase City,
Mecklenburg County, Virginia, containing TEN AND 00/100 (10.00) ACRES, more or
less, as shown on a survey prepared by Crutchfield & Associates, Inc., dated
April 11, 1996. Said survey is recorded in the Clerk's Office of the Circuit
Court of Mecklenburg County, Virginia, in New Plat Book 8, page 277, and
reference is made thereto for a more complete description of the said 10.00
acres and the metes and bounds description thereon is by reference incorporated
herein. Said property is bounded on the North by lands of Parker Oil Company; on
the East by lands of John D. and Jean S. Farmer; on the South by lands of Okla
W. Talbert; and on the West by Virginia State Route 92.
BEING the same real estate conveyed to Sherwood Foods, Inc., a North Carolina
Corporation, by deed from Hampco Apparel, Inc., formerly known as Standard
Garments, Inc., dated April 17, 1996, recorded April 18, 1996, in the aforesaid
Clerk's Office in Deed Book 500, page 360.
Page 5 of 5
<PAGE>
GUARANTY OF NOTE
----------------
May 15, 1996
WHEREAS, SHERWOOD FOODS, INC., a North Carolina Corporation, (hereinafter
called the "Borrower") desires to borrow TWO HUNDRED FIFTY THOUSAND and 00/100
Dollars ($250,000.00) from Lake Country Development Corporation, Non-Stock
Virginia Corporation, (hereinafter called the "Lender") to be evidenced by
Borrower's note (hereinafter call the "Note") bearing even date herewith and
payable to Lake Country Development Corporation.
NOW, THEREFORE, in consideration of the promises and other good and
valuable consideration, and in order to induce Lake Country Development
Corporation to make the loan referred to above from its Revolving Loan Fund, the
undersigned hereby individually guarantee to the Lender the payment of the Note
in a sum up to, but not in excess of, TWO HUNDRED FIFTY THOUSAND and 00/100
Dollars ($250,000.00) plus interest and collection fees thereon, and to that
end, the undersigned individually agree to make such payment to Lender if there
shall be any default by the Borrower in the payment of the Note.
Except for the limitation on the amount of the maximum liability of the
undersigned, this is an unconditional guarantee and the liability of the
undersigned to the Lender shall not be further limited to a proportionate part
of the total liability of the Borrower of the Note.
This is a guarantee of payment and not of collection.
The undersigned hereby agree, upon demand, to reimburse the
Page 1 of 2 Pages
<PAGE>
Lender, to the extent that such reimbursement is not made by the Borrower, for
all expenses, including the cost of collection (including reasonable attorney
fees) incurred by the Lender in connection with the Note or the obligations of
the undersigned hereunder or the collection thereof.
No delay on the part of the Lender in exercising any rights hereunder or
failure to exercise the same shall operate as a waiver of such rights, and each
reference herein to the Lender shall be deemed to include its successors and
assigns, in whose favor the provisions of this guarantee shall also insure.
WITNESS the following signatures and seals:
SHERWOOD BRANDS, INC.
A North Carolina Corporation
GUARANTOR
By /s/ Uziel Frydman
-------------------------------------
Title President
---------------------------------
ATTEST:
/s/ [ILLEGIBLE]
- -------------------------------------
Secretary
UZIEL FRYDMAN, GUARANTOR
/s/ Uziel Frydman
----------------------------------------
Individually
Page 2 of 2 Pages
<PAGE>
FIRST UNION
LOAN AGREEMENT
First Union National Bank of Maryland
1970 Chain Bridge Road
McLean, Virginia 22102
(Hereinafter referred to as the "Bank")
Sherwood Brands, Inc.
6110 Executive Boulevard
Rockville, Maryland 20852
Sherwood Brands Overseas, Inc.
6110 Executive Boulevard
Rockville, Maryland 20852
(Individually and collectively "Borrower")
This Loan Agreement ("Agreement") is entered into effective November 29, 1996,
by and between Bank and Borrower, a Corporation organized under the laws of
North Carolina, and a Corporation organized under the laws of the Bahamas,
respectively.
Borrower has applied to Bank for extensions of credit as follows:
Line of Credit - in the principal amount of $2,000,000.00 which is evidenced by
the Promissory Note dated November 29, 1996 ("Line of Credit Note"), under which
Borrower may borrow, repay, and reborrow, from time to time, so long as the
total indebtedness outstanding at any one time does not exceed the principal
amount. The Loan proceeds are to be used by Borrower solely for collection of
accounts receivable and the purchase of inventory, to include raw materials.
Bank's obligation to advance or readvance under the Line of Credit Note shall
terminate if Borrower is in Default under the Line of Credit Note.
Letters of Credit - letters of credit issued and to be issued for the benefit of
Borrower in the amount of $2,000,000.00 and the reimbursement obligations
thereunder.
Foreign Exchange Obligations - forward foreign exchange and foreign exchange
option transactions and any other swap agreements (as defined in 11 U.S.C. ss.
101).
The foregoing are referred to herein individually and collectively as the "Note"
or the "Loan".
This Agreement also amends and restates in its entirety that certain Loan
Agreement dated November 30, 1995 and applies to govern all of the loans
thereby.
This Agreement applies to the Loan and all Loan Documents. The terms "Loan
Documents" and "Obligations," as used in this Agreement, are defined in the
Note. The term "Borrower" shall include its Subsidiaries and Affiliates. As used
in this Agreement as to Borrower, "Subsidiary" shall mean any corporation of
which more than 50% of the issued and outstanding voting stock is owned directly
or indirectly by Borrower. As to Borrower, "Affiliate" shall have the meaning as
defined in 11 U.S.C. ss. 101, except that the term "debtor" therein shall be
substituted by the term "Borrower" herein.
Relying upon the covenants, agreements, representations and warranties contained
in this Agreement, Bank is willing to extend credit to Borrower upon the terms
and subject to the conditions set forth herein, and Bank and Borrower agree as
follows:
<PAGE>
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final payment in full of the Obligations: Accurate Information. All
information now and hereafter furnished to Bank is and will be true, correct and
complete. Any such information relating to Borrower's financial condition will
accurately reflect Borrower's financial condition as of the date(s) thereof,
(including all contingent liabilities of every type), and Borrower further
represents that its financial condition has not changed materially or adversely
since the date(s) of such documents. Authorization; Non-Contravention. The
execution, delivery and performance by Borrower and any guarantor, as
applicable, of this Agreement and other Loan Documents to which it is a party
are within its power, have been duly authorized by all necessary action taken by
the duly authorized officers of Borrower and any guarantors and, if necessary,
by making appropriate filings with any governmental agency or unit and are the
legal, binding, valid and enforceable obligations of Borrower and any
guarantors; and do not (i) contravene, or constitute (with or without the giving
of notice or lapse of time or both) a violation of any provision of applicable
law, a violation of the organizational documents of Borrower or any guarantor,
or a default under any agreement, judgment, injunction, order, decree or other
instrument binding upon or affecting Borrower or any guarantor, (ii) result in
the creation or imposition of any lien (other than the lien(s) created by the
Loan Documents) on any of Borrower's or guarantor's assets, or (iii) give cause
for the acceleration of any obligations of Borrower or any guarantor to any
other creditor. Asset Ownership. Borrower has good and marketable title to all
of the properties and assets reflected on the balance sheets and financial
statements supplied Bank by Borrower, and all such properties and assets are
free and clear of mortgages, security deeds, pledges, liens, charges, and all
other encumbrances, except as otherwise disclosed to Bank by Borrower in writing
("Permitted Liens"). To Borrower's knowledge, no default has occurred under any
Permitted Liens and no claims or interests adverse to Borrower's present rights
in its properties and assets have arisen. Discharge of Liens and Taxes. Borrower
has duly filed, paid and/or discharged all taxes or other claims which may
become a lien on any of its property or assets, except to the extent that such
items are being appropriately contested in good faith and an adequate reserve
for the payment thereof is being maintained. Sufficiency of Capital. Borrower is
not, and after consummation of this Agreement and after giving effect to all
indebtedness incurred and liens created by Borrower in connection with the Loan,
will not be, insolvent within the meaning of 11 U.S.C. ss. 101(32). Compliance
with Laws. Borrower is in compliance in all respects with all federal, state and
local laws, rules and regulations applicable to its properties, operations,
business, and finances, including, without limitation, any federal or state laws
relating to liquor (including 18 U.S.C. ss. 3617, et seq.) or narcotics
(including 21 U.S.C. ss. 801, et seq.) and/or any commercial crimes; all
applicable federal, state and local laws and regulations intended to protect the
environment; and the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), if applicable. Organization and Authority. Each corporate or
limited liability company Borrower and any guarantor, as applicable, is duly
created, validly existing and in good standing under the laws of the state of
its organization, and has all powers, governmental licenses, authorizations,
consents and approvals required to operate its business as now conducted. Each
corporate or limited liability company Borrower and any guarantor, if any, is
duly qualified, licensed and in good standing in each jurisdiction where
qualification or licensing is required by the nature of its business or the
character and location of its property, business or customers, and in which the
failure to so qualify or be licensed, as the case may be, in the aggregate,
could have a material adverse effect on the business, financial position,
results of operations, properties or prospects of Borrower or any such
guarantor. No Litigation. There are no pending or threatened suits, claims or
demands against Borrower or any guarantor that have not been disclosed to Bank
by Borrower in writing.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will: Business Continuity. Conduct its business in
substantially the same manner and locations as such business is now and has
previously been conducted. Maintain Properties. Maintain, preserve and keep its
property in good repair, working order and condition, making all needed
replacements,
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additions and improvements thereto, to the extent allowed by this Agreement.
Access to Books & Records. Allow Bank, or its agents, during normal business
hours, access to the books, records and such other documents of Borrower as Bank
shall reasonably require, and allow Bank to make copies thereof at Bank's
expense. Insurance. Maintain adequate insurance coverage with respect to its
properties and business against loss or damage of the kinds and in the amounts
customarily insured against by companies of established reputation engaged in
the same or similar businesses including, without limitation, commercial general
liability insurance, workers compensation insurance, and business interruption
insurance; all acquired in such amounts and from such companies as Bank may
reasonably require. Notice of Default and Other Notices. (a) Notice of Default.
Furnish to Bank immediately upon becoming aware of the existence of any
condition or event which constitutes a Default (as defined in the Loan
Documents) or any event which, upon the giving of notice or lapse of time or
both, may become a Default, written notice specifying the nature and period of
existence thereof and the action which Borrower is taking or proposes to take
with respect thereto. (b) Other Notices. Promptly notify Bank in writing of (i)
any material adverse change in its financial condition or its business; (ii) any
default under any material agreement, contract or other instrument to which it
is a party or by which any of its properties are bound, or any acceleration of
the maturity of any indebtedness owing by Borrower; (iii) any material adverse
claim against or affecting Borrower or any part of its properties; (iv) the
commencement of, and any material determination in, any litigation with any
third party or any proceeding before any governmental agency or unit affecting
Borrower; and (v) at least 30 days prior thereto, any change in Borrower's name
or address as shown above, and/or any change in Borrower's structure. Compliance
with Other Agreements. Comply with all terms and conditions contained in this
Agreement, and any other Loan Documents, and swap agreements, if applicable, as
defined in the Note. Payment of Debts. Pay and discharge when due, and before
subject to penalty or further charge, and otherwise satisfy before maturity or
delinquency, all obligations, debts, taxes, and liabilities of whatever nature
or amount, except those which Borrower in good faith disputes. Reports and
Proxies. Deliver to Bank, promptly, a copy of all financial statements, reports,
notices, and proxy statements, sent by Borrower to stockholders, and all regular
or periodic reports required to be filed by Borrower with any governmental
agency or authority. Other Financial Information. Deliver promptly such other
information regarding the operation, business affairs, and financial condition
of Borrower which Bank may reasonably request. Non-Default Certificate From
Borrower. Deliver to Bank, with the Financial Statements required herein, a
certificate signed by Borrower, if Borrower is an individual, or by a principal
financial officer of Borrower warranting that no "Default" as specified in the
Loan Documents nor any event which, upon the giving of notice or lapse of time
or both; would constitute such a Default, has occurred. Estoppel Certificate.
Furnish, within 15 days after request by Bank, a written statement duly
acknowledged of the amount due under the Loan and whether offsets or defenses
exist against the Obligations. Deposit Relationship. Maintain its primary
depository account and cash management account with Bank. Examinations. Borrower
will allow Bank to perform Collateral examinations on an annual basis at the
Borrower's expense. The expense of the examination will be preapproved by the
Borrower in writing before any examination will commence.
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will not: Default on Other Contracts or
Obligations. Default on any material contract with or obligation when due to a
third party or default in the performance of any obligation to a third party
incurred for money borrowed. Judgment Entered. Permit the entry of any monetary
judgment or the assessment against, the filing of any tax lien against, or the
issuance of any writ of garnishment or attachment against any property of or
debts due Borrower. Government Intervention. Permit the assertion or making of
any seizure, vesting or intervention by or under authority of any government by
which the management of Borrower or any guarantor is displaced of its authority
in the conduct of its respective business or such business is curtailed or
materially impaired. Prepayment of Other Debt. Retire any long-term debt entered
into prior to the date of this Agreement at a date in advance of its legal
obligation to do so. Retire or Repurchase Capital Stock. Retire or otherwise
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acquire any of its capital stock. Guarantees. Guarantee or otherwise become
responsible for obligations of any other person, corporation or entity except
for the endorsement of negotiable instruments by Borrower or its subsidiary, if
any, in the ordinary course of business for collection, as unconditional
guarantor of debt incurred by Sherwood Foods, Inc. in the aggregate amount of
$2,165,000.00 and as conditional guarantor of debt incurred by Sherwood Foods,
Inc. for an aggregate of $1,360,000.00. The latter conditional guarantee is
subject to wording acceptable to the Bank that the Borrower is obligated only to
not impede creditor access to certain items of machinery and equipment to be
acquired by Sherwood Foods, Inc. in the event of default on said loans or leases
with no other responsibility to perform. Encumbrances. Create, assume, or permit
to exist any mortgage, security deed, deed of trust, pledge, lien, charge or
other encumbrance on any of its assets, whether now owned or hereafter acquired,
other than: (i) security interests required by the Loan Documents; (ii) liens
for taxes contested in good faith; (iii) liens accruing by law for employee
benefits; or (iv) Permitted Liens as defined in this Agreement.
FINANCIAL COVENANTS. Borrower, on a consolidated basis, agrees to the following
provisions from the date of this Agreement and until final payment in full of
the Obligations, unless Bank shall otherwise consent in writing: Current Ratio.
Borrower shall, at all times, maintain a Current Ratio of not less than 1.50 to
1.00. "Current Ratio" shall mean the ratio of consolidated current assets to
consolidated current liabilities. Tangible Net Worth. Borrower shall, at all
times, maintain a Consolidated Tangible Net Worth of at least $2,300,000.00.
"Consolidated Tangible Net Worth" shall mean, at any time, the Net Worth less
the total of (1) all assets which would be classified as intangible assets under
GAAP, including goodwill, trademarks, trademark applications and licenses, and
deferred charges, (2) leasehold improvements, (3) applicable reserves,
allowances and other similar properly deductible items to the extent such
reserves, allowances, and other similar properly deductible items have not been
previously deducted by the Bank in the calculation of Net Worth, (4) any
revaluation or other write-up in book value of assets subsequent to the date of
the most recent financial statements deliver to the Bank, and (5) the amount to
fall loans, advances to, or investments in, any individual or entity, excluding
cash equivalents and deposit accounts maintained by the Borrower and its
consolidated subsidiaries with any financial institution and (6) accounts
receivable from an affiliate of the Borrower, excluding debt fully subordinated
to Bank, after subtracting therefrom the aggregate amount of any intangible
assets of Borrower, and its subsidiaries, (including without limitation,
goodwill, franchise, licenses, patents, trademarks, trade names, copyrights,
service marks, and brand names). Debt/Worth Ratio. Borrower shall at all times
maintain a Consolidated Total Liabilities, including debt fully subordinated to
Bank, to Consolidated Tangible Net Worth ratio of not more than 2.50 to 1.00.
For purposes of this computation, "Consolidated Total Liabilities" shall mean
all liabilities of the Borrower and its subsidiaries, including capitalized
leases and all reserves for deferred taxes and other deferred sums appearing on
the liabilities of the balance sheet of the Borrower and its subsidiaries, in
accordance with generally accepted accounting principles applied on a consistent
basis. Fixed Assets. Borrower shall not during any fiscal year, expend on gross
fixed assets (including fixed gross leases to be capitalized under generally
acceptable accounting principals and leasehold improvements) an amount exceeding
$75,000.00 in the aggregate. Leases. Borrower shall not incur, create, or assume
any direct or indirect liability for the payment of rent or otherwise, under any
lease or rental arrangement (excluding capitalized leases) if immediately
thereafter the sum of such lease or rental payments to be made by Borrower
during any 12-month period is increased by $50,000.00 in the aggregate.
Limitation on Debt. Borrower shall not, directly or indirectly, create, incur,
assume or become liable for, contingent or otherwise, for any funded debt if,
upon giving effect to such incurrence on a pro forma basis, the aggregate amount
of debt incurred shall exceed $100,000.00. Loans and Advances. Borrower shall
not make loans or advances, excepting ordinary course of business travel and
expense advances, to any person or entity, which total more than $25,000.00 in
the aggregate, with the exception of loans or advances to Borrower's affiliate,
Sherwood Foods, Inc. in which the aggregate limit shall be $500,000.00.
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ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 90 days
after the close of each fiscal year, audited financial statements reflecting its
operations and that of its affiliate, Sherwood Foods, Inc. during such fiscal
year, including, without limitation, a balance sheet, profit and loss statement
and statement of cash flows, with supporting schedules; all on a consolidated
and consolidating basis and in reasonable detail, prepared in conformity with
generally accepted accounting principles, applied on a basis consistent with
that of the preceding year. All such statements shall be examined by an
independent certified public accountant acceptable to Bank. The opinion of such
independent certified public accountant shall not be acceptable to Bank if
qualified due to any limitations in scope imposed by Borrower or its
Subsidiaries, if any. Any other qualification of the opinion by the accountant
shall render the acceptability of the financial statements subject to Bank's
approval.
PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank unaudited
management-prepared quarterly financial statements on its operations and that of
its affiliate, Sherwood Foods, Inc., including, without limitation, a balance
sheet, profit and loss statement and statement of cash flows, with supporting
schedules, as soon as available and in any event within 45 days after the close
of each such period; all in reasonable detail and prepared in conformity with
generally accepted accounting principles, applied on a basis consistent with
that of the preceding year. Such statements shall be certified as to their
correctness by a principal financial officer of Borrower.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information shall be true, complete, and accurate.
BORROWING BASE. As to the Line of Credit Note in the principal amount of
$2,000,000.00, and any Letters of Credit issued, the following provisions shall
apply:
Borrowing Limitation. The maximum principal amount that Borrower may borrow
shall be the lesser of the principal amount stated in the Line of Credit Note
or the maximum principal amount allowed under this addendum (the "Maximum
Principal Amount").
The Maximum Principal Amount shall be an amount equal to 80% of domestic
accounts receivable, cross-aged, less than 61 days past due; plus 70% of
domestically-owned and held finished goods inventory; less the aggregate amount
of all outstanding letters of credit. Inventory advances are capped at
$1,500,000.00 with the exception of the months of June, July, and August during
which there will be no advance rate cap on inventory. Cross-aged shall be
defined as accounts where no more than 30% of their original invoices are more
than 61 days past due from the original date of invoice.
"Eligible Account" refers to an account receivable not more than 61 days from
the date of the original invoice that arises in the ordinary course of
Borrower's business and meets the following eligibility requirements: (a) the
sale of goods or services reflected in such account is final and such goods and
services have been delivered or provided and accepted by the account debtor and
payment for such is owing; (b) the invoices comprising an account are not
subject to any claims, returns or disputes of any kind; (c) the account debtor
is not insolvent; (d) the account debtor has its principal place of business in
the United States; (e) the account debtor is not an affiliate of Borrower and is
not a supplier to Borrower and the account is not otherwise exposed to risk of
set-off; (f) not more than thirty percent of the original invoices owing
Borrower by the account debtor are more than sixty days from the date of the
original invoice.
"Eligible Inventory" means inventory of raw material and finished goods in
Borrower's possession that is held for use or sale in the ordinary course of
Borrower's business and is not unmerchantable or obsolete and is subject to a
first priority perfected security interest in favor of Bank. The value of the
inventory will be determined by Bank and will be valued at the lower of cost or
market on a first-in, first-out basis.
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Required Reports. Borrower shall certify to Bank by the tenth day of each month,
the amount of Eligible Accounts and the value of Eligible Inventory as of the
first day of each month, in a Inventory Report and an Accounts Receivable Aging
Listing Report together with all detail and supporting documents requested by
Bank. Bank may at any time and from time to time, during Bank's normal business
hours, enter upon any business premises of Borrower and audit Borrower's
accounts and inventory. Bank's determination of the amount of Eligible Accounts
and the value of Eligible Inventory shall at all times be indisputable and
deemed correct. The Borrower, at all times, shall cooperate with Bank without
limitation by providing Bank information and access to Borrower's premises and
business records and shall be courteous to Bank's agents.
Continuing Representations. Borrower warrants and represents as a continuing
warranty, that so long as principal is outstanding under the Line of Credit
Note, the outstanding principal balance shall not exceed the lesser of the
Maximum Principal Amount or the principal amount stated in the Line of Credit
Note (the "Borrowing Limit"). Borrower agrees to pay any advances in excess of
the Borrowing Limit immediately upon receipt by Borrower of written notice that
the Borrowing Limit has been exceeded.
CONDITIONS PRECEDENT. The obligations of Bank to make the Loan and any advances
pursuant to this Agreement are subject to the following conditions precedent:
Additional Documents. Receipt by Bank of such additional supporting documents as
Bank or its counsel may reasonably request.
IN WITNESS WHEREOF, Borrower and Bank, effective as of the day and year first
written above, have caused this Agreement to be executed under seal.
Sherwood Brands, Inc.
Taxpayer Identification Number: 56-1422582
CORPORATE By: /s/ Anat Schwartz
SEAL ------------------------------------
Title: Vice President
---------------------------------
Sherwood Brands Overseas, Inc.
Taxpayer Identification Number: ____
CORPORATE By: /s/ Anat Schwartz
SEAL ------------------------------------
Title: Director
---------------------------------
First Union National Bank of Maryland
By:
---------------------------------
Title:
-------------------------------
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FIRST UNION
PROMISSORY NOTE
$2,000,000.00
November 29, 1996
Sherwood Brands, Inc.
6110 Executive Boulevard, Suite 1080
Rockville, Maryland 20852
Sherwood Brands Overseas, Inc.
6110 Executive Boulevard, Suite 1080
Rockville, Maryland 20852
(Individually and collectively "Borrower")
First Union National Bank of Maryland
1970 Chain Bridge Road
McLean, Virginia 22102
(Hereinafter referred to as the "Bank")
RENEWAL/MODIFICATION. This Promissory Note renews, extends and/or modifies that
certain Promissory Note dated November 30, 1995, evidencing an original
principal indebtedness of $2,000,000.00. This Promissory Note is not a novation.
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum of Two Million and No/100 Dollars ($2,000,000.00) or such sum
as may be advanced from time to time with interest on the unpaid principal
balance at the rate and on the terms provided in this Promissory Note (including
all renewals, extensions or modifications hereof, this "Note").
SECURITY. Sherwood Brands, Inc. has granted Bank a security interest in the
collateral described in the Loan Documents, including, but not limited to,
personal property collateral described in that certain Security Agreement dated
November 30, 1995; Sherwood Brands Overseas, Inc. has granted Bank a security
interest in the collateral described in the Loan Documents, including, but not
limited to, personal property collateral described in that certain Security
Agreement dated November 29, 1996; and Uziel and Ilana Frydman have granted Bank
a security interest in real property described in that certain Indemnity Deed of
Trust dated November 30, 1995.
INTEREST RATE. Interest shall accrue on the unpaid principal balance of this
Note from the date hereof at the rate of Bank's Prime Rate as that rate may
change from time to time with changes to occur on the date Bank's Prime Rate
changes ("Interest Rate"). Bank's Prime Rate shall be that rate announced by
Bank from time to time as its Prime Rate and is one of several interest rate
bases used by Bank. Bank lends at rates both above and below Bank's Prime Rate,
and Borrower acknowledges that Bank's Prime Rate is not represented or intended
to be the lowest or most favorable rate of interest offered by Bank.
DEFAULT RATE. In addition to all other rights contained in this Note, if a
Default (defined herein) occurs and as long as a Default continues, all
outstanding Obligations shall bear interest at the Interest Rate plus 3%
("Default Rate"). The Default Rate shall also apply from acceleration until the
Obligations or any judgment thereon is paid in full.
INTEREST COMPUTATION. (Actual/360). Interest shall be computed on the basis of a
360-day year for the actual number of days in the interest period ("Actual/360
Computation"). The Actual/360 Computation determines the annual effective
interest yield by taking the stated (nominal) interest rate for a year's period
and then dividing said rate by 360 to determine the daily periodic rate to be
applied for each day in the interest period. Application of the Actual/360
Computation produces an annualized effective interest rate exceeding that of the
nominal rate.
<PAGE>
REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly
payments of accrued interest only commencing on December 31, 1996, and on the
last day of each month thereafter until fully paid. In any event, all principal
and accrued interest shall be due and payable on November 30, 1997.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for application
toward payment of the Obligations shall be applied to accrued interest and then
to principal. If a Default occurs, monies may be applied to the Obligations in
any manner or order deemed appropriate by Bank.
If any payment received by Bank under this Note or other Loan Documents is
rescinded, avoided or for any reason returned by Bank because of any adverse
claim or threatened action, the returned payment shall remain payable as an
obligation of all persons liable under this Note or other Loan Documents as
though such payment had not been made.
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note and
other Loan Documents refers to all documents executed in connection with the
loan evidenced by this Note and may include, without limitation, a commitment
letter that survives closing, a loan agreement, this Note, guaranty agreements,
security agreements, security instruments, financing statements, mortgage
instruments, letters of credit and any renewals or modifications, but however,
does not include swap agreements as defined in 11 U.S.C. ss. 101 whenever
executed.
The term "Obligations" used in this Note refers to any and all indebtedness and
other obligations under this Note, all other obligations as defined in the
respective Loan Documents, and all obligations under any swap agreements as
defined in 11 U.S.C. ss. 101 between Borrower and Bank whenever executed.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to 5% of each payment past due for 15 or more days.
Acceptance by Bank of any late payment without an accompanying late charge shall
not be deemed a waiver of Bank's right to collect such late charge or to collect
a late charge for any subsequent late payment received.
If this Note is secured by owner-occupied residential real property located
outside the state in which the office of Bank first shown above is located, the
late charge laws of the state where the real property is located shall apply to
this Note, or if permitted under the law of that state, 5% of each payment past
due for 10 or more days.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Obligations,
including, without limitation, reasonable arbitration, paralegals', attorneys'
and experts' fees and expenses, whether incurred without the commencement of a
suit, in any trial, arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.
USURY. Regardless of any other provision of this Note or other Loan Documents,
if for any reason the effective interest should exceed the maximum lawful
interest, the effective interest shall be deemed reduced to, and shall be, such
maximum lawful interest, and (i) the amount which would be excessive interest
shall be deemed applied to the reduction of the principal balance of this Note
and not to the payment of interest, and (ii) if the loan evidenced by this Note
has been or is thereby paid in full, the excess shall be returned to the party
paying same, such application to the principal balance of this Note or the
refunding of excess to be a complete settlement and acquittance thereof.
BORROWER'S ACCOUNTS. Except as prohibited by law, Borrower grants Bank a
security interest in all of Borrower's accounts with Bank and any of its
affiliates.
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CURE PERIOD. "Cure Period" shall be ten (10) days from the mailing of notice or
courier by next day delivery of the applicable event with respect to payment
defaults and thirty (30) days from the mailing of notice of the applicable event
with respect to any violation of Affirmative, Negative and Financial Covenants
in the Loan Agreement dated November 29, 1996.
DEFAULT. If any of the following occurs and is not cured within the applicable
Cure Period, a default ("Default") under this Note shall exist: Nonpayment;
Nonperformance. The failure of timely payment or performance of the Obligations
under this Note or any other Loan Documents. False Warranty. A warranty or
representation made in the Loan Documents or furnished Bank in connection with
the loan evidenced by this Note proves materially false, or if of a continuing
nature, becomes materially false. Cross Default. At Bank's option, any default
in payment or performance of any obligation under any other loans, contracts or
agreements of Borrower, any Subsidiary or Affiliate of Borrower, any general
partner of or the holder(s) of the majority ownership interests of Borrower with
Bank or its affiliates ("Affiliate" shall have the meaning as defined in 11
U.S.C. ss. 101, except that the term "debtor" therein shall be substituted by
the term "Borrower" herein; "Subsidiary" shall mean any corporation of which
more than 50% of the issued and outstanding voting stock is owned directly or
indirectly by Borrower). Cessation; Bankruptcy. The death of, appointment of
guardian for, dissolution of, termination of existence of, loss of good standing
status by, appointment of a receiver for, assignment for the benefit of
creditors of, or commencement of any bankruptcy or insolvency proceeding by or
against the Borrower, its Subsidiaries or Affiliates, if any, or any general
partner of or the holder(s) of the majority ownership interests of Borrower, or
any party to the Loan Documents. Material Capital Structure or Business
Alteration. Without prior written consent of Bank, (i) a material alteration in
the kind or type of Borrower's business or that of its Subsidiaries or
Affiliates, if any; (ii) the acquisition of substantially all of Borrower's, any
Subsidiary's, any Affiliate's, or guarantor's business or assets, or a material
portion (10% or more) of such business or assets if such a sale is outside
Borrower's, any Subsidiary's, any Affiliate's or any guarantor's, ordinary
course of business, or more than 50% of its outstanding stock or voting power in
a single transaction or a series of transactions; (iii) the acquisition of
substantially all of the business or assets or more than 50% of the outstanding
stock or voting power of any other entity; or (iv) should any Borrower,
Subsidiary, Affiliate, or guarantor enter into any merger or consolidation.
REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan
Documents, Bank may at any time thereafter, take the following actions: Bank
Lien and Set-off. Exercise its right of set-off or to foreclose its security
interest or lien against any account of any nature or maturity of Borrower with
Bank without notice. Acceleration Upon Default. Accelerate the maturity of this
Note and all other Obligations, and all of the Obligations shall be immediately
due and payable. Cumulative. Exercise any rights and remedies as provided under
the Note and other Loan Documents, or as provided by law or equity.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information shall be true, complete, and accurate.
CONFESSION OF JUDGMENT. If a Default occurs under this Note, each Borrower
hereby authorizes any attorney designated by Bank or any clerk of any court of
record to appear for it in any court of record and confess judgment against it
without prior hearing, in favor of Bank for and in the amount of the Obligations
then outstanding plus interest accrued and unpaid thereon, all other amounts
then due and payable under this Note or other Loan Documents, costs of suit and
attorneys' fees in an amount equal to 15% of the Obligations then outstanding
(which shall be deemed reasonable attorneys' fees for the purposes of this
paragraph). The authority and power to appear for and enter judgment against the
Borrower shall not be exhausted by one or more exercises thereof, or by any
imperfect exercise thereof, and shall not be extinguished by any judgment
entered pursuant thereto. Such authority and power may be exercised on one or
more occasions, from time to time, in the same or different jurisdictions, as
often as Bank shall deem necessary or desirable, for all of which this Note
shall be a sufficient warrant. Notwithstanding any provision or waiver contained
herein to the contrary, Borrower shall have all rights and remedies
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available to a defendant under Rule 2-611 Maryland Rules of Procedure of the
Annotated Code of Maryland, as amended.
LINE OF CREDIT ADVANCES. Borrower may borrow, repay and reborrow, and Bank may
advance and readvance under this Note respectively from time to time, so long as
the total indebtedness outstanding at any one time does not exceed the principal
amount stated on the face of this Note. Bank's obligation to advance or
readvance under this Note shall terminate if Borrower is in Default under this
Note.
LOAN AGREEMENT. This Note is subject to the provisions of that certain Loan
Agreement between Bank and Borrower dated November 29, 1996.
WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and
other Loan Documents shall be valid unless in writing and signed by an officer
of Bank. No waiver by Bank of any Default shall operate as a waiver of any other
Default or the same Default on a future occasion. Neither the failure nor any
delay on the part of Bank in exercising any right, power, or remedy under this
Note and other Loan Documents shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
Except as expressly provided in the Loan Documents, each Borrower or any person
liable under this Note waives presentment, protest, notice of dishonor, demand
for payment, notice of intention to accelerate maturity, notice of acceleration
of maturity, notice of sale and all other notices of any kind. Further, each
agrees that Bank may extend, modify or renew this Note or make a novation of the
loan evidenced by this Note for any period and grant any releases, compromises
or indulgences with respect to any collateral securing this Note, or with
respect to any Borrower or any person liable under this Note or other Loan
Documents, all without notice to or consent of any Borrower or any person who
may be liable under this Note or other Loan Documents and without affecting the
liability of Borrower or any person who may be liable under this Note or other
Loan Documents.
MISCELLANEOUS PROVISIONS. Assignment. This Note and other Loan Documents shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Bank's interests in and
rights under this Note and other Loan Documents are freely assignable, in whole
or in part, by Bank. Borrower shall not assign its rights and interest hereunder
without the prior written consent of Bank, and any attempt by Borrower to assign
without Bank's prior written consent is null and void. Any assignment shall not
release Borrower from the Obligations. Applicable Law; Conflict Between
Documents. This Note and other Loan Documents shall be governed by and construed
under the laws of the state where Bank first shown above is located without
regard to that state's conflict of laws principles. If the terms of this Note
should conflict with the terms of the loan agreement or any commitment letter
that survives closing, the terms of this Note shall control. Jurisdiction.
Borrower irrevocably agrees to non-exclusive personal jurisdiction in the state
in which the office of Bank first shown above is located. Severability. If any
provision of this Note or of the other Loan Documents shall be prohibited or
invalid under applicable law, such provision shall be ineffective but only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Note or other such
document. Notices. Any notices to Borrower shall be sufficiently given, if in
writing and mailed or delivered to the Borrower's address shown above or such
other address as provided hereunder, and to Bank, if in writing and mailed or
delivered to Bank's office address shown above or such other address as Bank may
specify in writing from time to time. In the event that Borrower changes
Borrower's address at any time prior to the date the Obligations are paid in
full, Borrower agrees to promptly give written notice of said change of address
by registered or certified mail, return receipt requested, all charges prepaid.
Plural; Captions. All references in the Loan Documents to Borrower, guarantor,
person, document or other nouns of reference mean both the singular and plural
form, as the case may be, and the term "person" shall mean any individual,
person or entity. The captions contained in the Loan Documents are inserted for
convenience only and shall not affect the meaning or interpretation of the Loan
Documents. Binding Contract. Borrower by execution of and Bank by acceptance of
this Note agree that each party is bound to all terms and provisions of this
Note. Advances. Bank in its
Page 4
<PAGE>
sole discretion may make other advances and readvances under this Note pursuant
hereto. Posting of Payments. All payments received during normal banking hours
after 2:00 p.m. local time at the office of Bank first shown above shall be
deemed received at the opening of the next banking day. Joint and Several
Obligations. Each Borrower is jointly and severally obligated under this Note.
Fees and Taxes. Borrower shall promptly pay all documentary, intangible
recordation and/or similar taxes on this transaction whether assessed at closing
or arising from time to time.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Note and other Loan Documents
("Disputes") between or among parties to this Note shall be resolved by binding
arbitration as provided herein. Institution of a judicial proceeding by a party
does not waive the right of that party to demand arbitration hereunder. Disputes
may include, without limitation, tort claims, counterclaims, disputes as to
whether a matter is subject to arbitration, claims brought as class actions,
claims arising from Loan Documents executed in the future, or claims arising out
of or connected with the transaction reflected by this Note.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA") and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in the city in which the office of Bank first stated above is
located. The expedited procedures set forth in Rule 51 et seq. of the
Arbitration Rules shall be applicable to claims of less than $1,000,000.00. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The panel from which
all arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction, state or federal, of the state where
the hearing will be conducted or if such person is not available to serve, the
single arbitrator may be a licensed attorney. Notwithstanding the foregoing,
this arbitration provision does not apply to disputes under or related to swap
agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, Bank and Borrower agree to preserve, without diminution,
certain remedies that any party hereto may employ or exercise freely,
independently or in connection with an arbitration proceeding or after an
arbitration action is brought. Bank and Borrower shall have the right to proceed
in any court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose against any real
or personal property or other security by exercising a power of sale granted
under Loan Documents or under applicable law or by judicial foreclosure and
sale, including a proceeding to confirm the sale; (ii) all rights of self-help
including peaceful occupation of real property and collection of rents, set-off,
and peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right or
claim to punitive or exemplary damages they have now or which may arise in the
future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
Page 5
<PAGE>
IN WITNESS WHEREOF, Borrower, as of the day and year first above written, has
caused this Note to be executed under seal.
Sherwood Brands, Inc.
Taxpayer Identification Number: 56-1422582
CORPORATE By: /s/ Anat Schwartz
SEAL ------------------------------------
Title: Vice President
---------------------------------
Sherwood Brands Overseas, Inc.
Taxpayer Identification Number: N/A
CORPORATE By: /s/ Anat Schwartz
SEAL ------------------------------------
Title: Director
---------------------------------
Page 6
<PAGE>
MODIFICATION NUMBER 1
TO THE PROMISSORY NOTE AND THE LOAN AGREEMENT
SHERWOOD BRANDS, LLC, successor-in-interest to Sherwood Brands, Inc.
6110 Executive Boulevard, Suite 1080
Rockville, Maryland 20852
SHERWOOD BRANDS OVERSEAS, INC.
6110 Executive Boulevard, Suite 1080
Rockville, Maryland 20852
(Individually and collectively, "Borrower")
FIRST UNION NATIONAL BANK
1970 Chain Bridge Road
McLean, Virginia 22102
(Hereinafter referred to as the "Bank")
THIS AGREEMENT is entered into as of December 12, 1997 by and between Bank and
Borrower.
WHEREAS, Bank is the holder of a Promissory Note executed and delivered by
Sherwood Brands, Inc. ("SBI") and Sherwood Brands Overseas, Inc. ("SBO") dated
November 29, 1996, in the original principal amount of $2,000,000.00 (the
"Note"); and
WHEREAS, in connection with execution of the Note, SBI and SBO also executed and
delivered to Bank certain other Loan Documents, including a Loan Agreement,
dated November 29, 1996 (the "Loan Agreement");
WHEREAS, by the Assumption and Amendment Agreement dated as of the 31st day of
July, 1997 Sherwood Brands, LLC assumed and agreed to perform all of the
obligations under the Note, the Loan Agreement and the other Loan Documents of
SBI's successor-by-merger, Sherwood Foods, Inc.; and
WHEREAS, Borrower and Bank have agreed to modify the terms of the Promissory
Note and the Loan Agreement.
NOW, THEREFORE, in consideration of the premises contained herein and other good
and valuable consideration, receipt and sufficiency of which is acknowledged,
the parties agree as follows:
OUTSTANDING BALANCE. The total outstanding unpaid principal balance under the
Note as of December 9, 1997 is $1,369,588.74. The parties acknowledge that
interest on the obligations under the Note is paid through November 30, 1997.
MODIFICATIONS.
1. The Note is hereby modified by deleting the provisions in the Note
establishing the repayment terms end substituting the following in their
place and stead:
REPAYMENT TERMS. The Note shall be due and payable in consecutive monthly
payments of accrued interest only commencing on December 31, 1997, and on
the last day of each month thereafter until fully paid. In any event, all
principal and accrued interest shall be due and payable on November 30,
1998.
<PAGE>
CURE PERIOD. Except as provided below, a Default may be cured within ten
(10) days from the mailing of notice or courier by next day delivery of the
applicable event with respect to payment defaults and thirty (30) days from
the mailing of notice ("Right to Notice and Cure") of the applicable event
with respect to any violation of Affirmative, Negative and Financial
Covenants in the Loan Agreement ("Cure Period"). During the Cure Period
Bank shall not exercise its remedies to collect the Obligations except as
the Bank reasonably deems necessary to protect its interest in collateral
securing the Obligations. The Right to Notice and Cure is applicable only
to curable Defaults and only to one occurrence of Default during any one
year period. This Right to Notice and Cure shall have no effect with
respect to subsequent Defaults within such one year period and shall not be
applicable to False Warranty, Cessation or Bankruptcy Defaults.
AUTOMATIC DEBIT OF CHECKING ACCOUNT FOR LOAN PAYMENT. Borrower authorizes
Bank to debit its demand deposit account number 2040000037536 or any other
account with Bank (routing number 055003201) designated in writing by
Borrower, beginning December 31, 1997 for any payments due under this Note.
Borrower further certifies that Borrower holds legitimate ownership of this
account and preauthorizes this periodic debit as part of its right under
said ownership.
LINE OF CREDIT ADVANCES. Borrower may borrow, repay and reborrow, and Bank
may advance and readvance under the Note respectively from time to time
until the maturity hereof (each an "Advance" and together the "Advances"),
so long as the total indebtedness outstanding under the Note at any one
time does not exceed the principal amount stated on the face of the Note.
Bank's obligation to make Advances under the Note shall terminate if
Borrower is in Default or a representation in any of the Loan Documents is
false or has become false. As of the date of each proposed Advance,
Borrower shall be deemed to represent that each representation made in the
Loan Documents is true as of such date.
2. The section entitled FINANCIAL COVENANTS of the Loan Agreement is hereby
amended by deleting the subparagraph(s) entitled Tangible Net Worth and
adding the following in its place and stead:
FINANCIAL COVENANTS. Borrower agrees to the following provisions from the
date hereof until final payment in full of the Obligations, unless Bank
shall otherwise consent in writing: Tangible Net Worth. Borrower shall, at
all times, maintain Consolidated Tangible Net Worth of at least
$2,000,000.00. "Consolidated Tangible Net Worth" shall mean, at any time,
the Net Worth less the total of (1) all assets which would be classified as
intangible assets under GAAP, including goodwill, trademarks, trademark
applications and licenses, and deferred charges, (2) leasehold
improvements, (3) applicable reserves, allowances and other similar
properly deductible items to the extent such reserves, allowances, and
other similar properly deductible items have not been previously deducted
by the Bank in the calculation of Net Worth, (4) any revaluation or other
write-up in book value of assets subsequent to the date of the most recent
financial statements delivered to the Bank, and (5) the amount to fall
loans, advances to, or investments in, any individual or entity, excluding
cash equivalents and deposit accounts maintained by the Borrower and its
consolidated subsidiaries with any financial institution, and (6) accounts
receivable from an affiliate of the Borrower, excluding debt fully
subordinated to Bank, after subtracting therefrom the aggregate amount of
any intangible assets of Borrower, and its subsidiaries, (including without
limitation, goodwill, franchise, licenses, patents, trademarks, trade
names, copyrights, service marks and brand names). Debt/Worth Ratio.
Borrower shall at all times maintain a Consolidated Total Liabilities,
including debt fully subordinated to Bank, to Consolidated Tangible Net
Worth ratio of not more than 1.50 to 1.00. For purposes of this
computation, "Consolidated Total Liabilities" shall mean all liabilities of
Borrower and its
Page 2
<PAGE>
subsidiaries, including capitalized leases and all reserves for deferred
taxes and other deferred sums appearing on the liabilities side of a
balance sheet of Borrower and its subsidiaries, in accordance with
generally accepted accounting principles applied on a consistent basis.
Loans and Advances. Borrower shall not make loans or advances, excepting
ordinary course of business travel and expense advances, to any person or
entity, which total more than $25,000.00 in the aggregate, with the
exception of loans or advances to Borrower's affiliate, Sherwood Foods,
Inc., in which case the aggregate limit shall be $700,000.00.
ACKNOWLEDGMENTS. Borrower acknowledges and represents that the Note and other
Loan Documents, as amended hereby, are in full force and effect and are binding
upon it, its successors, assigns, administrators and heirs without any defense,
counterclaim, right or claim of set-off or of other sum due; that, after giving
effect to this Agreement, no default or event that with the passage of time or
giving of notice would constitute a default under the Loan Documents has
occurred; that all representations and warranties contained in the Loan
Documents are true and correct as of this date; that there have been no changes
in the ownership of any collateral pledged to secure the Obligations since the
dates of the instruments originally pledging such collateral; and that Borrower
has taken all necessary action (corporate or otherwise) to authorize the
execution and delivery of this Agreement. This Agreement constitutes only a
modification of an existing obligation owing by Borrower to Bank, and is not a
novation.
LIENS. Borrower acknowledges and confirms the extent, validity and priority of
the Bank's security interests and liens in the collateral pledged, if any,
pursuant to the Loan Documents, and agrees that such security interests and
liens shall secure the Borrower's Obligations to Bank, including any
modification of the Note or Loan Agreement, and all future modifications,
extensions, renewals and/or replacements of the Loan Documents.
MISCELLANEOUS. This Agreement shall be construed in accordance with and governed
by the laws of the applicable state as originally provided in the Loan
Documents, without reference to that state's conflicts of laws principles. This
Agreement and the other Loan Documents constitute the sole agreement of the
parties with respect to the subject matter thereof and supersede all oral
negotiations and prior writings with respect to the subject matter thereof. No
amendment of this Agreement, and no waiver of any one or more of the provisions
hereof shall be effective unless set forth in writing and signed by the parties
hereto. The illegality, unenforceability or inconsistency of any provision of
this Agreement shall not in any way affect or impair the legality,
enforceability or consistency of the remaining provisions of this Agreement or
the other Loan Documents. This Agreement and the other Loan Documents are
intended to be consistent. However, in the event of any inconsistencies among
this Agreement and any of the Loan Documents, the terms of this Agreement, and
then the Note, shall control. This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts. Each such
counterpart shall be deemed an original, but all such counterparts shall
together constitute one and the same agreement.
DEFINITIONS. The term "Loan Documents" used in this Agreement and other Loan
Documents refers to all documents, agreements, and instruments executed in
connection with any of the Obligations (as defined herein), and may include,
without limitation, modification agreements, a commitment letter that survives
closing, a loan agreement, any note, guaranty agreements, security agreements,
security instruments, financing statements, mortgage instruments, letters of
credit and any renewals or modifications, whenever any of the foregoing are
executed, but does not include swap agreements (as defined in 11 U.S.C. ss.
101). The term "Obligations" used in this Agreement refers to any and all
indebtedness and other obligations of every kind and description of the Borrower
to the Bank or to any Bank affiliate, whether or not under the Loan Documents,
and whether such debts or obligations are primary or secondary, direct or
indirect, absolute or
Page 3
<PAGE>
contingent, sole, joint or several, secured or unsecured, due or to become due,
contractual, including, without limitation, swap agreements (as defined in 11
U.S.C. ss. 101), arising by tort, arising by operation of law, by overdraft or
otherwise, or now or hereafter existing, including, without limitation,
principal, interest, fees, late fees, expenses, attorneys' fees and costs that
have been or may hereafter be contracted or incurred. Terms used in this
Agreement which are capitalized and not otherwise defined herein shall have the
meanings ascribed to such terms in the Note and/or other Loan Documents.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Agreement and other Loan
Documents ("Disputes") between or among parties to this Agreement shall be
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class actions, claims arising from Loan Documents executed in the
future, or claims arising out of or connected with the transaction reflected by
this Agreement.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA") and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in the city in which the office of Bank first stated above is
located. The expedited procedures set forth in Rule 51 et seq. of the
Arbitration Rules shall be applicable to claims of less than $1,000,000.00. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The panel from which
all arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction, state or federal, of the state where
the hearing will be conducted or if such person is not available to serve, the
single arbitrator may be a licensed attorney. Notwithstanding the foregoing,
this arbitration provision does not apply to disputes under or related to swap
agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, Bank and Borrower agree to preserve, without diminution,
certain remedies that any party hereto may employ or exercise freely,
independently or in connection with an arbitration proceeding or after an
arbitration action is brought. Bank and Borrower shall have the right to proceed
in any court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose against any real
or personal property or other security by exercising a power of sale granted
under Loan Documents or under applicable law or by judicial foreclosure and
sale, including a proceeding to confirm the sale; (ii) all rights of self-help
including peaceful occupation of real property and collection of rents, set-off,
and peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right or
claim to punitive or exemplary damages they have now or which may arise in the
future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
Page 4
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed and sealed this Agreement the
day and year first above written, and this Agreement is deemed effective as of
November 30, 1997.
SHERWOOD BRANDS, LLC
Taxpayer Identification Number: 56-1349259
By: /s/ Anat Schwartz
---------------------------------(SEAL)
Printed Name: Anat Schwartz
-----------------------
Title: Vice President
------------------------------
SHERWOOD BRANDS OVERSEAS, INC.
CORPORATE By: /s/ Anat Schwartz
SEAL ----------------------------------
Printed Name: Anat Schwartz
-----------------------
Title: Director
------------------------------
FIRST UNION NATIONAL BANK
By:
CORPORATE -----------------------------------
SEAL Robert A. Gates, Vice President
Page 5
<PAGE>
MODIFICATION NUMBER 2
TO THE LOAN AGREEMENT
SHERW0OD BRANDS, LLC, successor-in-interest to Sherwood Brands, Inc.
6110 Executive Boulevard, Suite 1080
Rockville, Maryland 20852
SHERW0OD BRANDS OVERSEAS, INC.
6110 Executive Boulevard, Suite 1080
Rockville, Maryland 20852
(Individually and collectively, "Borrower")
FIRST UNION NATIONAL. BANK
1970 Chain Bridge Road
McLean, Virginia 22102
(Hereinafter referred to as the "Bank")
THIS AGREEMENT is entered into as of December 23, 1997 by and between Bank and
Borrower.
WHEREAS, Bank is the holder of a Promissory Note executed and delivered by
Sherwood Brands, Inc. ("SBI") and Sherwood Brands Overseas, Inc. ("SBO") dated
November 29, 1996, in the original principal amount of $2,000,000.00 (the
"Note"); and
WHEREAS, in connection with execution of the Note, SBI and SBO also executed and
delivered to Bank certain other Loan Documents, including a Loan Agreement,
dated November 29, 1996 (the "Loan Agreement").
WHEREAS, by the Assumption and Amendment Agreement dated as of the 31st day of
July, 1997 Sherwood Brands, LLC assumed and agreed to perform all of the
obligations under the Note, the Loan Agreement and the other Loan Documents of
SBI's successor-by-merger. Sherwood Foods, Inc.; and
WHEREAS, Borrower and Bank have agreed to modify the terms of the Promissory
Note and the Loan Agreement.
NOW, THEREFORE, in consideration of the premises contained herein and other good
and valuable consideration, receipt and sufficiency of which is acknowledged,
the parties agree as follows:
OUTSTANDING BALANCE. The total outstanding unpaid principal balance under the
Note as of December 9, 1997 is $1,369,588.74. The parties acknowledge that
interest on the obligations under the Note is paid through November 30, 1997.
MODIFICATIONS.
1. The section entitled FINANCIAL COVENANTS of the Loan Agreement is hereby
amended by deleting the subparagraph(s) entitled Debt/Worth Ratio and
adding the following in their place and stead:
Debt/Worth Ratio. Borrower shall at all times maintain a Consolidated Total
Liabilities, including debt fully subordinated to Bank, to Consolidated
Tangible Net Worth ratio of not more than 3.00 to 1.00. For purposes of
this computation, "Consolidated Total Liabilities" shall mean all
liabilities of Borrower and its subsidiaries, including capitalized leases
and all reserves for deferred taxes and other deferred sums appearing on
the liabilities side of a balance sheet of Borrower and its subsidiaries,
in accordance with generally accepted accounting principles applied on a
consistent basis.
<PAGE>
ACKNOWLEDGMENTS. Borrower acknowledges and represents that the Note and other
Loan Documents, as amended hereby, are in full force and effect and are binding
upon it, its successors, assigns, administrators and heirs without any defense,
counterclaim, right or claim of set-off or of other sum due; that, after giving
effect to this Agreement, no default or event that with the passage of time or
giving of notice would constitute a default under the Loan Documents has
occurred; that all representations and warranties contained in the Loan
Documents are true and correct as of this date; that there have been no changes
in the ownership of any collateral pledged to secure the Obligations since the
dates of the instruments originally pledging such collateral; and that Borrower
has taken all necessary action (corporate or otherwise) to authorize the
execution and delivery of this Agreement. This Agreement constitutes only a
modification of an existing obligation owing by Borrower to Bank, and is not a
novation.
LIENS. Borrower acknowledges and confirms the extent, validity and priority of
the Bank's security interests and liens in the collateral pledged, if any,
pursuant to the Loan Documents, and agrees that such security interests and
liens shall secure the Borrower's Obligations to Bank, including any
modification of the Note or Loan Agreement, and all future modifications,
extensions, renewals and/or replacements of the Loan Documents.
MISCELLANEOUS. This Agreement shall be construed in accordance with and governed
by the laws of the applicable state as originally provided in the Loan
Documents, without reference to that state's conflicts of laws principles. This
Agreement and the other Loan Documents constitute the sole agreement of the
parties with respect to the subject matter thereof and supersede all oral
negotiations and prior writings with respect to the subject matter thereof. No
amendment of this Agreement, and no waiver of any one or more of the provisions
hereof shall be effective unless set forth in writing and signed by the parties
hereto. The illegality, unenforceability or inconsistency of any provision of
this Agreement shall not in any way affect or impair the legality,
enforceability or consistency of the remaining provisions of this Agreement or
the other Loan Documents. This Agreement and the other Loan Documents are
intended to be consistent. However, in the event of any inconsistencies among
this Agreement and any of the Loan Documents, the terms of this Agreement, and
then the Note, shall control. This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts. Each such
counterpart shall be deemed an original, but all such counterparts shall
together constitute one and the same agreement.
DEFINITIONS. The term "Loan Documents" used in this Agreement and other Loan
Documents refers to all documents, agreements, and instruments executed in
connection with any of the Obligations (as defined herein), and may include,
without limitation, modification agreements, a commitment letter that survives
closing, a loan agreement, any note, guaranty agreements, security agreements,
security instruments, financing statements, mortgage instruments, letters of
credit and any renewals or modifications, whenever any of the foregoing are
executed, but does not include swap agreements (as defined in 11 U.S.C. ss.
101). The term "Obligations" used in this Agreement refers to any and all
indebtedness and other obligations of every kind and description of the Borrower
to the Bank or to any Bank affiliate, whether or not under the Loan Documents,
and whether such debts or obligations are primary or secondary, direct or
indirect, absolute or contingent, sole, joint or several, secured or unsecured,
due or to become due, contractual, including, without limitation, swap
agreements (as defined in 11 U.S.C. ss. 101), arising by tort, arising by
operation of law, by overdraft or otherwise, or now or hereafter existing,
including, without limitation, principal, interest, fees, late fees, expenses,
attorneys' fees and costs that have been or may hereafter be contracted or
incurred. Terms used In this Agreement which are capitalized and not otherwise
defined herein shall have the meanings ascribed to such terms in the Note and/or
other Loan Documents.
Page 2
<PAGE>
ARBITRATION, Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Agreement and other Loan
Documents ("Disputes") between or among parties to this Agreement shall be
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class actions, claims arising from Loan Documents executed in the
future, or claims arising out of or connected with the transaction reflected by
this Agreement.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA") and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in the city in which the office of Bank first stated above is
located. The expedited procedures set forth In Rule 51 et seq. of the
Arbitration Rules shall be applicable to claims of less than $1,000,000.00. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The panel from which
all arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction, state or federal, of the state where
the hearing will be conducted or if such person is not available to serve, the
single arbitrator may be a licensed attorney. Notwithstanding the foregoing,
this arbitration provision does not apply to disputes under or related to swap
agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, Bank and Borrower agree to preserve, without diminution,
certain remedies that any party hereto may employ or exercise freely,
independently or in connection with an arbitration proceeding or after an
arbitration action is brought. Bank and Borrower shall have the right to proceed
in any court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose against any real
or personal property or other security by exercising a power of sale granted
under Loan Documents or under applicable law or by judicial foreclosure and
sale, including a proceeding to confirm the sale; (ii) all rights of self-help
including peaceful occupation of real property and collection of rents, set-off,
and peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right or
claim to punitive or exemplary damages they have now or which may arise in the
future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
IN WITNESS WHEREOF, the undersigned have signed and sealed this Agreement the
day and year first above written, and this Agreement is deemed effective as of
November 30, 1997.
SHERWOOD BRANDS, LLC
Taxpayer Identification Number: 56-1349259
By: /s/ Anat Schwartz (SEAL)
-------------------------------------
Anat Schwartz , Vice President-Finance
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SHERWOOD BRANDS OVERSEAS, INC.
CORPORATE By: /s/ Anat Schwartz
SEAL ----------------------------------
Anat Schwartz, Director
FIRST UNION NATIONAL BANK
By: /s/ Robert A. Gates
CORPORATE -----------------------------------
SEAL Robert A. Gates, Vice President
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<PAGE>
FIRST UNION
SECURITY AGREEMENT
November 29, 1996
Sherwood Brands Overseas, Inc.
6110 Executive Boulevard, Suite 1080
Rockville, Maryland 20852
(Individually and collectively "Debtor")
First Union National Bank of Maryland
1970 Chain Bridge Road
McLean, Maryland 22102
(Hereinafter referred to as the "Bank")
For value received and to secure payment and performance of the Promissory Note
executed by the Sherwood Brands, Inc. and Debtor dated November 29, 1996, in the
original principal amount of $2,000,000.00, and a $2,000,000.00 facility used
for the issuance of letters of credit, both payable to Bank, and any extensions,
renewals, modifications or novations thereof (the "Note"), this Security
Agreement and the other Loan Documents, and any other obligations of Debtor to
Bank however created, arising or evidenced, whether direct or indirect, absolute
or contingent, now existing or hereafter arising or acquired, including but not
limited to letter of credit reimbursement obligations, forward foreign exchange
and foreign exchange option transactions and any other swap agreements (as
defined in 11 U.S.C. ss. 101), future advances, and all costs and expenses
incurred by Bank to obtain, preserve, perfect and enforce the security interest
granted herein and to maintain, preserve and collect the property subject to the
security interest (collectively, "Obligations"), Debtor hereby grants to Bank a
continuing security interest in and lien upon the following described property,
now owned or hereafter acquired, any additions, accessions, or substitutions
thereof and thereto, and all proceeds and products thereof, including cash or
non-cash dividends (collectively, "Collateral"):
All accounts, together with all chattel paper and instruments, and all credit
insurance, guaranties, letters of credit, and other security for any of the
foregoing.
All inventory, including all goods in the possession of the Debtor, in transit,
and held by third parties, including all raw materials and work in process to be
processed into such inventory, and all accessions, attachments and other
additions to, substitutes for, replacements for, improvements to and returns of
such inventory, all accounts arising from the disposition of inventory.
Debtor hereby represents and agrees that:
OWNERSHIP. Debtor owns the Collateral or Debtor will purchase and acquire rights
in the Collateral within ten days of the date advances are made under the Note.
If Collateral is being acquired with the proceeds of an advance under the Note,
Debtor authorizes Bank to disburse proceeds directly to the seller of the
Collateral. The Collateral is free and clear of all liens, security interests,
and claims except those previously reported in writing to Bank, and Debtor will
keep the Collateral free and clear from all liens, security interests and
claims, other than those granted to Bank.
NAME AND OFFICES. There has been no change in the name of Debtor, or the name
under which Debtor conducts business, within the 5 years preceding the date of
execution of this Security Agreement and Debtor has not moved its executive
offices or residence within the 5 years preceding the date of execution of this
Security Agreement except as previously reported in writing to Bank. The
taxpayer identification number of Debtor as provided herein is correct.
<PAGE>
TITLE/TAXES. Debtor has good and marketable title to Collateral and will warrant
and defend same against all claims. Debtor will not transfer, sell, or lease
Collateral (except in the ordinary course of business). Debtor agrees to pay
promptly all taxes and assessments upon or for the use of Collateral and on this
Security Agreement. At its option, Bank may discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on Collateral.
Debtor agrees to reimburse Bank, on demand, for any such payment made by Bank.
Any amounts so paid shall be added to the Obligations.
WAIVERS. Except as expressly provided in the Loan Documents, Debtor waives
presentment, demand, protest, notice of dishonor, notice of default, demand for
payment, notice of intention to accelerate, and notice of acceleration of
maturity. Debtor further agrees not to assert against Bank as a defense (legal
or equitable), as a set-off, as a counterclaim, or otherwise, any claims Debtor
may have against any seller or lessor that provided personal property or
services relating to any part of the Collateral. Debtor waives all exemptions
and homestead rights with regard to the Collateral. Debtor waives any and all
rights to notice or to hearing prior to Bank's taking immediate possession or
control of any Collateral, and to any bond or security which might be required
by applicable law prior to the exercise of any of Bank's remedies against any
Collateral.
EXTENSIONS, RELEASES. Debtor agrees that Bank may extend, renew or modify any of
the Obligations and grant any releases, compromises or indulgences with respect
to any security for the Obligations, or with respect to any party liable for the
Obligations, all without notice to or consent of Debtor and without affecting
the liability of Debtor or the enforceability of this Security Agreement.
NOTIFICATIONS OF CHANGE. Debtor will notify Bank in writing at least 30 days
prior to any change in: (i) Debtor's chief place of business and/or residence;
(ii) Debtor's name or identity; or (iii) Debtor's corporate structure. Debtor
will keep Collateral at the location(s) previously provided to Bank until such
time as Bank provides written advance consent to a change of location. Debtor
will bear the cost of preparing and filing any documents necessary to protect
Bank's liens.
COLLATERAL CONDITION AND LAWFUL USE. Debtor represents that Collateral is in
good repair and condition and that Debtor shall use reasonable care to prevent
Collateral from being damaged or depreciating. Debtor shall immediately notify
Bank of any material loss or damage to Collateral. Debtor shall not permit any
item of equipment to become a fixture to real estate or an accession to other
personal property. Debtor represents it is in compliance in all respects with
all federal, state and local laws, rules and regulations applicable to its
properties, Collateral, operations, business, and finances, including, without
limitation, any federal or state laws relating to liquor (including 18 U.S.C.
ss. 3617, et seq.) or narcotics (including 21 U.S.C. ss. 801, et seq.) and all
applicable federal, state and local laws, and regulations intended to protect
the environment.
RISK OF LOSS AND INSURANCE. Debtor shall bear all risk of loss with respect to
the Collateral. The injury to or loss of Collateral, either partial or total,
shall not release Debtor from payment or other performance hereof. Debtor agrees
to obtain and keep in force casualty and hazard insurance on Collateral naming
Bank as loss payee. Such insurance is to be in form and amounts satisfactory to
Bank. All such policies shall provide to Bank a minimum of 30 days written
notice of cancellation. Debtor shall furnish to Bank such policies, or other
evidence of such policies satisfactory to Bank. Bank is authorized, but not
obligated, to purchase any or all insurance or "Single Interest Insurance"
protecting such interest as Bank deems appropriate against such risks and for
such coverage and for such amounts, including either the loan amount or value of
the Collateral at its discretion, all at Debtor's expense. In such event, Debtor
agrees to reimburse Bank for the cost of such insurance and Bank may add such
cost to the Obligations. Debtor shall bear the risk of loss to the extent of any
deficiency in the effective insurance coverage with respect to
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<PAGE>
loss or damage to any of the Collateral. Debtor hereby assigns to Bank the
proceeds of all such insurance and directs any insurer to make payments directly
to Bank. Debtor hereby appoints Bank its attorney-in-fact, which appointment
shall be irrevocable and coupled with an interest for so long as the Obligations
are unpaid, to file proof of loss and/or any other forms required to collect
from any insurer any amount due from any damage or destruction of Collateral, to
agree to and bind Debtor as to the amount of said recovery, to designate
payee(s) of such recovery, to grant releases to insurer, to grant subrogation
rights to any insurer, and to endorse any settlement check or draft. Debtor
agrees not to exercise any of the foregoing powers granted to Bank without the
Bank's prior written consent.
ADDITIONAL COLLATERAL. If at any time Collateral is reasonably determined in
Bank's sole discretion to be unsatisfactory to Bank, then on demand of Bank,
Debtor shall immediately furnish such additional Collateral satisfactory to Bank
to be held by Bank as if originally pledged hereunder and shall execute such
additional security agreements and financing statements as requested by Bank.
FINANCING STATEMENTS. No Financing Statement (other than any filed by Bank or
disclosed above) covering any of Collateral or proceeds thereof is on file in
any public filing office. This Security Agreement, or a copy thereof, or any
Financing Statement executed hereunder may be recorded. On request of Bank,
Debtor will execute one or more Financing Statements in form satisfactory to
Bank and will pay all costs and expenses of filing the same or of filing this
Security Agreement in all public filing offices, where filing is deemed by Bank
to be desirable. Bank is authorized to file Financing Statements relating to
Collateral without Debtor's signature where authorized by law. Debtor appoints
Bank as its attorney-in-fact to execute such documents necessary to accomplish
perfection of Bank's security interest. The appointment is coupled with an
interest and shall be irrevocable as long as any Obligations remain outstanding.
Debtor further agrees to take such other actions as might be requested for the
perfection, continuation and assignment, in whole or in part, of the security
interests granted herein. If certificates are issued or outstanding as to any of
the Collateral, Debtor will cause the security interests of Bank to be properly
protected, including perfection of notation thereon.
LANDLORD/MORTGAGEE WAIVERS. Debtor shall cause each mortgagee of real property
owned by Debtor and each landlord of real property leased by Debtor to execute
and deliver instruments satisfactory in form and substance to Bank by which such
mortgagee or landlord waives its rights, if any, in the Collateral.
CONTRACTS, CHATTEL PAPER, ACCOUNTS, GENERAL INTANGIBLES. Debtor warrants that
the Collateral consisting of contract rights, chattel paper, accounts, or
general intangibles is (i) genuine and enforceable in accordance with its terms
except as limited by law; (ii) not subject to any defense, set-off, claim or
counterclaim of a material nature against Debtor except as to which Debtor has
notified Bank in writing; and (iii) not subject to any other circumstances that
would impair the validity, enforceability or amount of such Collateral except as
to which Debtor has notified Bank in writing. Debtor shall not amend, modify or
supplement any lease, contract or agreement contained in the Collateral or waive
any provision therein, without prior written consent of Bank.
ACCOUNT INFORMATION. From time to time, at the Bank's request, Debtor shall
provide Bank with schedules describing all accounts and contracts, including
customers' addresses, credited or acquired by Debtor and at the Bank's request
shall execute and deliver written assignments of contracts and other documents
evidencing such accounts and contracts to Bank. Together with each schedule,
Debtor shall, if requested by Bank, furnish Bank with copies of Debtor's sales
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<PAGE>
journals, invoices, customer purchase orders or the equivalent, and original
shipping or delivery receipts for all goods sold, and Debtor warrants the
genuineness thereof.
ACCOUNT AND CONTRACT DEBTORS. Bank shall have the right to notify the account
and contract debtors obligated on any or all of the Collateral to make payment
thereof directly to Bank and Bank may take control of all proceeds of any such
Collateral, which rights Bank may exercise at any time. The cost of such
collection and enforcement, including attorneys' fees and expenses, shall be
borne solely by Debtor whether the same is incurred by Bank or Debtor. Upon
demand of Bank, Debtor will, upon receipt of all checks, drafts, cash and other
remittances in payment on Collateral, deposit the same in a special bank account
maintained with Bank, over which Bank also has the power of withdrawal.
If a Default occurs, no discount, credit, or allowance shall be granted by
Debtor to any account or contract debtor and no return of merchandise shall be
accepted by Debtor without Bank's consent. Bank may, after Default, settle or
adjust disputes and claims directly with account contract debtors for amounts
and upon terms that Bank considers advisable, and in such cases, Bank will
credit the Obligations with the net amounts received by Bank, after deducting
all of the expenses incurred by Bank. Debtor agrees to indemnify and defend Bank
and hold it harmless with respect to any claim or proceeding arising out of any
matter related to collection of the Collateral.
INVENTORY. So long as no Default has occurred, Debtor shall have the right in
the regular course of business, to process and sell Debtor's inventory, unless
Bank shall hereafter otherwise direct in writing. Upon demand of Bank, Debtor
will, upon receipt of all checks, drafts, cash and other remittances, in payment
of Collateral sold, deposit the same in a special bank account maintained with
Bank, over which Bank also has the power of withdrawal. Debtor shall comply with
all federal, state, and local laws, regulations, rulings, and orders applicable
to Debtor or its assets or business, in all respects. Without limiting the
generality of the previous sentence, Debtor shall comply with all requirements
of the federal Fair Labor Standards Act in the conduct of its business and the
production of inventory. Debtor shall notify Bank immediately of any violation
by Debtor of the Fair Labor Standards Act, and a failure of Debtor to so notify
Bank shall constitute a continuing representation that all inventory then
existing has been produced in compliance with the Fair Labor Standards Act.
INSTRUMENTS, CHATTEL PAPER. Any Collateral that is instruments, chattel paper
and negotiable documents will be properly assigned to, deposited with and held
by Bank, unless Bank shall hereafter otherwise direct or consent in writing.
Bank may, without notice, before or after maturity of the Obligations, exercise
any or all rights of collection, conversion, or exchange and other similar
rights, privileges and options pertaining to the Collateral, but shall have no
duty to do so.
COLLATERAL DUTIES. Bank shall have no custodial or ministerial duties to perform
with respect to Collateral pledged except as set forth herein; and by way or
explanation and not by way of limitation, Bank shall incur no liability for any
of the following: (i) loss or depreciation of the Collateral (unless caused by
its willful misconduct), (ii) its failure to present any paper for payment or
protest, to protest or give notice of nonpayment, or any other notice with
respect to any paper or Collateral, or (iii) its failure to present or surrender
for redemption, conversion or exchange any bond, stock, paper or other security
whether in connection with any merger, consolidation, recapitalization, or
reorganization, arising out of the refunding of the original security, or for
any other reason, or its failure to notify any party hereto that the Collateral
should be so presented or surrendered.
TRANSFER OF COLLATERAL. The Bank may assign its rights in the Collateral or any
part thereof, to the assignee, as well as any subsequent holder hereof, who
shall thereupon become vested with
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<PAGE>
all the powers and rights herein given to the Bank with respect to the property
so transferred and delivered, and the Bank shall thereafter be forever relieved
and fully discharged from any liability with respect to such property so
transferred, but with respect to any property not so transferred the Bank shall
retain all rights and powers hereby given.
SUBSTITUTE COLLATERAL. With prior written consent of Bank, other Collateral may
be substituted for the original Collateral herein in which event all rights,
duties, obligations, remedies and security interests provided for, created or
granted shall apply fully to such substitute Collateral.
INSPECTION, BOOKS AND RECORDS. Debtor will at all times keep accurate and
complete records covering each item of Collateral, including the proceeds
therefrom. Bank, or any of its agents, shall have the right, at intervals to be
determined by Bank and without hindrance or delay, to inspect, audit, and
examine the Collateral and to make extracts from the books, records, journals,
orders, receipts, correspondence and other data relating to the Collateral,
Debtor's business or any other transaction between the parties hereto. Debtor
will at its expense furnish Bank copies thereof upon request.
CROSS COLLATERALIZATION LIMITATION. As to any other existing or future consumer
purpose loan by Bank to Debtor, within the meaning of the Federal Consumer
Credit Protection Act, Bank expressly waives any security interest granted
herein in Collateral that Debtor uses as a principal dwelling and household
goods.
ATTORNEYS' FEES AND OTHER COSTS OF COLLECTION. Debtor shall pay all of Bank's
reasonable expenses incurred in enforcing this Agreement and in preserving and
liquidating the Collateral, including but not limited to, reasonable
arbitration, paralegals', attorneys' and experts' fees and expenses, whether
incurred without the commencement of a suit, in any trial, arbitration, or
administrative proceeding, or in any appellate or bankruptcy proceeding.
DEFAULT. Unless cured within the applicable Cure Period as defined in the
Promissory Note of even date herewith, if any of the following occurs, a default
("Default") under this Security Agreement shall exist: (i) The failure of timely
payment or performance of any of the Obligations or a default under any Loan
Document; (ii) Any breach of any representation or agreement contained or
referred to in this Security Agreement or other Loan Document; (iii) Any loss,
theft, substantial damage, or destruction of the Collateral not fully covered by
insurance, or as to which insurance proceeds are not remitted to Bank within 30
days of the loss; any sale (except the sale of inventory in the ordinary course
of business), lease, or encumbrance of any of the Collateral without prior
written consent of Bank; or the making of any levy, seizure, or attachment on or
of the Collateral which is not removed with 10 days; or (iv) the death of,
appointment of guardian for, dissolution of, termination of existence of, loss
of good standing status by, appointment of a receiver for, assignment for the
benefit of creditors of, or commencement of any bankruptcy or insolvency
proceeding by or against Debtor, its Subsidiaries or Affiliates, if any, or any
general partner of or the holder(s) of the majority ownership interests of
Debtor or any party to the Loan Documents.
REMEDIES ON DEFAULT (INCLUDING POWER OF SALE). If a Default occurs, all of the
Obligations shall be immediately due and payable, without notice and Bank shall
have all the rights and remedies of a secured party under the Uniform Commercial
Code. Without limitation thereto, Bank shall have the following rights and
remedies: (i) To take immediate possession of the Collateral, without notice or
resort to legal process, and for such purpose, to enter upon any premises on
which the Collateral or any part thereof may be situated and to remove the same
therefrom, or, at its option, to render the Collateral unusable or dispose of
said Collateral on Debtor's premises. (ii) To require Debtor to assemble the
Collateral and make it available to Bank at a place to be designated by Bank.
(iii) To exercise its right of set-off or bank lien as to any monies of Debtor
deposited in demand, checking,
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time, savings, certificate of deposit or other accounts of any nature maintained
by Debtor with Bank or Affiliates of Bank, without advance notice, regardless of
whether such accounts are general or special. (iv) To dispose of Collateral, as
a unit or in parcels, separately or with any real property interests also
securing the Obligations, in any county or place to be selected by Bank, at
either private or public sale (at which public sale bank may be the purchaser)
with or without having the Collateral physically present at said sale. (v) Any
notice of sale, disposition or other action by Bank required by law and sent to
Debtor at Debtor's address shown above, or at such other address of Debtor as
may from time to time be shown on the records of Bank, at least 5 days prior to
such action, shall constitute reasonable notice to Debtor. Notice shall be
deemed given or sent when mailed postage prepaid to Debtor's address as provided
herein. (vi) Bank shall be entitled to apply the proceeds of any sale or other
disposition of the Collateral, and the payments received by Bank with respect to
any of the Collateral, to the Obligations in such order and manner as Bank may
determine. (vii) Collateral that is subject to rapid declines in value and is
customarily sold in recognized markets may be disposed of by Bank in a
recognized market for such collateral without providing notice of sale.
REMEDIES ARE CUMULATIVE. No failure on the part of Bank to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by Bank or any right,
power or remedy hereunder preclude any other or further exercise thereof or the
exercise of any right, power or remedy. The remedies herein provided are
cumulative and are not exclusive of any remedies provided by law, in equity, or
in other Loan Documents.
MISCELLANEOUS. (i) Amendments and Waivers. No waivers, amendments or
modifications of any provision of this Security Agreement shall be valid unless
in writing and signed by an officer of Bank. No waiver by Bank of any Default
shall operate as a waiver of any other Default or of the same Default on a
future occasion. Neither the failure of, nor any delay by, Bank in exercising
any right, power or privilege granted pursuant to this Security Agreement shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise of any other right, power or privilege.
(ii) Assignment. All rights of Bank hereunder are freely assignable, in whole or
in part, and shall inure to the benefit of and be enforceable by Bank, its
successors, assigns and affiliates. Debtor shall not assign its rights and
interest hereunder without the prior written consent of Bank, and any attempt by
Debtor to assign without Bank's prior written consent is null and void. Any
assignment shall not release Debtor from the Obligations. This Security
Agreement shall be binding upon Debtor, and the heirs, personal representatives,
successors, and assigns of Debtor. (iii) Applicable Law; Conflict Between
Documents. This Security Agreement shall be governed by and construed under the
law of the state in which the office of Bank as stated above is located without
regard to that state's conflict of laws principles. If any terms of this
Security Agreement conflict with the terms of any commitment letter or loan
proposal, the terms of this Security Agreement shall control. (iv) Jurisdiction.
Debtor irrevocably agrees to non-exclusive personal jurisdiction in the state in
which the office of Bank as stated above is located. (v) Severability. If any
provision of this Security Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective but only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Security Agreement. (vi) Notices.
Any notices to Debtor shall be sufficiently given, if in writing and mailed or
delivered to the address of Debtor shown above or such other address as provided
hereunder; and to Bank, if in writing and mailed or delivered to Bank's office
address shown above or such other address as Bank may specify in writing from
time to time. In the event that the Debtor changes Debtor's address at any time
prior to the date this Note is paid in full, Debtor agrees to promptly give
written notice of said change of address by registered or certified mail, return
receipt requested, all charges prepaid. (vii) Captions. The captions contained
herein are inserted for convenience only and shall not affect the meaning or
interpretation of this Security Agreement or
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any provision hereof. The use of the plural shall also mean the singular, and
vice versa. (viii) Loan Documents. The term "Loan Documents" refers to all
documents executed in connection with the Obligations and may include, without
limitation, commitment letters, loan agreements, guaranty agreements, other
security agreements, letters of credit, instruments, financing statements,
mortgages, deeds of trust, deeds to secure debt, and any amendments or
supplements (excluding swap agreements as defined in 11 U.S.C. ss. 101). (ix)
Joint and Several Liability. If more than one person has signed this Security
Agreement, such parties are jointly and severally obligated hereunder. (x)
Binding Contract. Debtor by execution and Bank by acceptance of this Security
Agreement, agree that each party is bound by all terms and provisions of this
Security Agreement.
IN WITNESS WHEREOF, Debtor, effective as of the day and year first written
above, has caused this Agreement to be executed under seal.
Sherwood Brands Overseas, Inc.
Taxpayer Identification Number: N/A
CORPORATE By: /s/ Anat Schwartz
SEAL --------------------------------
Title: Director
----------------------------
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<PAGE>
FIRST UNION
UNCONDITIONAL GUARANTY
November 29, 1996
Sherwood Brands, Inc.
6110 Executive Boulevard, Suite 1080
Rockville, Maryland 20852
Sherwood Brands Overseas, Inc.
6110 Executive Boulevard, Suite 1080
Rockville, Maryland 20852
(Individually and collectively "Borrower")
Uziel Frydman
5800 Nicholson Lane
Rockville, Maryland 20852
(Individually and collectively "Guarantor")
First Union National Bank of Maryland
1970 Chain Bridge Road
McLean, Virginia 22012
(Hereinafter referred to as "Bank")
To induce Bank to make, extend or renew loans, advances, credit, or other
financial accommodations to or for the benefit of Borrower, and in consideration
of loans, advances, credit, or other financial accommodations made, extended or
renewed to or for the benefit of Borrower, Guarantor hereby absolutely,
irrevocably and unconditionally guarantees to Bank and its successors, assigns
and affiliates the timely payment and performance of all liabilities and
obligations of Borrower to Bank and its affiliates, including, but not limited
to, all obligations under any notes, loan agreements, security agreements,
letters of credit, swap agreements (as defined in 11 U.S. Code ss.101),
instruments, accounts receivable, contracts, drafts, leases, chattel paper,
indemnities, acceptances, repurchase agreements, overdrafts, and the Loan
Documents defined below, however and whenever incurred or evidenced, whether
primary, secondary, direct, indirect, absolute, contingent, due or to become
due, now existing or hereafter contracted or acquired, and all modifications,
extensions or renewals thereof, including without limitation all principal,
interest, charges, and costs and expenses incurred thereunder (including
attorneys' fees and other costs of collection incurred, regardless of whether
suit is commenced) (collectively, the "Guaranteed Obligations").
Guarantor further covenants and agrees:
GUARANTOR'S LIABILITY. This Guaranty is a continuing and unconditional guaranty
of payment and performance and not of collection. The parties to this Guaranty
are jointly and severally obligated hereunder. This Guaranty does not impose any
obligation on Bank to extend or continue to extend credit or otherwise deal with
Borrower at any subsequent time. This Guaranty shall continue to be effective or
be reinstated, as the case may be, if at any time any payment of the Guaranteed
Obligations is rescinded, avoided or for any other reason must be returned by
Bank, and the returned payment shall remain payable as part of the Guaranteed
Obligations, all as though such payment had not been made. Except to the extent
the provisions of this Guaranty give the Bank additional rights, this Guaranty
shall not be deemed to supersede or replace any other guaranties given to Bank
by Guarantor; and the obligations guaranteed hereby shall be in addition to any
other obligations guaranteed by Guarantor pursuant to any other agreement of
guaranty given to Bank and other guaranties of the Guaranteed Obligations.
<PAGE>
TERMINATION OF GUARANTY. Guarantor may terminate this Guaranty by written
notice, delivered personally to or received by certified or registered United
States Mail by an authorized officer of the Bank at the address for notices
provided herein. Such termination shall be effective with respect to Guaranteed
Obligations arising more than 15 days after the date such written notice is
received by said Bank officer. Guarantor may not terminate this Guaranty as to
Guaranteed Obligations (including any subsequent extensions, modifications or
compromises of the Guaranteed Obligations) then existing, or to Guaranteed
Obligations arising subsequent to receipt by Bank of said notice if such
Guaranteed Obligations are a result of Bank's obligation to make advances
pursuant to a commitment entered into prior to expiration of the 15 day notice
period, or are a result of advances which are necessary for Bank to protect its
collateral or otherwise preserve its interests. Termination of this Guaranty by
any single Guarantor will not affect the existing and continuing obligations of
any other guarantor hereunder.
APPLICATION OF PAYMENTS, BANK LIEN AND SET-OFF. Monies received from any source
by Bank for application toward payment of the Guaranteed Obligations may be
applied to such Guaranteed Obligations in any manner or order deemed appropriate
by Bank. Except as prohibited by law, Guarantor grants Bank a security interest
in all of Guarantor's accounts maintained with Bank and any of its affiliates
(collectively, the "Accounts"). If a Default occurs, Bank is authorized to
exercise its right of set-off or to foreclose its lien against any obligation of
Bank to Guarantor including, without limitation, all Accounts or any other debt
of any maturity, without notice.
CONSENT TO MODIFICATIONS. Guarantor consents and agrees that Bank may from time
to time, in its sole discretion, without affecting, impairing, lessening or
releasing the obligations of the Guarantor hereunder: (a) extend or modify the
time, manner, place or terms of payment or performance and/or otherwise change
or modify the credit terms of the Guaranteed Obligations; (b) increase, renew,
or enter into a novation of the Guaranteed Obligations; (c) waive or consent to
the departure from terms of the Guaranteed Obligations; (d) permit any change in
the business or other dealings and relations of Borrower or any other guarantor
with Bank; (e) proceed against, exchange, release, realize upon, or otherwise
deal with in any manner any collateral that is or may be held by Bank in
connection with the Guaranteed Obligations or any liabilities or obligations of
Guarantor; and (f) proceed against, settle, release, or compromise with
Borrower, any insurance carrier, or any other person or entity liable as to any
part of the Guaranteed Obligations, and/or subordinate the payment of any part
of the Guaranteed Obligations to the payment of any other obligations, which may
at any time be due or owing to Bank; all in such manner and upon such terms as
Bank may deem appropriate, and without notice to or further consent from
Guarantor. No invalidity, irregularity, discharge or unenforceability of, or
action or omission by Bank relating to any part of, the Guaranteed Obligations
or any security therefor shall affect or impair this Guaranty.
WAIVERS AND ACKNOWLEDGMENTS. Except as expressly provided in the Loan Documents,
Guarantor waives and releases the following rights, demands, and defenses
Guarantor may have with respect to Bank and collection of the Guaranteed
Obligations: (a) promptness and diligence in collection of any of the Guaranteed
Obligations from Borrower or any other person liable thereon, and in foreclosure
of any security interest and sale of any property serving as collateral for the
Guaranteed Obligations; (b) any law or statute that requires that Bank make
demand upon, assert claims against, or collect from Borrower or other persons or
entities, foreclose any security interest, sell collateral, exhaust any
remedies, or take any other action against Borrower or other persons or entities
prior to making demand upon, collecting from or taking action against Guarantor
with respect to the Guaranteed Obligations, including any such rights Guarantor
might otherwise have had under Va. Code ss.ss. 49-25 and 49-26, et seq.,
N.C.G.S. ss.ss. 26-7, et seq., Tenn. Code Ann. ss. 47-12-101, O.C.G.A. ss.
10-7-24 (and any successor statute) and any other applicable law; (c) any law or
statute that requires that Borrower or any other person be joined in, notified
of or made part of any action against Guarantor; (d) that Bank preserve, insure
or perfect any security interest in collateral or sell or dispose of collateral
in a particular manner or at a particular time; (e) notice of extensions,
modifications, renewals, or novations of the Guaranteed Obligations, of any new
transactions or other relationships between Bank, Borrower and/or any guarantor,
and of changes in the financial condition of, ownership of, or business
structure of Borrower or any other guarantor;
Page 2
<PAGE>
(f) presentment, protest, notice of dishonor, notice of default, demand for
payment, notice of intention to accelerate maturity, notice of acceleration of
maturity, notice of sale, and all other notices of any kind whatsoever; (g) the
right to assert against Bank any defense (legal or equitable), set-off,
counterclaim, or claim that Guarantor may have at any time against Borrower or
any other party liable to Bank; (h) all defenses relating to invalidity,
insufficiency, unenforceability, enforcement, release or impairment of Bank's
lien on any collateral, of the Loan Documents, or of any other guaranties held
by Bank; (i) any claim or defense that acceleration of maturity of the
Guaranteed Obligations is stayed against Guarantor because of the stay of
assertion or of acceleration of claims against any other person or entity for
any reason including the bankruptcy or insolvency of that person or entity; and
(j) the benefit of any exemption claimed by Guarantor. Guarantor acknowledges
and represents that it has relied upon its own due diligence in making its own
independent appraisal of Borrower, Borrower's business affairs and financial
condition, and any collateral; Guarantor will continue to be responsible for
making its own independent appraisal of such matters; and Guarantor has not
relied upon and will not hereafter rely upon Bank for information regarding
Borrower or any collateral.
FINANCIAL CONDITION. Guarantor warrants, represents and covenants to Bank that
on and after the date hereof: (a) the fair saleable value of Guarantor's assets
exceeds its liabilities, Guarantor is meeting its current liabilities as they
mature, and Guarantor is and shall remain solvent; (b) all financial statements
of Guarantor furnished to Bank are correct and accurately reflect the financial
condition of Guarantor as of the respective dates thereof; (c) since the date of
such financial statements, there has not occurred a material adverse change in
the financial condition of Guarantor; (d) there are not now pending any court or
administrative proceedings or undischarged judgments against Guarantor, no
federal or state tax liens have been filed or threatened against Guarantor, and
Guarantor is not in default or claimed default under any agreement; and (e) at
such reasonable times as Bank requests, Guarantor will furnish Bank with such
other financial information as Bank may reasonably request.
INTEREST. Regardless of any other provision of this Guaranty or other Loan
Documents, if for any reason the effective interest on any of the Guaranteed
Obligations should exceed the maximum lawful interest, the effective interest
shall be deemed reduced to and shall be such maximum lawful interest, and any
sums of interest which have been collected in excess of such maximum lawful
interest shall be applied as a credit against the unpaid principal balance of
the Guaranteed Obligations.
DEFAULT. If any of the following events occur, a default ("Default") under this
Guaranty shall exist: (a) Failure of timely payment or performance of the
Guaranteed Obligations or a default under any Loan Document; (b) A breach of any
agreement or representation contained or referred to in the Guaranty, or any of
the Loan Documents, or contained in any other contract or agreement of Guarantor
with Bank or its affiliates, whether now existing or hereafter arising; (c) The
death of, appointment of a guardian for, dissolution of, termination of
existence of, loss of good standing status by, appointment of a receiver for,
assignment for the benefit of creditors of, or the commencement of any
insolvency or bankruptcy proceeding by or against, Guarantor or any general
partner of or the holder(s) of the majority ownership interests of Guarantor;
and/or (d) The entry of any monetary judgment or the assessment against, the
filing of any tax lien against, or the issuance of any writ of garnishment or
attachment against any property of or debts due Guarantor.
If a Default occurs, the Guaranteed Obligations shall be due immediately and
payable without notice. Guarantor shall pay interest on the Guaranteed
Obligations from such Default at the highest rate of interest charged on any of
the Guaranteed Obligations.
ATTORNEY'S FEES AND OTHER COSTS OF COLLECTION. Guarantor shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Guaranteed
Obligations, including, without limitation, reasonable arbitration, paralegals',
attorneys' and experts' fees and expenses, whether incurred without the
commencement of a suit, in any suit, arbitration, or administrative proceeding,
or in any appellate or bankruptcy proceeding.
Page 3
<PAGE>
SUBORDINATION OF OTHER DEBTS. Guarantor agrees: (a) to subordinate the
obligations now or hereafter owed by Borrower to Guarantor ("Subordinated Debt")
to any and all obligations of Borrower to Bank now or hereafter existing while
this Guaranty is in effect, provided however that Guarantor may receive
regularly scheduled principal and interest payments on the Subordinated Debt so
long as (i) all sums due and payable by Borrower to Bank have been paid in full
on or prior to such date, and (ii) no event or condition which constitutes or
which with notice or the lapse or time would constitute an event of default with
respect to the Guaranteed Obligations, shall be continuing on or as of the
payment date; (b) Guarantor will place a legend indicating such subordination on
every note, ledger page or other document evidencing any part of the
Subordinated Debt; and (c) except as permitted by this paragraph, Guarantor will
not request or accept payment of or any security for any part of the
Subordinated Debt, and any proceeds of the Subordinated Debt paid to Guarantor,
through error or otherwise, shall immediately be forwarded to Bank by Guarantor,
properly endorsed to the order of Bank, to apply to the Guaranteed Obligations.
MISCELLANEOUS. (a) Assignment. This Guaranty and other Loan Documents shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Bank's interests in and
rights under this Guaranty and other Loan Documents are freely assignable, in
whole or in part, by Bank. Any assignment shall not release Guarantor from the
Guaranteed Obligations. (b) Applicable Law; Conflict Between Documents. This
Guaranty and other Loan Documents shall be governed by and construed under the
laws of the state in which office of Bank first shown above is located without
regard to that state's conflict of laws principles. If the terms of this
Guaranty should conflict with the terms of any commitment letter that survives
closing, the terms of this Guaranty shall control. (c) Jurisdiction. Guarantor
irrevocably agrees to non-exclusive personal jurisdiction in the state in which
the office of Bank first shown above is located. (d) Severability. If any
provision of this Guaranty or of the other Loan Documents shall be prohibited or
invalid under applicable law, such provision shall be ineffective but only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Guaranty or other
document. (e) Notices. Any notices to Guarantor shall be sufficiently given, if
in writing and mailed or delivered to the Guarantor's address shown above or
such other address as provided hereunder, and to Bank, if in writing and mailed
or delivered to Bank's office address shown above or such other address as Bank
may specify in writing from time to time. In the event that Guarantor changes
Guarantor's address at any time prior to the date the Guaranteed Obligations are
paid in full, Guarantor agrees to promptly give written notice of said change of
address by registered or certified mail, return receipt requested, all charges
prepaid. (f) Plural; Captions. All references in the Loan Documents to borrower,
guarantor, person, document or other nouns of reference mean both the singular
and plural form, as the case may be, and the term "person" shall mean any
individual, person or entity. The captions contained in the Loan Documents are
inserted for convenience only and shall not affect the meaning or interpretation
of the Loan Documents. (g) Binding Contract. Guarantor by execution of and Bank
by acceptance of this Guaranty agree that each party is bound to all terms and
provisions of this Guaranty. (h) Amendments, Waivers and Remedies. No waivers,
amendments or modifications of this Guaranty and other Loan Documents shall be
valid unless in writing and signed by an officer of Bank. No waiver by Bank of
any Default shall operate as a waiver of any other Default or the same Default
on a future occasion. Neither the failure nor any delay on the part of Bank in
exercising any right, power, or privilege granted pursuant to this Guaranty and
other Loan Documents shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise or the exercise
of any other right, power or privilege. All remedies available to Bank with
respect to this Guaranty and other Loan Documents and remedies available at law
or in equity shall be cumulative and may be pursued concurrently or
successively. (i) Partnerships. If Guarantor is a partnership, the obligations,
liabilities and agreements on the part of Guarantor shall remain in full force
and effect and fully applicable notwithstanding any changes in the individuals
comprising the partnership. The term "Guarantor" includes any altered or
successive partnerships, and predecessor partnership(s) and the partners shall
not be released from any obligations or liabilities hereunder. (j) Loan
Documents. The term "Loan Documents" refers to all documents executed in
connection with the Guaranteed Obligations and may include, without limitation,
commitment letters that survive closing, loan agreements, other guaranty
agreements, security agreements, instruments, financing statements, mortgages,
deeds of trust, deeds to secure debt, letters of credit and any amendments or
supplements (excluding swap agreements as defined in 11 U.S. Code ss. 101).
<PAGE>
ANNUAL FINANCIAL STATEMENTS. Guarantor shall deliver to Bank annually, within
thirteen months of the previous statement date on file with Bank, Guarantor's
financial statement. Said financial statement shall disclose all of Guarantor's
assets, liabilities, net worth income and contingent liabilities, all in
reasonable detail and acceptable to Bank and submitted on a form to be provided
by Bank or on such other form acceptable to Bank, signed by Guarantor and
certified by Guarantor to Bank to be true, correct and complete.
FINANCIAL AND OTHER INFORMATION. Guarantor shall deliver to Bank such
information as Bank may reasonably request from time to time, including without
limitation, financial statements and information pertaining to Guarantor's
financial condition. Such information shall be true, complete, and accurate.
TAX RETURNS. Guarantor shall deliver to Bank, within 30 days of filing, complete
copies of federal and state tax returns, as applicable, each of which shall be
signed and certified by Guarantor to be true and complete copies of such
returns. In the event an extension is filed, Guarantor shall deliver a copy of
the extension within 30 days of filing.
SECURITY. Guarantor has granted Bank a security interest in the collateral
described in the Loan Documents, including, but not limited to, real property
collateral described in that certain Deed of Trust dated November 30, 1995.
ARBITRATION. [ILLEGIBLE]
[ILLEGIBLE] The single arbitrator selected for expedited procedure shall be a
retired judge from the highest court of general jurisdiction, state or federal,
of the state where the hearing will be conducted or if such person is not
available to serve, the single arbitrator may be a licensed attorney.
Notwithstanding the foregoing, this arbitration provision does not apply to
disputes under or related to swap agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, Bank and Guarantor agree to preserve, without
diminution, certain remedies that any party hereto may employ or exercise
freely, independently or in connection with an arbitration proceeding or after
an arbitration action is brought. Bank and Guarantor shall have the right to
proceed in any court of proper jurisdiction or by self-help to exercise or
prosecute the following remedies, as applicable: (i) all rights to foreclose
against any real or personal property or other security by exercising a power of
sale granted under Loan Documents or under applicable law or by judicial
foreclosure and sale, including a proceeding to confirm the sale; (ii) all
rights of self-help including peaceful occupation of real property and
collection of rents, set-off, and peaceful possession of personal property;
(iii) obtaining provisional or ancillary remedies including injunctive relief,
sequestration, garnishment, attachment, appointment of receiver and filing an
involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by
confession of judgment. Preservation of these remedies does not limit the power
of an arbitrator to grant similar remedies that may be requested by a party in a
Dispute.
<PAGE>
Guarantor and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right or
claim to punitive or exemplary damages they have now or which may arise in the
future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
CONFESSION OF JUDGMENT. If a Default occurs under this Guaranty, each Guarantor
hereby authorizes any attorney designated by Bank or any clerk of any court of
record to appear for it in any court of record and confess judgment against it
without prior hearing, in favor of Bank for and in the amount of the Guaranteed
Obligations then outstanding plus interest accrued and unpaid thereon, all other
amounts then due and payable under this Guaranty or other Loan Documents, costs
of suit and attorneys' fees in an amount equal to 15% of the Guaranteed
Obligations then outstanding (which shall be deemed reasonable attorneys' fees
for the purposes of this paragraph). The authority and power to appear for and
enter judgment against the Guarantor shall not be exhausted by one or more
exercises thereof, or by any imperfect exercise thereof, and shall not be
extinguished by any judgment entered pursuant thereto. Such authority and power
may be exercised on one or more occasions, from time to time, in the same or
different jurisdictions, as often as Bank shall deem necessary or desirable, for
all of which this Guaranty shall be a sufficient warrant. Notwithstanding any
provision or waiver contained herein to the contrary, Guarantor shall have all
rights and remedies available to a defendant under Rule 2-611 Maryland Rules of
Procedure of the Annotated Code of Maryland, as amended.
IN WITNESS WHEREOF, Guarantor, effective as of the day and year first written
above, has caused this Unconditional Guaranty to be executed under seal.
/s/ Uziel Frydman
------------------------------------(SEAL)
Uziel Frydman
Taxpayer Identification Number: ###-##-####
<PAGE>
FIRST UNION
SUBORDINATION AGREEMENT
To: First Union National Bank of Maryland ("Bank")
Date: November 29, 1996
__________________, Maryland
I, Sherwood Foods, Inc., creditor of Sherwood Brands, Inc., (hereinafter
referred to as "Borrower"), in the amount shown in the attached Schedule "A",
know that Borrower desires to obtain credit accommodation from you and that you
are willing to extend credit accommodation to Borrower from time to time in such
amounts as you deem advisable, provided the Subordination Agreement
("Agreement") herein set forth shall be and remain in effect. To induce you to
give such credit accommodation to Borrower, I agree that:
(1) Any indebtedness now existing or hereafter contracted and owing by
Borrower to you, notice of the creation, existence, extension and renewal of
such indebtedness being hereby waived by me, shall be paid prior to payment of
any part of any and all indebtedness, now existing or hereafter contracted and
owing by Borrower to me, and that I shall receive no security (without the
security being fully subordinated to the Bank debt) from Borrower for such
indebtedness to me, nor any loans, advances or gifts from Borrower so long as
Borrower shall be indebted to you (except as shown in the attached Schedule
"B").
(2) All such indebtedness of Borrower to me, now existing or hereafter
contracted, is hereby assigned to you as security for the payment of all such
indebtedness of Borrower to you and nothing in this agreement provided shall by
implication diminish the effect of the assignment contained in this paragraph.
(3) In any proceeding to wind up the affairs of Borrower, whether in
bankruptcy or otherwise, or for an arrangement with creditors, or for
reorganization of Borrower, you shall have the right to prove and vote my claim
and to receive all distributions thereon.
(4) Any notes or other evidence of indebtedness which have been or shall be
issued to me by Borrower shall be deposited with you or shall be endorsed with a
memo reading: "Payment of this instrument is subordinated to all debts now or
hereafter owed by maker to First Union National Bank of Maryland."
(5) Upon any breach of this Agreement by me or Borrower, all indebtedness
then owing by Borrower to you shall, at your option, become due and payable at
once. Any funds or property of any kind received by me in violation of this
Agreement shall be held by me in trust for you and shall be paid or delivered
over to you upon demand. Waiver of earlier breaches by you shall not be
construed as waiver of any later breach. This Agreement shall remain in full
force and effect until written notice of its termination shall have been given
by me to a First Union officer duly authorized by you and familiar with the
transaction giving rise to this Agreement, and any such termination
<PAGE>
shall in no manner impair or affect my liability then existing to you hereunder,
or the priority of any claim held by you against the Borrower at the time of
such termination.
Borrower joins in this Agreement which shall be binding upon all parties hereto
and their respective heirs, assigns, successors, executors and administrators.
Executed at Rockville, Maryland, on the day and year first above written.
Sherwood Foods, Inc.
By: /s/ Anat Schwartz
------------------------------------ CORPORATE SEAL
Title: Vice President
---------------------------------
By:
------------------------------------
Title:
---------------------------------
Sherwood Brands, Inc., Borrower
By: /s/ Anat Schwartz
------------------------------------ CORPORATE SEAL
Title: Director
---------------------------------
By:
------------------------------------
Title:
---------------------------------
Page 2
<PAGE>
SCHEDULE "A"
Promissory Note
Payee: Sherwood Foods, Inc. Date ________________________
Amount $218,331.00.
PAYMENT OF THIS INSTRUMENT IS SUBORDINATED TO ALL DEBTS NOW OR HEREAFTER OWED BY
MAKER TO FIRST UNION NATIONAL BANK OF MARYLAND.
- --------------------------------------------------------------------------------
SCHEDULE "B"
Exceptions:
As long as Borrower is not in default under its obligations to Bank, Borrower
may make payments hereunder so long as the aggregate repayment on all
indebtedness subordinated to Borrower's indebtedness to Bank does not exceed
$125,000.00 annually, as long as the minimum net worth does not fall below
$2,300,000.00 in the aggregate.
<PAGE>
Prepared by: L. Marie Jones
RETURN TO: QUALITY CONTROL AND COMPLIANCE
FIRST UNION NATIONAL BANK OF VIRGINIA
P. 0. Box 13327
Roanoke, Virginia 24040-7391
PARCEL IDENTIFICATION NUMBER ______________
This is to certify that this instrument has been prepared by First Union
National Bank of Maryland, one of the parties named in the instrument.
--------------------------------------
L. Marie Jones, Doc Prep Specialist
MODIFICATION AND EXTENSION OF DEED OF TRUST
THIS MODIFICATION AND EXTENSION, is made effective as of November 29, 1996,
by Uziel Frydman and Ilana Frydman, the Grantor under the Deed of Trust
described below ("Grantor") whose address is 5800 Nicholson Lane, Rockville,
Maryland 20852, and delivered to First Union National Bank of Maryland, a
national banking association ("Bank"), whose address is Congressional Park Plaza
Branch, 110 Congressional Lane, Rockville, Maryland 20852.
RECITALS
Bank is owner and holder of a certain Indemnity Deed Of Trust (the "Deed of
Trust") wherein TRSTE Inc. is the trustee, dated November 30, 1995, recorded in
Libor 13918, folio 550, of the public land records of the County of Montgomery,
State of Maryland.
Bank is owner and holder of a certain Guaranty (the "Guaranty") dated
November 30, 1995, made by Grantor, which is secured by the Deed of Trust.
Sherwood Brands, Inc. and Sherwood Brands Overseas, Inc. are indebted to
First Union National Bank of Maryland in an aggregate amount, including future
advances, of Four Million and No/100ths Dollars ($4,000,000.00), (the "Note")
which indebtedness is also secured by the Deed of Trust and guaranteed by the
Guaranty.
Bank and Grantor have modified the Guaranty and accordingly have agreed to
modify and extend the Deed of Trust.
WITNESSETH
In consideration of the foregoing premises Grantor and Bank hereby modify
the Deed of Trust as follows:
Guaranty Modified. Bank and Guarantor have executed a Unconditional
Guaranty (the "Modified Guaranty") dated November 29, 1996, that modifies the
Guaranty. It is hereby certified that a Borrower in the name of Sherwood Brands
Overseas, Inc. is being added to the Modified Guaranty.
<PAGE>
Modified Guaranty Secured. Grantor acknowledges and agrees (i) that the
Modified Guaranty is a modification of the Guaranty, (ii) that the payment and
performance of the Obligations (as the term "Obligations" is defined in the
Modified Guaranty) is secured by the Deed of Trust, (iii) that there are no
defenses or impediments to enforcement of the lien of the Deed of Trust, and
(iv) that the Modified Guaranty evidences the same indebtedness as the Guaranty
and is not a novation.
Deed of Trust Confirmed. Grantor acknowledges and agrees that the Deed of
Trust, except as expressly modified by this Modification And Extension shall
remain in full force and effect as originally executed and the terms of this
Modification And Extension shall be part of the Deed of Trust. The new
expiration date of the Deed of Trust will be November 30, 1997.
Document Taxes. Grantor shall pay the full amount of any documentary stamp
tax, intangible tax, interest, filing fees and penalties, if any, charged
incident to the loan transaction and modification(s) described in or created by
this Modification And Extension and the filing of this Agreement. If Grantor
fails to pay the obligations under this paragraph, Bank may pay such
obligations. Any amounts so paid by Bank shall bear interest at the default rate
stated in the Modified Note and shall be secured by the Deed of Trust.
IN WITNESS WHEREOF, Grantor, Trustee and Bank have signed and sealed this
instrument as of the day and year first above written.
Bank
CORPORATE SEAL First Union National Bank of Maryland
By:
-------------------------------------
Title:
----------------------------------
Trustee
CORPORATE SEAL TRSTE Inc.
By:
-------------------------------------
Title:
----------------------------------
Grantor
/s/ Uziel Frydman
-------------------------------------(SEAL)
Uziel Frydman
/s/ Ilana Frydman
-------------------------------------(SEAL)
Ilana Frydman
Page 2
<PAGE>
State of Maryland
City/County of _______________
BANK ACKNOWLEDGMENT
I certify that before me appeared this day, _____________________, a person
known to me, who after being sworn said he/she is __________________ of First
Union National Bank of Maryland, a national banking association, and is duly
authorized to act on behalf of said bank, that the seal affixed to the foregoing
instrument is the seal of said bank and that said instrument was signed and
sealed by him/her on behalf of said bank, and being informed of the contents
thereof, acknowledged execution of the foregoing instrument on behalf of said
bank.
Witness my hand and official seal, this ______ day of ____________, 19___.
____________________________, Notary Public
Notary Seal
_______________________________________
(Printed Name of Notary)
My Commission expires: ____________________
State of Maryland
City/County of ____________________
TRUSTEE ACKNOWLEDGMENT
I certify that before me appeared this day, _______________________ , a
person known to me, who after being sworn said he/she is __________________ of
TRSTE, Inc., a Virginia Corporation, and is duly authorized to act on behalf of
said corporation, that the seal affixed to the foregoing instrument is the seal
of said corporation and that said instrument was signed and sealed by him/her on
behalf of said corporation, and acknowledged execution of the foregoing
instrument on behalf of said corporation.
Witness my hand and official seal, this _____ day of ______________,19___.
____________________________, Notary Public
Notary Seal
_______________________________________
(Printed Name of Notary)
My Commission expires: ____________________
Page 3
<PAGE>
State of Maryland
City/County of Montgomery
INDIVIDUAL ACKNOWLEDGMENT
I certify that Uziel Frydman, a person(s) known to me, appeared before me
this day, and being informed of the contents thereof, acknowledged execution of
the foregoing instrument.
Witness my hand and official seal, this 11th day of December 1996.
/s/ Patricia A. Carroll, Notary Public
------------------------------
Notary Seal Patricia A. Carroll
------------------------------
(Printed Name of Notary)
My Commission expires: ____________________
Patricia A. Carroll, Notary Public
Montgomery County
State of Maryland
My Commission Expires May 1, 2000
State of Maryland
City/County of Montgomery
INDIVIDUAL ACKNOWLEDGMENT
I certify that Ilana Frydman, a person(s) known to me, appeared before me
this day, and being informed of the contents thereof, acknowledged execution of
the foregoing instrument.
Witness my hand and official seal, this 11th day of December 1996.
/s/ Patricia A. Carroll, Notary Public
-----------------------------
Notary Seal Patricia A. Carroll
-----------------------------
(Printed Name of Notary)
My Commission expires: ____________________
Patricia A. Carroll, Notary Public
Montgomery County
State of Maryland
My Commission Expires May 1, 2000
Page 4
<PAGE>
VARIABLE BALANCE PROMISSORY NOTE
$1,500,000.00 ROCKVILLE, MD
AUGUST 28, 1991
FOR VALUE RECEIVED, the undersigned, Sherwood Brands, Inc., a North
Carolina corporation (the "Maker"), hereby promises to pay to the order of Ilana
Frydman (the "Lender"), on demand, the principal amount of the indebtedness
evidenced by this Note which remains outstanding and unpaid as of the time of
such demand, together with all accrued interest thereon at the rate herein
provided.
The amount of the principal balance evidenced by this Note shall be the
aggregate of all advances made hereunder less the aggregate of all principal
repayments, but in no event shall the unpaid principal balance exceed the sum of
One Million Five Hundred Thousand Dollars ($1,500,000.00). It is understood and
agreed that if from time to time no balance is due hereunder, this Note shall
nevertheless continue as an effective instrument, at the option of the Lender,
to evidence future advances which may be made by the Lender hereunder.
The unpaid principal balance of the indebtedness, from time to time
outstanding and evidenced hereby, shall bear interest from the date of each
advance hereunder until paid in full at an annual rate of nine percent but in no
event less than the short term applicable federal rate published by the Internal
Revenue Service. Such interest shall be payable annually.
The unpaid principal balance of the indebtedness and any accrued interest
thereon shall be secured by the cash and cash equivalents held by the Maker,
subject to the prior security interest of Sovran Bank/Maryland.
The Maker hereby waives diligence, presentment, demand, protest and notice
of any kind whatsoever. The non-exercise by the holder of any of its rights
hereunder in any particular instance shall not constitute a waiver thereof in
that or any subsequent instance.
This Note shall be construed in accordance with and governed by the laws of
the State of Maryland (but not including the choice of law thereof).
SHERWOOD BRANDS, INC.
/s/ Anat Schwartz, Vice President
---------------------------------
<PAGE>
ALLONGE
This Allonge to Promissory Note is executed this 1st day of June, 1996 by
and between ILANA FRYDMAN ("Lender") and SHERWOOD BRANDS, INC., a North Carolina
corporation ("Maker").
RECITALS:
R-1. Maker executed a Promissory Note ("Note") dated August 28, 1991 in
principal amounts up to $1,500,000.00 in favor of Lender.
R-2. Maker is entering into a certain Guaranty and Subordination and Pledge
Agreement with Central Fidelity National Bank, whereby the terms of a
Reimbursement Agreement requires that principal payments on the Note be made in
accordance with the terms of the Reimbursement Agreement.
R-3. Lender is agreeable to modifying the terms of the Note to accomplish
the requirements set forth in the documents listed above.
Now, therefore, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. Lender agrees not to demand payment of the Note, except for payments
provided to be made by the Note and the Reimbursement Agreement, without first
notifying Central Fidelity National Bank, the Industrial Development Authority
of Mecklenburg County and Lake County Development Corporation in writing of such
proposed action and receiving their written approval.
2. The fourth paragraph of the Note is hereby deleted and replaced by the
following new paragraph four:
"The unpaid principal balance of the indebtedness and any
accrued interest thereon shall be secured by the cash and
cash equivalents held by the Maker, subject to the prior
security interest of First Union Bank."
3. The Guarantee of Uziel Frydman and the pledge of stock in Sherwood
Brands, Inc. and Sherwood Foods, Inc. contained therein is hereby subordinated
to any loans, advances or extensions of credit that Central Fidelity National
Bank, the Industrial Development Authority of Mecklenburg County and Lake County
Development Corporation may have with Maker or Sherwood Foods, Inc.
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Allonge the day and year
stated above.
/s/ Ilana Frydman
---------------------------------
ILANA FRYDMAN, Lender
/s/ Anat Schwartz, Vice President
---------------------------------
SHERWOOD BRANDS, INC., Maker
<PAGE>
ALLONGE
This Allonge to Promissory Note is executed as of May 1, 1997 by and
between ILANA FRYDMAN ("Lender") and SHERWOOD BRANDS, INC., a North Carolina
corporation ("Maker").
RECITALS:
R-1. Maker executed a Promissory Note ("Note") dated August 28, 1991 in
principal amounts up to $1,500,000.00 in favor of Lender.
R-2. Maker and Lender have previously entered an Allonge to the Note in
June, 1996 to modify the terms of the Note, in connection with a certain
Guaranty and Subordination and Pledge Agreement which Maker entered with Central
Fidelity National Bank, whereby the terms of a Reimbursement Agreement required
that principal payments on the Note be made in accordance with the terms of the
Reimbursement Agreement.
R-3. This Allonge contains the same terms as the June, 1996 Allonge and is
being entered because Maker is entering a new Guaranty and Subordination and
Pledge Agreement in connection with an Amended and Restated Reimbursement
Agreement dated this date pursuant to which additional funds are being made
available to Lender and pursuant to which the principal payments on the Note
must be made in accordance with the terms of the Amended and Restated
Reimbursement Agreement.
R-4. Lender is agreeable to modifying the terms of the Note to accomplish
the requirements set forth in the May 1, 1997 documents listed above.
Now, therefore, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. Lender agrees not to demand payment of the Note, except for payments
provided to be made by the Note and the Amended and Restated Reimbursement
Agreement, without first notifying Central Fidelity National Bank, the
Industrial Development Authority of Mecklenburg County and Lake County
Development Corporation in writing of such proposed action and received there
written approval.
2. The fourth paragraph of the Note is hereby deleted and replaced by the
following new paragraph four:
Notwithstanding any other term of this Note, the payment of
this Note is subordinate to the payment of the Obligations
of the Maker to Central Fidelity National Bank (the "Bank")
under the Amended and Restated Reimbursement Agreement
between the Bank and the Maker dated as of May 1, 1997 (the
"Reimbursement
<PAGE>
Agreement"); provided that Maker may make payments hereunder
so long as (i) there exists no Event of Default or (ii)
after giving effect to such payment, there will be created
no Default or Event of Default, under the Reimbursement
Agreement.
3. The Guarantee of Uziel Frydman and the pledge of stock in Sherwood
Brands, Inc. and Sherwood Foods, Inc. contained therein is hereby subordinated
to any loans, advances or extensions of credit that Central Fidelity National
Bank, the Industrial Development Authority of Mecklenburg County and Lake County
Development Corporation may have with Maker or Sherwood Foods, Inc.
IN WITNESS WHEREOF, the parties have signed this Allonge the day and year
stated above.
/s/ Ilana Frydman
---------------------------------
ILANA FRYDMAN, Lender
/s/Anat Schwartz, Vice President
---------------------------------
SHERWOOD BRANDS, INC., Maker
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SHERWOOD BRANDS INC.
6110 Executive Boulevard
Suite 1080
OFFICE BUILDING LEASE
CHARLES E. SMITH MANAGEMENT, INC.
1735 Jefferson Davis Highway
Crystal City, Arlington, Virginia
<PAGE>
TABLE OF CONTENTS
SPECIFIC AND GENERAL PROVISIONS
PAGE
1. SPECIFIC PROVISIONS ................................................ 1
2. RENT ............................................................... 4
2.1 Base Annual Rent ............................................. 4
2.2 Additional Rent .............................................. 4
(a) Real Estate Taxes ...................................... 4
(b) Operating Expenses ..................................... 4
(c) CPI .................................................... 4
(d) Changes in Landlord's Fiscal Year ...................... 4
2.3 Additional Rent Estimates and Adjustments .................... 4
2.4 Rent Adjustment Limit ........................................ 5
2.5 Survival of Rent Obligation .................................. 5
2.6 Pro Rata Share ............................................... 5
2.7 Prorated Rent ................................................ 5
2.8 Application of Rent .......................................... 5
2.9 Late Payment Fee ............................................. 5
2.10 Other Tenant Costs and Expenses .............................. 5
3. CONSTRUCTION OF PREMISES AND OCCUPANCY ............................. 5
3.1 Tenant Plans, Construction and Rent Liability .............. 5
3.2 Possession ................................................... 6
3.3 Occupancy Permits ............................................ 6
4. SUBLETTING AND ASSIGNMENT .......................................... 6
4.1 Consent ...................................................... 6
4.2 Recapture of Premises ........................................ 6
4.3 Excess Rent .................................................. 6
4.4 Tenant Liability ............................................. 6
5. SERVICES AND UTILITIES ............................................. 6
5.1 Building Standard Services and Utilities ..................... 6
5.2 Overtime Services ............................................ 7
5.3 Excessive Electrical Usage ................................... 7
5.4 Excessive Heat Generation .................................... 7
5.5 Security ..................................................... 7
6. USE AND UPKEEP OF PREMISES ......................................... 7
6.1 Use .......................................................... 7
6.2 Illegal and Prohibited Uses .................................. 7
6.3 Insurance Rating ............................................. 7
6.4 Alterations .................................................. 7
6.5 Maintenance by Landlord ...................................... 8
6.6 Signs and Advertising ........................................ 8
6.7 Excessive Floor Load ......................................... 8
6.8 Moving and Deliveries ........................................ 8
6.9 Rules and Regulations ........................................ 9
6.10 Tenant Maintenance and Condition of Premises Upon Surrender .. 9
6.11 Tenant Equipment ............................................. 9
7. ACCESS ............................................................. 9
7.1 Landlord's Access ............................................ 9
7.2 Restricted Access ............................................ 9
8. LIABILITY .......................................................... 9
8.1 Personal Property ............................................ 9
8.2 Criminal Acts of Third Parties ............................... 9
8.3 Public Liability ............................................. 9
8.4 Tenant Insurance ............................................. 10
9. DAMAGE ............................................................. 10
9.1 Damages Caused By Tenant ..................................... 10
9.2 Fire or Casualty Damage ...................................... 10
9.3 Untenantability .............................................. 10
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TABLE OF CONTENTS
(Continued)
10. CONDEMNATION ....................................................... 10
10.1 Landlord Right to Award ...................................... 10
10.2 Tenant Right to File Claim ................................... 11
11. BANKRUPTCY ......................................................... 11
11.1 Events of Bankruptcy ......................................... 11
11.2 Landlord's Remedies .......................................... 11
(a) Termination of Lease ................................... 11
(b) Suit for Possession .................................... 11
(c) Non-Exclusive Remedies ................................. 11
(d) Assumption or Assignment by Trustee .................... 11
(e) Adequate Assurance of Future Performance ............... 11
(f) Failure to Provide Adequate Assurance .................. 11
12. DEFAULTS AND REMEDIES .............................................. 12
12.1 Default ...................................................... 12
12.2 Remedies ..................................................... 12
12.3 Landlord's Right to Relet .................................... 12
12.4 Recovery of Damages .......................................... 12
12.5 Waiver ....................................................... 12
12.6 Anticipatory Repudiation ..................................... 12
12.7 Tenant Abandonment of Premises ............................... 12
13. SUBORDINATION ...................................................... 13
13.1 Subordination ................................................ 13
13.2 Estoppel Certificates ........................................ 13
13.3 Attornment ................................................... 13
14. TENANT HOLDOVER .................................................... 13
14.1 With Landlord Consent ........................................ 13
14.2 Without Landlord Consent ..................................... 13
15. SECURITY DEPOSIT ................................................... 14
16. QUIET ENJOYMENT .................................................... 14
17. SUCCESSORS ......................................................... 14
18. WAIVER OF JURY TRIAL ............................................... 14
19. LIMITATION OF LIABILITY ............................................ 14
20. PRONOUNS AND DEFINITIONS ........................................... 14
21. NOTICES ............................................................ 14
21.1 Addresses for Notices ........................................ 14
21.2 Effective Date of Notice ..................................... 14
22. EXHIBITS; SPECIAL PROVISIONS ....................................... 14
22.1 Incorporation in Lease ........................................ 14
22.2 Conflicts ..................................................... 14
23. CAPTIONS ........................................................... 15
24. ENTIRE AGREEMENT; MODIFICATION ..................................... 15
25. SEVERABILITY ....................................................... 15
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This Lease, made this 14th day of October, 1988 between BUILDING NO. 7
ASSOCIATES, a Maryland limited partnership, (hereinafter referred to as
"Landlord"), and SHERWOOD BRANDS INC., a North Carolina corporation,
(hereinafter referred to as "Tenant").
Landlord, for and in consideration of the covenants and agreements set
forth hereinafter, leases to Tenant, and Tenant leases from Landlord, the
premises described, for the use set forth and for the term and at the rent
reserved herein.
1. SPECIFIC PROVISIONS
1.1 Demised Premises
(a) Space Description: Suite 1080.
(b) Floor Area: Approximately 2,831 square feet (Washington Board of
Realtors Standard Floor Area Measure in effect at the time of
execution of this Lease) as shown on Exhibit "A".
(c) Building: 6110 EXECUTIVE BOULEVARD
(d) Address: 6110 Executive Boulevard
Rockville, Maryland 20852
1.2 Term of Lease: Five (5) years, commencing on December 1, 1988, and
expiring on November 30, 1993, both dates inclusive.
1.3 Base annual rent: THIRTY-SIX THOUSAND THREE HUNDRED and NO/100
($36,300), payable in equal monthly installments of THREE THOUSAND
TWENTY-FIVE and NO/100 Dollars ($3,025.00), hereinafter referred to as
"base monthly rent" for the period commencing December 1, 1988 and
ending November 30, 1990.
THIRTY-NINE THOUSAND SIX HUNDRED and NO/l00 Dollars ($39,600.00),
payable in equal monthly installments of THREE THOUSAND THREE HUNDRED
and NO/l00 Dollars ($3,300.00), hereinafter referred to as "base
monthly rent" for the period commencing December 1, 1990 and ending
November 30, 1991.
FORTY-TWO THOUSAND NINE HUNDRED and NO/l00 Dollars ($42,900.00),
payable in equal monthly installments of THREE THOUSAND FIVE HUNDRED
SEVENTY-FIVE and NO/l00 Dollars ($3,575.00), hereinafter referred to
as "base monthly rent" for the period commencing December 1, 1991 and
ending November 30, 1992.
FORTY-SIX THOUSAND SEVEN HUNDRED ELEVEN and 56/100 Dollars
($46,711.56), payable in equal monthly installments of THREE THOUSAND
EIGHT HUNDRED NINETY-TWO and 63/100 Dollars ($3,892.63), hereinafter
referred to as "base monthly rent" for the period commencing December
1, 1992 and ending November 30, 1993.
1.4 Base Year: "Base Year" shall mean fiscal year of Landlord ending
December 31, 1989.
1
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1.5 Additional Rent: Payable in equal monthly installments, commencing on
December 1, 1989, consisting of each of the following:
(a) Tenant's pro rata share equal to One and Eleven Hundredths Percent
(1.11%) of any increase in Real Estate Taxes over the Base Year Real
Estate Taxes for the period commencing December 1, 1989 and ending
November 30, 1990; and
Tenant's pro rata share equal to One and Twenty-One Hundredths
Percent (1.21%) of any increase in Real Estate Taxes over the Base
Year Real Estate Taxes for the period commencing December 1, 1990 and
ending November 30, 1991; and
Tenant's pro rata share equal to One and Thirty-One Hundredths
Percent (1.31%) of any increase in Real Estate Taxes over the Base
Year Real Estate Taxes for the period commencing December 1, 1991 and
ending November 30, 1992; and
Tenant's pro rata share equal to One and Forty-Two Hundredths Percent
(1.42%) of any increase in Real Estate Taxes over the Base Year Real
Estate Taxes for the period commencing December 1, 1992 and ending
November 30, 1993; and
(b) Tenant's pro rata share equal to One and Eleven Hundredths Percent
(1.11%) of any increase in Operating Expenses over the Base Year
Operating Expenses for the period commencing December 1, 1989 and
ending November 30, 1990; and
Tenant's pro rata share equal to One and Twenty-Two Hundredths
Percent (1.22%) of any increase in Operating Expenses over the Base
Year Operating Expenses for the period commencing December 1, 1990 and
ending November 30, 1991; and
Tenant's pro rata share equal to One and Thirty-Two Hundredths
Percent (1.32%) of any increase in Operating Expenses over the Base
Year Operating Expenses for the period commencing December 1, 1991 and
ending November 30, 1992; and
Tenant's pro rata share equal to One and Forty-Three Hundredths
Percent (1.43%) of any increase in Operating Expenses over the Base
Year Operating Expenses for the period commencing December 1, 1992 and
ending November 30, 1993; and
(c) A percentage of Base Annual Rent equal to Thirty Percent (30%) of
the percentage increase in the CPI over the CPI for "the base period"
in the year 1989.
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1.6 Security Deposit: THREE THOUSAND TWENTY-FIVE and NO/l00 Dollars
($3,025.00).
1.7 (a) Date Tenant approved Preliminary Plans to be furnished: October
4, 1988.
(b) Working days to prepare Working Drawings and cost estimate: Ten
(10).
(c) Working days to substantially complete construction of demised
premises: Twenty-Five (25).
1.8 Standard Building Operating Days and Hours:
8:00 A.M. to 6:00 P.M. Monday - Friday
8:00 A.M. to 1:00 P.M. Saturday
1.9 Use of Premises:
General office use in keeping with the quality and nature of this
first class office building.
1.10 (a) Address for Notices to Tenant:
Sherwood Brands Inc.
6110 Executive Boulevard
Suite 1080
Rockville, Maryland 20852
(b) Address for Notices to Landlord:
Building No. 7 Associates
c/o Charles E. Smith Management, Inc.
1735 Jefferson Davis Highway
Arlington, Virginia 22202
1.11 Special Provisions:
LIMIT ON ADDITIONAL RENT (See Section 26)
WAIVER OF RENT (See Section 27)
LANDLORD IMPROVEMENTS (See Section 28)
PARKING (See Section 29)
LATE FEE (See Section 30)
OCCUPANCY PERMITS (See Section 31)
SUBLETTING (See Section 32)
BUILDING SERVICES (See Section 33)
RULES AND REGULATIONS (See Section 34)
LANDLORD'S ACCESS (See Section 35)
DAMAGE TO THE DEMISED PREMISES (See Section 36)
LANDLORD'S INSURANCE (See Section 37)
CONDEMNATION (See Section 38)
BANKRUPTCY (See Section 39)
DEFAULT (See Section 40)
NON-DISTURBANCE (See Section 41)
ESTOPPEL CERTIFICATES (See Section 42)
TENANT'S HOLDOVER (See Section 43)
JURY TRIAL (See Section 44)
EXECUTION OF DOCUMENT (See Section 45)
ADDITIONAL RENT (See Section 46)
ALTERATIONS (See Section 47)
SIGNAGE (See Section 48)
MOVING AND DELIVERIES (See Section 49)
LANDLORD'S NEGLIGENCE (See Section 50)
MUTUAL WAIVER OF SUBROGATION (See Section 51)
TENANT'S INSURANCE (See Section 52)
BANKRUPTCY (See Section 53)
ANTICIPATORY REPUDIATION (See Section 54)
ATTORNMENT (See Section 55)
SECURITY DEPOSIT (See Section 56)
TEMPORARY SPACE (See Section 57)
CONSENTS AND APPROVALS (See Section 58)
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1.12 Exhibits to Lease:
Exhibit "A" - Plan
Exhibit "B" - Not Applicable
Exhibit "C" - Building Rules and Regulations
Exhibit "D" - Janitorial Specifications
IN WITNESS WHEREOF, Landlord has caused this Lease, comprised of Specific
Provisions, General Provisions, Special Provisions and Exhibits to be signed and
sealed by one or more of its General Partners, Trustees, or Agents, and Tenant
has caused this Lease, as described above, to be signed in its corporate name by
its duly authorized officer and its corporate seal to be hereto affixed and duly
attested by its Secretary.
WITNESS: LANDLORD: BUILDING NO. 7 ASSOCIATES
[ILLEGIBLE] BY [ILLEGIBLE] (SEAL)
- ---------------------------------- -------------------------------
General Partner
BY (SEAL)
- ---------------------------------- -------------------------------
WITNESS: TENANT: SHERWOOD BRANDS INC.
CORPORATE
SEAL [ILLEGIBLE] BY [ILLEGIBLE] (SEAL)
- ---------------------------------- -------------------------------
Vice President - Finance
BY (SEAL)
- ---------------------------------- -------------------------------
BY (SEAL)
- ---------------------------------- -------------------------------
3(a)
<PAGE>
GENERAL PROVISIONS
2. RENT
2.1 Base Annual Rent. Tenant shall pay the first monthly installment of
Base Annual Rent upon execution of this Lease. Tenant shall pay the remaining
monthly installments of Base Annual Rent specified in section 1.3 in advance
without deduction or demand, on the first day of each and every calendar month
throughout the entire term of the Lease, as specified in section 1.2, to and at
the office of Landlord's Agent, Charles E. Smith Management, Inc., 1735
Jefferson Davis Highway, Arlington, Virginia 22202, or to such other person or
at such other place as Landlord may hereafter designate in writing.
2.2 Additional Rent. For purposes of computing additional rent hereunder,
the Base Year as used in this Section 2 is stipulated in section 1.4. If dollar
amounts for Base Year real estate taxes and operating expenses are stipulated
under section 1.4, such dollar amounts shall be used in calculating additional
rent for the purposes of this Lease and shall prevail regardless of actual
historical dollar amounts for the Base Year. Commencing on the date specified in
section 1.5, and continuing throughout the term of this Lease, Tenant shall pay
to Landlord as additional rent each of the following:
(a) Real Estate Taxes. Tenant's pro rata share, as indicated in
section 1.5(a), of any increase in real estate taxes during each fiscal
year of Landlord over the Base Year real estate taxes. The term "real
estate taxes" shall mean all taxes, general and special, levied or assessed
on the land and the building improvements of which the demised premises is
a part, and on any land and/or improvements now or hereafter owned by
Landlord that provide the building on the demised premises with parking or
other services.
(b) Operating Expenses. Tenant's pro rata share, as indicated in
section 1.5(b), of any increase in operating expenses during each fiscal
year of Landlord over the Base Year operating expenses.
(i) The term "operating expenses" shall mean any and all expenses
incurred by Landlord in connection with the servicing, operation,
maintenance and repair of the building and related interior and
exterior appurtenances of which the demised premises is a part, and
the cost of any services incurred in order to achieve a reduction of
or to minimize the increase in operating expenses, including without
limitation, management fees, capital expenditures for equipment or
systems installed to reduce or minimize increases in operating
expenses and capital expenditures required by any governmental
ordinance, or depreciation or amortization based on the useful life
expectancy of such equipment or systems or expenditures, the cost of
contesting the validity or amount of real estate taxes, and periodic
increases in ground rent payments under any ground lease existing at
the execution of this Lease. Certain of these expenses may be
apportioned among two or more buildings in the same complex or
locality owned by Landlord and/or managed by Landlord's Agent.
(ii) Operating expenses shall not include any of the following,
except to the extent that such costs and expenses are included in
operating expenses as described in subsection 2.2(b)(i) above: capital
expenditures and depreciation of the building; painting or decorating
of Tenant space; interest and amortization of mortgages; ground rent;
compensation paid to officers or executives of Landlord; taxes as
measured by the net income of Landlord from the operation of the
building; increases in real estate taxes; and brokerage commissions.
(c) CPI. A percentage of the Base Annual Rent equal to the percent
stipulated in section 1.5(c) of the percentage increase in the Index now
known as "United States Bureau of Labor Statistics, Consumer Price Index
for Urban Wage Earners and Clerical Workers," all items for Washington,
D.C. SMSA (C.P.I.W.)(1967=100)(hereinafter referred to as the "Index"),
between the last published Index for each calendar year and the Index
published for the same period in the year stipulated in section 1.5(c)
(hereinafter "base period"). If such Index shall be discontinued or revised
without substitution of a comparable successor Index, the parties shall
attempt to agree upon a substitute formula. If the parties are unable to
agree upon a substitute formula, then the matter shall be determined by
arbitration in accordance with the rules of the American Arbitration
Association then prevailing. Any substitute formula determined by
arbitration shall include all of the same items included in the Index
effective at the execution of this Lease and shall be so designed as to
achieve a result as close as possible to the result that would have been
achieved if the discontinued Index were available. Costs of any such
arbitration shall be shared equally by Tenant and Landlord.
(d) Landlord shall have the right to change its fiscal year from time
to time. If Landlord changes its fiscal year during the term of this Lease,
thereby creating a fiscal year with fewer than twelve (12) months
(hereinafter "short year"), the real estate taxes and operating expenses
for the short year shall be determined on an annualized basis by taking the
monthly average of the actual real estate taxes and operating expenses,
respectively, and multiplying each by twelve. The amounts determined by
this method shall be used in determining the increases described in
subsections 2.2(a) and (b) for the "short year".
2.3 Additional Rent Estimates and Adjustments.
(a) In order to provide for current monthly payments of additional rent,
Landlord shall submit to Tenant prior to January 1st of each year a statement of
Landlord's estimate of the amount of the increases described in section 2.2
above together with the amount of Tenant's additional rent which is estimated to
result from such increases. Commencing on the date stipulated in section 1.5,
and continuing throughout the remaining term of this Lease, Tenant shall pay
each month one-twelfth (1/12th) of Tenant's pro rata share of Landlord's
estimate of the increase in each year for (i) real estate taxes and (ii)
operating expenses, over such items for the Base Year. In addition, Tenant shall
pay each month one-twelfth (1/12th) of Landlord's estimate of the annual rent
increase due to the percentage increase in the Consumer Price Index over the
Base Period.
(b) If payment of additional rent begins on a date other than January 1st
under this Lease, in order to provide for current payments of additional rent
through December 31st of that partial calendar year, Landlord shall submit to
Tenant a statement of Landlord's estimate of Tenant's additional rent for that
partial year, stated in monthly increments, resulting from the increases
described in section 2.2 above. Tenant shall make these payments of estimated
additional rent together with its installments of base monthly rent.
(c) After the end of each calendar year, Landlord will as soon as
practicable submit to Tenant a statement of the actual increases incurred in
real estate taxes and operating expenses for the fiscal year ended during such
calendar year over such costs for the Base Year and the actual increase
attributable to the increase in the Consumer Price Index over the Base Period.
Such statement shall also indicate the amount of Tenant's excess payment or
underpayment based on Landlord's estimate. If additional rent paid by Tenant
during the preceding calendar year shall be in excess of, or less than, the
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aggregate of its share of the actual increase incurred by Landlord for real
estate taxes and operating expenses, and the actual increase attributable to the
increase in the Consumer Price Index, Landlord and Tenant agree to make the
appropriate adjustment following the submission of Landlord's statement. Tenant
shall either pay any additional rent due with the installment of rent due for
the month following submission of Landlord's statement, or pay any additional
rent due within thirty (30) days if the Lease term has expired or is otherwise
terminated. Tenant shall deduct its excess payment, if any, from the installment
of rent for such month, or following the final year of the Lease term, Tenant
shall be reimbursed for any excess payments made.
(d) Within ten (10) days after receipt of Landlord's statement showing
actual figures for the year, Tenant shall have the right to request copies of
real estate bills and an unaudited statement of "operating expenses of the
building" prepared by Landlord's certified public accountant, which shall be
supplied to Tenant within a reasonable time after Tenant's written request.
Unless Tenant asserts specific error(s) within thirty (30) days after Landlord
has complied with Tenant's request, Tenant shall have no right to contest the
statement of actual figures for the year submitted by Landlord. No such request
shall extend the time for payments as set forth in this section 2.3 above. If
Tenant has given proper notice, and if it shall be determined that there is an
error in Landlord's statement, Tenant shall be entitled to a credit for any
overpayment, which shall be applied to the next installment of rent or refunded
to a Tenant who has vacated the premises, or Tenant shall be billed for any
underpayment and shall remit any amount owing to Landlord within ten (10) days
of receipt of such statement.
(e) In the event Tenant questions the validity of the statement of
operating expenses submitted by Landlord, Tenant shall have the right to examine
or have its accountant examine at the office of Landlord's accountant the books
and records from which such statement has been prepared. No such examination
shall extend the time for payments due in accordance with this section 2.3,
however. Tenant shall pay upon demand a reasonable sum to reimburse Landlord for
the costs of services of Landlord's accountant in cooperating and assisting in
the examination. If any error amounting to more than five (5) percent in the
operating expenses statement is found, Landlord shall bear its accountant's
costs as aforesaid.
2.4 Rent Adjustment Limit. Notwithstanding any adjustments to rent as
provided for above, in no event shall the total rent to be paid by tenant in any
month during the term of this Lease or any extension thereof be less than the
base monthly rent stipulated in section 1.3.
2.5 Survival of Rent Obligation. The obligation of Tenant with respect to
the payment of rent, or additional rent as defined in sections 2.2 and 2.10,
accrued and unpaid during the term of the Lease, shall survive the expiration or
earlier termination of the Lease.
2.6 Pro Rata Share. Tenant's "pro rata share" stipulated in section 1.5(a)
and (b) represents the ratio that the area of the demised premises bears to the
total rentable area of office space contained in the building.
2.7 Prorated Rent. Any rent or additional rent payable for one or more full
calendar months in a partial calendar year at the beginning or end of the Lease
term shall be prorated based upon the number of months. Any rent or additional
rent payable for a portion of a month shall be prorated based upon the number of
days in the applicable calendar month.
2.8 Application of Rent. No payment by Tenant or receipt by Landlord of
lesser amounts of rent or additional rent than those herein stipulated shall be
deemed to be other than on account of the earliest unpaid stipulated rent. No
endorsement or statement on any check or any letter accompanying any check or
payment as rent shall be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of such rent or pursue any other remedy provided in this Lease. Any
credit due to Tenant hereunder by reason of overpayment of additional rent shall
first be applied to any damages or rent owed to Landlord by Tenant if Tenant
shall be in default when said credit shall be owed.
2.9 Late Payment Fee. In the event any installment of rent or additional
rent due hereunder is not paid within ten (10) calendar days after it is due,
then Tenant shall also pay to Landlord as additional rent a late payment fee
equal to five percent (5%) of such delinquent rent for each and every month or
part thereof that such rent remains unpaid.
2.10 Other Tenant Costs & Expenses. All costs and expenses which Tenant
assumes or agrees to pay to Landlord pursuant to this Lease, including without
limitation costs of construction and alterations, shall be deemed additional
rent and, in the event of nonpayment thereof, Landlord shall have all the rights
and remedies herein provided for in case of nonpayment of rent, including
assessment of late payment fees.
3. CONSTRUCTION OF PREMISES AND OCCUPANCY
3.1. Tenant Plans, Construction and Rent Liability. Tenant shall use its
best efforts to deliver to Landlord for its approval, by the date specified in
section 1.7(a), preliminary plans approved in writing by Tenant showing its
partition, electrical, telephone and all other requirements set forth in Tenant
Plans Guidelines (which shall have been provided by Landlord to Tenant). Tenant
preliminary plans shall permit the preparation of working drawings and cost
estimate, and shall be certified by Tenant's architects or engineers to be in
compliance with applicable building and fire codes. Landlord's approval of
Tenant plans or work does not constitute certification by Landlord that said
plans or work meet the applicable requirements of any building codes, laws, or
regulations, nor shall it impose any liability whatsoever upon Landlord. If
Tenant's plans are not in compliance with applicable building and fire codes,
they shall not be deemed acceptable to Landlord. If Tenant's plans are
acceptable to Landlord, Landlord shall have working drawings prepared. Nothing
contained in this section 3.1, nor any delay in completing the demised premises,
shall in any manner affect the commencement date of this Lease set forth in
section 1.2 or Tenant's liability for the payment of rent from such commencement
date, except as follows. If Landlord requires longer than the number of working
days stipulated in section 1.7(b) to prepare working drawings and prepare the
cost estimate following receipt of Tenant's approved preliminary drawings, or if
Landlord requires longer than the number of working days stipulated in section
1.7(c) to substantially complete construction improvements in the demised
premises, then the date for payment of rent covenanted and reserved to be paid
herein shall be put off by one day for each extra day Landlord requires for the
foregoing preparation of working drawings and cost estimate and/or substantial
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completion of construction improvements. For purposes of this section 3.1,
substantial completion of construction improvements shall mean when all work to
be performed by Landlord pursuant to the approved working drawings has been
completed, except for minor items of work and minor adjustments of equipment and
fixtures that can be completed after occupancy of the demised premises without
causing undue interference with Tenant's reasonsable use of the demised premises
(i.e., so-called "punch-list" items). In the event Tenant's plans specify any
improvements that are not building standard, however, the delivery and
installation of which precludes Landlord from completing the demised premises
for Tenant's occupancy by the commencement date hereof, or in the event any work
to be performed by Tenant or Tenant's contractors delays Tenant's occupancy by
the commencement date hereof, Tenant shall nevertheless remain liable for the
payment of rent from such commencement date.
3.2 Possession. If Landlord shall be unable to tender possession of the
demised premises on the date of the commencement of the term hereof, set forth
in section 1.2, by reason of: (a) the fact that the premises are located in a
building being constructed and which has not been sufficiently completed to make
the premises ready for occupancy; (b) the holding over or retention of
possession of any tenant or occupant; or (c) for any other reason beyond the
control of Landlord, Landlord shall not be subject to any liability for the
failure to tender possession on said date. In the case of holding over, provided
Landlord shall promptly institute suit for recovery of the premises and
diligently pursue the same, Landlord shall have no responsibility for any delay
in tendering possession of the demised premises. Under such circumstances the
rent reserved and convenanted to be paid herein shall not commence until
possession of the demised premises is tendered to Tenant. No such failure to
give possession on the date of commencement of the term shall in any other
respect affect the validity of this Lease or the obligations of Tenant
hereunder, nor shall same be construed to extend the termination date of this
Lease set forth in section 1.2. If permission is given to Tenant to enter into
possession of the demised premises prior to the date specified as the
commencement of the term of this Lease, Tenant covenants and agrees that such
occupancy shall be deemed to be under all the terms, covenants, conditions and
provisions of this Lease, except that Tenant shall be responsible for payment of
rent, in advance, at the rate of 1/30th of the base monthly rent set forth in
section 1.3 for each day of such occupancy prior to the date for the
commencement of the term of this Lease.
3.3 Occupancy Permits. Tenant shall be responsible for obtaining occupancy
permits and any other permits or licenses necessary for its lawful occupancy of
the demised premises.
4. SUBLETTING AND ASSIGNMENT
4.1 Consent. Tenant will not sublet the demised premises or any part
thereof or transfer possession or occupancy thereof to any person, firm or
corporation, or transfer or assign this Lease, without the prior written consent
of Landlord, which consent shall be in Landlord's sole discretion to give or
withhold. No subletting or assignment hereof shall be effected by operation of
law or in any other manner unless with prior written consent of Landlord. Tenant
further agrees that any permitted subletting of the demised premises shall be
subject to the provisions of section 4.3. No assignment shall be made except for
the entire premises demised by this Lease. Tenant further agrees that any
permitted assignment of the Lease may be conditioned upon payment of
consideration to be agreed upon by Landlord and Tenant. Any subletting or
assignment consented to by Landlord shall be evidenced in writing in a form
acceptable to Landlord. Consent by Landlord to any assignment or subletting by
Tenant shall not operate as a waiver of the necessity for obtaining Landlord's
consent in writing to any subsequent assignment or subletting; nor shall the
collection or acceptance of rent from any such assignee, subtenant or occupant
constitute a waiver or release of Tenant of any covenant or obligation contained
in this Lease. In the event that Tenant defaults under this Lease in the payment
of rent or additional rent, Tenant hereby assigns to Landlord the rent due from
any subtenant of Tenant and hereby authorizes each such subtenant to pay said
rent directly to Landlord.
4.2 Recapture of Premises. In the event Tenant desires to sublet the
demised premises or assign the Lease, Tenant shall give to Landlord written
notice of Tenant's intended subtenant or assignee in order to secure Landlord's
written consent in accordance with section 4.1. Within ninety (90) days of
receipt of said notice, Landlord shall have the right: (i) to terminate this
Lease by giving Tenant not less than thirty (30) days' notice in the case of an
assignment of the entire Lease or a subletting of more than fifty percent (50%)
of the demised premises; or (ii) to terminate this Lease and simultaneously to
enter into a new lease with Tenant for that portion of the demised premises
Tenant may desire to retain upon the same terms, covenants and conditions of the
existing lease as applicable to the space retained. If Landlord exercises its
right to terminate this Lease, Tenant agrees that Landlord shall have access to
all or a portion of the demised premises sixty (60) days prior to the effective
termination date for remodeling or redecorating purposes.
4.3 Excess Rent. In the event Landlord does not exercise its right to
terminate this Lease, and Landlord has granted its written consent, Tenant may
sublet all or a portion of the demised premises. Any rent accruing to Tenant as
the result of such sublease, which is in excess of the pro rata share of rent
then being paid by Tenant for the portion of the demised premises being sublet,
shall be paid by Tenant to Landlord monthly as additional rent.
4.4 Tenant Liability. In the event of any subletting of the demised
premises or assignment of this Lease by Tenant, with or without Landlord's
consent, Tenant shall remain liable to Landlord for payment of the rent
stipulated herein and all other covenants and conditions contained herein.
5. SERVICES AND UTILITIES
5.1 Building Standard Services and Utilities. Landlord shall furnish
sufficient electric current for lighting and office equipment, such as
typewriters, calculators, small copiers and similar items, subject to the
limitations of section 5.3, water for lavatory and drinking purposes, lavatory
supplies, fluorescent tube replacements, automatically operated elevator service
and nightly cleaning service in accordance with Landlord's prevailing practices,
as they may be established from time to time, except that Landlord shall not be
responsible for cleaning Tenant kitchens or private bathrooms, Tenant rugs,
carpeting and drapes. Landlord further agrees to furnish heating and cooling
during the appropriate seasons of the year, between the hours and on the days
set forth in section 1.8 (exclusive of legal public holidays as defined in
section 6 103(a) and
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(c) of Title 5 of the United States Code, as it may hereafter be amended, with
holidays falling on Saturday observed on the preceding Friday and holidays
falling on Sunday observed on the following Monday). All of the aforesaid
services shall be provided without cost to Tenant except as such expenses may be
included in calculating the additional rent pursuant to the provisions of
sections 2.2 and 2.3. Landlord shall not be liable for failure to furnish, or
for suspension or delays in furnishing, any of such services caused by
breakdown, maintenance or repair work, strike, riot, civil commotion,
governmental regulations or any other cause or reason whatever beyond the
control of Landlord. Suspension or interruption of services shall not result in
any abatement of rent, be deemed an eviction or relieve Tenant of performance of
Tenant's obligations under this Lease.
5.2 Overtime Services. Should Tenant require heating and cooling services
beyond the hours and/or days stipulated in section 1.8, upon receipt of at least
72 hours prior written notice from Tenant, Landlord will furnish such additional
service at the then prevailing hourly rates, as established by Landlord from
time to time; provided, further, that there will be a minimum charge of four (4)
hours each time overtime services are required.
5.3 Excessive Electrical Usage.
(a) Tenant will not install or operate in the demised premises any heavy
duty electrical equipment or machinery without first obtaining prior written
consent of Landlord. Landlord may, among other conditions, require as a
condition to its consent for the installation of such equipment or machinery,
payment by Tenant as additional rent for excess consumption of electricity that
may be occasioned by the operation of said equipment or machinery. Landlord may
make periodic inspections of the demised premises at reasonable times to
determine that Tenant's electrically operated equipment and machinery complies
with the provisions of this section and section 5.4.
(b) The total average consumption of electricity, including lighting, in
excess of five (5) watts per square foot for the demised premises shall be
deemed excessive. Additionally, any individual piece of electrically operated
machinery or equipment having a name plate rating in excess of two (2) kilowatts
shall also be deemed as requiring excess electric current.
(c) Landlord may require that one or more separate meters be installed to
record the consumption or use of electricity, or shall have the right to cause a
reputable independent electrical engineer to survey and determine the quantity
of electricity consumed by such excessive use. The cost of any such survey or
meters and of installation, maintenance and repair thereof shall be paid for by
Tenant. Tenant agrees to pay Landlord (or the utility company, if direct service
is provided by the utility company), promptly upon demand therefor, for all such
electric consumption and demand as shown by said meters, or a flat monthly
charge determined by the survey, as applicable, at the rates charged for such
service by the local public utility company. If Tenant's cost of electricity
based on meter readings is to be paid to Landlord, Tenant shall pay a service
charge related thereto.
5.4 Excessive Heat Generation. Landlord shall not be liable for its failure
to maintain comfortable atmospheric conditions in all or any portion of the
demised premises due to heat generated by any equipment, machinery or additional
lighting installed by Tenant (with or without Landlord's consent) that exceeds
design capabilities for the building of which the demised premises are a part.
If Tenant desires additional cooling to offset excessive heat generated by such
equipment or machinery, Tenant shall pay for auxiliary cooling equipment, and
its operating costs including without limitation electricity, gas, oil and
water, or for excess electrical consumption by the existing cooling system, as
appropriate.
5.5 Security. Any security measures that Landlord may undertake are for
protection of the building only and shall not be relied upon by Tenant to
protect Tenant, Tenant's property, or employees, or their property.
6. USE AND UPKEEP OF PREMISES
6.1 Use. Tenant shall use and occupy the demised premises for the purposes
specified in section 1.9 and only in accordance with applicable zoning and other
municipal regulations and for no other purpose whatsoever.
6.2 Illegal and Prohibited Uses. Tenant will not use or permit the demised
premises or any part thereof to be used for any disorderly, unlawful or extra
hazardous purpose and will not manufacture any commodity therein. Tenant will
not use or permit the demised premises to be used for any purposes that
interfere with the use and enjoyment by other tenants of the building nor which,
in Landlord's opinion, impair the reputation or character of the building of
which the demised premises form a part. Tenant shall refrain from and
discontinue such use upon receipt of written notice from Landlord or no later
than three (3) days after mailing thereof.
6.3 Insurance Rating. Tenant will not do or permit anything to be done in
the demised premises or the building of which they form a part or bring or keep
anything therein which shall in any way increase the rate of fire or other
insurance in said building, or on the property kept therein, or obstruct, or
interfere with the rights of other tenants, or in any way injure or annoy them,
or those having business with them, or conflict with them, or conflict with the
fire laws or regulations, or with any insurance policy upon said building or any
part thereof, or with any statutes, rules or regulations enacted or established
by the appropriate governmental authority.
6.4 Alterations.
(a) Tenant will not make any alterations, installations, changes,
replacements, repairs, additions or improvements (structural or otherwise) in or
to the demised premises or any part thereof, without the prior written consent
of Landlord. All Tenant plans and specifications shall be submitted to Landlord
for prior approval. Landlord may, among other things, condition its consent upon
Tenant's agreement that any construction up-gradings required by any
governmental authority as a result of Tenant's work, either in the demised
premises or in any other part of the building, will be paid for by Tenant.
Tenant shall not install any equipment of any kind or nature whatsoever which
will or may necessitate any changes, replacements or additions to the water
system, plumbing system, heating system, air-conditioning system or the
electrical system of the demised premises without the prior written consent of
the Landlord. Tenant shall not install or use in the building any air
conditioning unit, engine, boiler, generator, machinery, heating unit, stove,
water cooler, ventilator, radiator or any other similar apparatus without the
prior written consent of Landlord, and then only as Landlord may direct. Tenant
shall not
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modify or interfere with the heating, ventilating and air-conditioning supply,
return or control systems without the prior written consent of Landlord, and
then only as Landlord may direct. Landlord may condition its consent upon
Tenant's payment of all costs to make such changes, replacements or
modifications. Landlord's consent to any work by Tenant or approval of Tenant
plans or specifications shall not be deemed a certification that such work
complies with applicable building codes, laws or regulations, nor shall it
impose any liability whatsoever upon Landlord.
(b) All of Tenant's approved work shall be done in accordance with
Landlord's Supplemental Rules and Regulations for Contractors and shall be done
by duly licensed contractors in accordance with all applicable laws, codes,
ordinances, rules and regulations, and Tenant shall obtain at its cost any
required permits, licenses or inspections for performance of its work. Tenant
must obtain an executed waiver of lien from each contractor or vendor that will
perform or furnish to Tenant work, labor, services or materials for any
alterations, installations, replacements, additions or improvements in or to the
demised premises, prior to the commencement of such work. Notwithstanding the
aforesaid, if any mechanic's lien shall at any time, whether before, during or
after the Lease term, be filed against any part of the building by reason of
work, labor, services or materials performed for or furnished to Tenant, Tenant
shall forthwith cause the lien to be discharged of record or bonded off to the
satisfaction of Landlord. If Tenant shall fail to cause such lien to be
discharged or bonded off within five (5) days after being notified of the filing
thereof, then, in addition to any other right or remedy of Landlord, Landlord
may discharge the lien by paying the amount claimed to be due. The amount paid
by Landlord, and all costs and expenses, including reasonable attorney's fees
incurred by Landlord in procuring the discharge of the lien, shall be due and
payable by Tenant to Landlord as additional rent on the first day of the next
following month, or if the Lease term has expired, upon demand.
(c) All alterations, installations, including without limitation wall to
wall carpet and drapery and drapery accessories, changes, replacements, repairs,
additions, or improvements to or within the demised premises (whether with or
without Landlord's consent), shall at the election of Landlord remain upon the
demised premises and be surrendered with the demised premises at the expiration
of this Lease without disturbance, molestation or injury. Should Landlord elect
that alterations, installations, changes, replacements, repairs, additions to or
improvements made by or for Tenant upon the demised premises be removed upon
termination of this Lease or upon termination of any renewal period hereof,
Tenant hereby agrees that Landlord shall have the right to cause same to be
removed at Tenant's sole cost and expense. Tenant hereby agrees to reimburse
Landlord for the cost of such removal together with the cost of repairing any
damage resulting therefrom, and the cost of restoring the premises to its
condition at the commencement of the term of this Lease as initially improved by
Landlord. Approximately sixty (60) days prior to Tenant's scheduled vacation of
the demised premises, Landlord and Tenant shall meet to decide what items shall
be removed and what items shall remain. At such time Tenant shall deposit with
Landlord an amount equal to the estimated costs of removal and/or restoration of
the demised premises, which work shall be performed by or for Landlord at
Tenant's expense.
(d) In the event that either Landlord or Tenant, during the term hereby
demised, shall be required by the order or decree of any court, or any other
governmental authority, or by law, code or ordinance, to repair, alter, remove,
reconstruct, or improve any part of the demised premises or of the building of
which said premises are a part, then Tenant shall make or Tenant shall be
required to permit Landlord to perform such repairs, alterations, removals,
reconstructions, or improvements without effect whatsoever to the obligations or
covenants of Tenant herein contained, and Tenant hereby waives all claims for
damages or abatement of rent because of such repairing, alteration, removal,
reconstruction, or improvement.
6.5 Maintenance By Landlord. Landlord shall maintain all public or common
areas located in the building, including external and structural parts of the
building that do not comprise a part of the demised premises and are not leased
to others. Such maintenance shall be provided without cost to Tenant except as
such expenses may be included in calculating the additional rent pursuant to the
provisions of sections 2.2 and 2.3.
6.6 Signs & Advertising. No sign, advertisement or notice shall be
inscribed, painted or affixed on any part of the outside of the building, or
inside of the demised premises where it may be visible from the public areas of
the building, except on the directories and doors of offices, and then only in
such size, color and style as Landlord shall approve. Landlord shall have the
right to prohibit any advertisement or publication of Tenant on or off-premises
which in Landlord's opinion tends to impair the reputation or character of the
building, Landlord or its agent. Tenant shall refrain from and discontinue such
advertisement or publication upon receipt of written notice from Landlord or no
later than three (3) days after mailing thereof.
6.7 Excessive Floor Load. Landlord shall have the right to prescribe the
weight and method of installation and position of safes, computer equipment, or
other heavy fixtures or equipment. Tenant will not install in the demised
premises any fixtures, equipment or machinery that will place a load upon the
floor exceeding the designed floor load capacity of the building. Landlord may
prescribe the placement and positioning of all such objects within the building,
and such objects shall be placed upon platforms, plates or footings of such size
as Landlord shall prescribe if necessary. All damage done to the building by
installing or removing a safe or any other article of Tenant's office equipment,
or due to its being in the demised premises, shall be repaired at the expense of
Tenant.
6.8 Moving & Deliveries.
(a) Moving in or out of the building is prohibited on days and hours
specified in section 1.8. Tenant shall provide Landlord with forty-eight (48)
hours advance written notice of any move and obtain Landlord's approval therefor
in order to facilitate scheduling use of freight elevators and loading area.
(b) No freight, furniture or other bulky matter of any description shall be
received into the building or carried in the elevators, except as authorized by
Landlord. All moving of furniture, material and equipment shall be under the
direct control and supervision of Landlord, who shall, however, not be
responsible for any damage to or charges for moving same. Tenant shall promptly
remove from the public area adjacent to said building any of Tenant's property
delivered or deposited there.
(c) Any and all damage or injury to the demised premises or the building
caused by moving the property of Tenant into or out of the demised premises
shall be repaired at the sole cost of Tenant. Deliveries from lobby and freight
areas requiring use of hand carts shall be restricted to freight elevators. All
hand carts used in delivery, receipt or movement of freight, supplies,
furniture, or fixtures shall be equipped with rubber tires and side guards.
Tenant shall cooperate in identifying delivery contractors and movers causing
damage to the building.
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6.9 Rules and Regulations. Tenant shall, and shall insure that Tenant's
agents, employees, invitees and guests, faithfully keep, observe and perform the
Building Rules and Regulations set forth in Exhibit C, attached hereto and made
a part hereof, and such other reasonable rules and regulations as Landlord may
make, which shall not substantially interfere with the intended use of the
demised premises, which in Landlord's judgment are needful for the general well
being, operation and maintenance of the demised premises and the building of
which they are a part, together with their appurtenances, unless waived in
writing by Landlord. In addition to any other remedy provided for herein,
Landlord shall have the right to impose a fine of $200 per incident for
violations of Building Rules and Regulations. Nothing contained in this Lease
shall be construed to impose upon Landlord any duty or obligation to enforce
such rules and regulations, or the terms, conditions or covenants contained in
any other lease, as against any other tenant, and Landlord shall not be liable
to Tenant for violation of the same by any other tenant, its employees, agents,
business invitees, licensees, customers, clients, family members or guests.
Further, it shall be in Landlord's reasonable judgment to determine whether
Tenant is in compliance with the Rules and Regulations.
6.10 Tenant Maintenance & Condition of Premises Upon Surrender. Tenant will
keep the demised premises and the fixtures and equipment therein in good order
and condition, will suffer no waste or injury thereto, and will, at the
expiration or other termination of the term hereof, surrender and deliver up the
same in like good order and condition as the premises shall be at the
commencement of the term of this Lease, subject to the provisions of section
6.4(c), ordinary wear and tear excepted.
6.11 Tenant Equipment. Maintenance and repair of equipment such as special
light fixture, kitchen fixtures, auxiliary heating, ventilation, or
air-conditioning equipment, private bathroom fixtures and any other type of
special equipment together with related plumbing or electrical services, or
Tenant rugs, carpeting and drapes within the demised premises, whether installed
by Tenant or by Landlord on behalf of Tenant, shall be the sole responsibility
of Tenant, and Landlord shall have no obligation in connection therewith.
Notwithstanding the provisions hereof, in the event that repairs required to be
made by Tenant become immediately necessary to avoid possible injury or damage
to persons or property, Landlord may, but shall not be obligated to, make
repairs to Tenant equipment at Tenant's expense. Within ten (10) days after
Landlord renders a bill for the cost of said repairs, Tenant shall reimburse
Landlord.
7. ACCESS
7.1 Landlord's Access. Landlord, its agent or employees, shall have the
right to enter the demised premises at all reasonable times (a) to make
inspections or to make such repairs and maintenance to the demised premises or
repairs and maintenance to other premises as Landlord may deem necessary; (b) to
exhibit the premises to prospective tenants during the last six (6) months of
the term of this Lease; and (c) for any purpose whatsoever relating to the
safety, protection or preservation of the building of which the demised premises
form a part.
7.2 Restricted Access. No additional locks, other devices or systems which
would restrict access to the demised premises shall be placed upon any doors
without the prior consent of Landlord. Landlord's consent to installation of
anti-crime warning devices or security systems shall not be unreasonably
withheld; provided Landlord shall not be required to give such consent unless
Tenant provides Landlord with a means of access to the demised premises for
emergency and routine maintenance purposes. Unless access to the demised
premises is provided during the hours when cleaning service is normally
rendered, Landlord shall not be responsible for providing such service to the
demised premises or to those portions thereof which are inaccessible. Such
inability by Landlord to provide cleaning services to inaccessible areas shall
not entitle Tenant to any adjustment in rent.
8. LIABILITY
8.1 Personal Property. All personal property of Tenant in the demised
premises or in the building of which the demised premises is a part shall be at
the sole risk of Tenant. Landlord shall not be liable for any damage thereto or
for the theft or misappropriation thereof, unless such damage, theft or
misappropriation is directly attributable to the negligence of Landlord, its
agents or employees. Landlord shall not be liable for any accident to or damage
to property of Tenant resulting from the use or operation of elevators or of the
heating, cooling, electrical or plumbing apparatus, unless caused by and due to
the negligence of Landlord, its agents or employees. Landlord shall not, in any
event, be liable for damages to property resulting from water, steam or other
causes. Tenant hereby expressly releases Landlord from any liability incurred or
claimed by reason of damage to Tenant's property, unless said damages are proved
to be the direct result of negligence of Landlord, its agents or employees.
Landlord shall not be liable in damages, nor shall this Lease be affected, for
conditions arising or resulting, and which affect the building of which the
demised premises is a part, due to construction on contiguous premises.
8.2 Criminal Acts of Third Parties. Landlord shall not be liable in any
manner to Tenant, its agents, employees, invitees or visitors for any injury or
damage to Tenant, Tenant's agents, employees, invitees or visitors, or their
property, caused by the criminal or intentional misconduct of third parties or
of Tenant, Tenant's employees, agents, invitees or visitors. All claims against
Landlord for any such damage or injury are hereby expressly waived by Tenant,
and Tenant hereby agrees to hold harmless and indemnify Landlord from all such
damages and the expense of defending all claims made by Tenant's employees,
agents, invitees, or visitors arising out of such acts.
8.3 Public Liability. Landlord assumes no liability or responsibility
whatsoever with respect to the conduct and operation of the business to be
conducted upon the demised premises. Landlord shall not be liable for any
accident to or injury to any person or persons or property in or about the
demised premises which are caused by the conduct and operation of said business
or by virtue of equipment or property of Tenant in said premises. Tenant agrees
to hold Landlord harmless against all such claims, and indemnify Landlord from
all damages and the expense of defending all such claims.
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8.4 Tenant Insurance.
(a) Tenant at its cost shall maintain as named insured, during the term of
this Lease, public liability and property damage insurance with at least a
single combined liability and property damage limit of $1,000,000.00, insuring
against all liability of Tenant and its authorized representatives arising out
of and in connection with Tenant's use or occupancy of the premises. All public
liability insurance and property damage insurance shall insure performance by
Tenant of the indemnity provisions of sections 8.1, 8.2 and 8.3. Landlord and
Landlord's Agent shall be named as additional insureds. The policy shall contain
cross-liability endorsements, and an assumed contractual liability endorsement
that refers expressly to this Lease.
(b) Tenant at its cost shall maintain as named insured, during the term of
this Lease, fire and extended coverage insurance on the demised premises and its
contents, including any leasehold improvements made by Tenant, in an amount
sufficient so that no co-insurance will be payable in case of loss.
(c) Tenant shall increase its insurance coverage as required not more
frequently than each three (3) years, if in the opinion of the mortgagee of the
building or Landlord's insurance agent the amount of public liability and
property damage insurance coverage at that time is not adequate.
(d) All insurance required under this Lease shall be issued by insurance
companies authorized to do business in the jurisdiction where the building of
which the demised premises is a part is located. Such companies shall have a
policyholder rating of at least "A" and be assigned a financial size category of
at least "Class XIV" as rated in the most recent edition of "Best's Key Rating
Guide" for insurance companies. Each policy shall contain an endorsement
requiring 30 days' written notice from the insurance company to Landlord before
cancellation or any change in the coverage, scope or amount of any policy. Each
policy, or a certificate showing it is in effect, together with evidence of
payment of premiums, shall be deposited with Landlord at the commencement of the
term, and renewal certificates or copies of renewal policies shall be delivered
to Landlord at least thirty (30) days prior to the expiration date of any
policy.
(e) Notwithstanding the fact that any liability of Tenant to Landlord may
be covered by Tenant's insurance, Tenant's liability shall in no way be limited
by the amount of its insurance recovery.
9. DAMAGE
9.1 Damages Caused By Tenant. Subject to the provisions of section 9.2, all
injury to the demised premises and other portions of the building of which it is
a part, caused by Tenant, its agents, employees, invitees and visitors, will be
repaired by Landlord at the expense of Tenant, except as otherwise provided in
section 6.11, or repaired by Tenant with Landlord's approval in accordance with
Section 6. Tenant shall reimbuse Landlord for such repairs within ten (10) days
of receipt of invoice from Landlord of the costs. At its election, Landlord may
regard the same as additional rent, in which event the cost shall become
additional rent payable with the installment of rent next becoming due after
notice is received by Tenant from Landlord. This provision shall be construed as
an additional remedy granted to Landlord and not in limitation of any other
rights and remedies which Landlord has or may have in said circumstances.
9.2 Fire or Casualty Damage. In the event of damage or destruction of the
demised premises by fire or any other casualty without the fault or neglect of
Tenant, its agents, employees, invitees or visitors, this Lease shall not be
terminated, but structural damage to the premises including demising partitions
and doors shall be promptly and fully repaired and restored as the case may be
by Landlord at its own cost and expense. Due allowance, however, shall be given
for reasonable time required for adjustment and settlement of insurance claims,
and for such other delays as may result from government restrictions, and
controls on construction, if any, and for strikes, national emergencies and
other conditions beyond the control of Landlord. Restoration by Landlord shall
not include replacement of furniture, equipment or other items that do not
become part of the building or any improvements to the demised premises in
excess of those provided for as building standard items as of the commencement
date of this Lease. Tenant shall be responsible for the repair and restoration
of the demised premises and Tenant's property beyond Landlord's obligation at no
cost to Landlord, in accordance with the provisions of Section 6, for which it
shall maintain adequate insurance pursuant to section 8.4 herein. In the event
of fire or casualty damage to the demised premises caused by the fault or
neglect of Tenant, its agents, employees, invitees or visitors, Landlord shall
restore structural damages as described herein at Tenant's cost and expense. It
is agreed that in any of the aforesaid events, this Lease shall continue in full
force and effect.
9.3 Untenantability. If the condition referred to in section 9.2 is such so
as to make the entire premises untenantable, then the rental which Tenant is
obligated to pay hereunder shall abate as of the date of the occurrence until
the premises have been fully and completely restored by Landlord. Any unpaid or
prepaid rent for the month in which said condition occurs shall be prorated. If
the premises are partially damaged or destroyed, then during the period that
Tenant is deprived of the use of the damaged portion of said premises, Tenant
shall be required to pay rental covering only that part of the premises that it
is able to occupy, based on that portion of the total rent which the amount of
square foot area remaining that can be occupied bears to the total square foot
area of all the premises covered by this Lease. In the event the premises are
substantially or totally destroyed by fire or other casualty so as to be
entirely untenantable, and it shall require more than ninety (90) days from the
date of said fire or other casualty for Landlord to complete restoration of
same, then Landlord, upon written notice to Tenant, may terminate this Lease, in
which case the rent shall be apportioned and paid to the date of said fire or
other casualty. Due allowance, however, shall be given for reasonable time
required for adjustment and settlement of insurance claims, and for such other
delays as may result from government restrictions, and controls on construction,
if any, and for strikes, national emergencies and other conditions beyond the
control of Landlord. No compensation, or claim, or diminution of rent will be
allowed or paid by Landlord, by reason of inconvenience, annoyance, or injury to
business, arising from the necessity of repairing the demised premises or any
portion of the building of which they are a part.
10. CONDEMNATION
10.1 Landlord Right to Award. Tenant agrees that if the whole or a
substantial part of the demised premises shall be taken or condemned for public
or quasi-public use or purpose by any competent authority, Tenant shall have no
claim against Landlord and shall not have any claim or right to any portion of
the amount that may be awarded as damages or paid as a result of any such
condemnation. All rights of Tenant to damages therefor, if any, are hereby
assigned by Tenant to
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Landlord. Upon such condemnation or taking, the term of this Lease shall cease
and terminate from the date of such governmental taking or condemnation. If a
portion of the building or the demised premises is taken or condemned, and the
remainder in Landlord's opinion is not economically usable, Landlord shall
notify Tenant of the termination of this Lease effective as of the date of such
governmental taking or condemnation. Tenant shall have no claim against Landlord
for the value of any unexpired term of this Lease. If less than a substantial
part of the demised premises is taken or condemned by any governmental authority
for public or quasi-public use or purpose and the remainder is usable by Tenant,
the rent shall be equitably adjusted on the date when title vests in such
governmental authority and the Lease shall otherwise continue in full force and
effect. For the purposes of this Section 10, a substantial part of the demised
premises shall be considered to have been taken if more than fifty percent (50%)
of the demised premises are unusable by Tenant.
10.2 Tenant Right to File Claim. Nothing in section 10.1 shall preclude
Tenant from filing a separate claim against the condemning authority for the
undepreciated value of its leasehold improvements and relocation expenses,
provided that any award to Tenant will not result in a diminution of any award
to Landlord.
11. BANKRUPTCY
11.1 Events of Bankruptcy. The following shall be Events of Bankruptcy
under this Lease:
(a) Tenant's becoming insolvent, as that term is defined in Title 11
of the United States Code, entitled Bankruptcy, 11 U.S.C. Sec. 101 et seq.
(the "Bankruptcy Code"), or under the insolvency laws of any State,
District, Commonwealth or Territory of the United States ("Insolvency
Laws");
(b) The appointment of a receiver or custodian for any or all of
Tenant's property or assets, or the institution of a foreclosure action
upon any of Tenant's real or personal property;
(c) The filing of a voluntary petition under the provisions of the
Bankruptcy Code or Insolvency Laws;
(d) The filing of an involuntary petition against Tenant as the
subject debtor under the Bankruptcy Code or Insolvency Laws, which is
either not dismissed within thirty (30) days of filing, or results in the
issuance of an order for relief against the debtor, whichever is later; or
(e) Tenant's making or consenting to an assignment for the benefit of
creditors or a common law composition of creditors.
11.2 Landlord's Remedies.
(a) Termination of Lease. Upon occurrence of an Event of Bankuptcy,
Landlord shall have the right to terminate this Lease by giving written notice
to Tenant; provided, however, that this section 11.2(a) shall have no effect
while a case in which Tenant is the subject debtor under the Bankruptcy Code is
pending, unless Tenant or its Trustee is unable to comply with the provisions of
section 11.2(d) and (e) below. At all other times this Lease shall automatically
cease and terminate, and Tenant shall be immediately obligated to quit the
premises upon the giving of notice pursuant to this section 11.2(a). Any other
notice to quit, or notice of Landlord's intention to re-enter is hereby
expressly waived. If Landlord elects to terminate this Lease, everything
contained in this Lease on the part of Landlord to be done and performed shall
cease without prejudice, subject, however, to the rights of Landlord to recover
from Tenant all rent and any other sums accrued up to the time of termination or
recovery of possession by Landlord, whichever is later, and any other monetary
damages or loss of reserved rent sustained by Landlord.
(b) Suit for Possession. Upon termination of this Lease pursuant to section
11.2(a), Landlord may proceed to recover possession under and by virtue of the
provisions of the laws of any applicable jurisdiction, or by such other
proceedings, including reentry and possession, as may be applicable.
(c) Non-Exclusive Remedies. Without regard to any action by Landlord as
authorized by section 11.2(a) and (b) above, Landlord may at its discretion
exercise all the additional provisions set forth below in Section 12.
(d) Assumption or Assignment by Trustee. In the event Tenant becomes the
subject debtor in a case pending under the Bankruptcy Code, Landlord's right to
terminate this Lease pursuant to section 11.2(a) shall be subject to the rights
of the Trustee in Bankruptcy to assume or assign this Lease. The Trustee shall
not have the right to assume or assign this Lease unless the Trustee (i)
promptly cures all defaults under this Lease, (ii) promptly compensates Landlord
for monetary damages, incurred as a result of such default, and (iii) provides
adequate assurance of future performance on the part of Tenant as debtor in
possession or on the part of the assignee Tenant.
(e) Adequate Assurance of Future Performance. Landlord and Tenant hereby
agree in advance that adequate assurance of future performance, as used in
section 11.2(d) above, shall mean that all of the following minimum criteria
must be met: (i) Tenant's gross receipts in the ordinary course of business
during the thirty-day period immediately preceding the initiation of the case
under the Bankruptcy Code must be at least two times greater than the next
payment of rent due under this Lease; (ii) Both the average and median of
Tenant's gross receipts in the ordinary course of business during the six-month
period immediately preceding the initiation of the case under the Bankruptcy
Code must be at least two times greater than the next payment of rent due under
this Lease; (iii) Tenant must pay its estimated pro rata share of the cost of
all services provided by Landlord (whether directly or through agents or
contractors and whether or not previously included as part of the base rent), in
advance of the performance or provision of such services; (iv) The Trustee must
agree that Tenant's business shall be conducted in a first class manner, and
that no liquidating sales, auctions, or other non-first class business
operations shall be conducted on the premises; (v) The Trustee must agree that
the use of the premises as stated in this Lease will remain unchanged and that
no prohibited use shall be permitted; and (vi) The Trustee must agree that the
assumption or assignment of this Lease will not violate or affect the rights of
other tenants in the building.
(f) Failure to Provide Adequate Assurance. In the event Tenant is unable to
(i) cure its defaults, (ii) reimburse the Landlord for its monetary damages,
(iii) pay the rent due under this Lease, and all other payments required of
Tenant under this Lease on time (or within five (5) days), or (iv) meet the
criteria and obligations imposed by section 11.2(e) above, Tenant agrees, in
advance that it has not met its burden to provide adequate assurance of future
performance, and this Lease may be terminated by Landlord in accordance with
section 11.2(a) above.
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12. DEFAULTS & REMEDIES
12.1 Default. It is agreed that Tenant shall be in default if: Tenant shall
fail to pay the rent, or any installments thereof as aforesaid, at the time the
same shall become due and payable and/or any additional rent as herein provided
although no demand shall have been made for the same; or Tenant shall violate or
fail or neglect to keep and perform any of the convenants, conditions and
agreements, or rules and regulations herein contained on the part of Tenant to
be kept and performed.
12.2 Remedies. In each and every such event set forth in section 12.1
above, from thenceforth and at all times thereafter, at the option of Landlord,
Tenant's right of possession shall thereupon cease and terminate, and Landlord
shall be entitled to the possession of the demised premises and to re-enter the
same without demand of rent or demand of possession of said premises and may
forthwith proceed to recover possession of the demised premises by process of
law, any notice to quit being hereby expressly waived by Tenant. In the event of
such re-entry by process of law or otherwise, Tenant nevertheless agrees to
remain answerable for any and all damage, deficiency or loss of rent which
Landlord may sustain by such re-entry, including reasonable attorney's fees and
court costs. If, under the provisions hereof, seven (7) days summons or other
applicable summary process shall be served, and a compromise or settlement
therefor shall be made, such action shall not be constituted as a waiver of any
breach of any covenant, condition or agreement herein contained. No waiver of
any breach of any covenant, condition or agreement, herein contained, on one or
more occasions shall operate as a waiver of the covenant, condition or agreement
itself, or of any subsequent breach thereof. No provision of this Lease shall be
deemed to have been waived by Landlord unless such waiver shall be in writing
signed by Landlord.
12.3 Landlord's Right to Relet. Should this Lease be terminated before the
expiration of the term of this Lease by reason of Tenant's default as provided
in Sections 11 or 12, or if Tenant shall abandon or vacate the premises before
the expiration or termination of the term of this Lease, the demised premises
may be relet by Landlord for such rent and upon such terms as are reasonable
under the circumstances. If the full rent reserved under this Lease (and any of
the costs, expenses or damages indicated below) shall not be realized by
Landlord, Tenant shall be liable for all damages sustained by Landlord,
including, without limitation, deficiency in rent, reasonable attorneys' fees,
other collection costs, brokerage fees, and expenses of placing the premises in
first-class rentable condition. Landlord, in putting the premises in good order
or preparing the same for rerental may, at Landlord's option, make such
alterations, repairs, or replacements in the premises as Landlord, in Landlord's
sole judgment, considers advisable and necessary for the purpose of reletting
the premises, and the making of such alterations, repairs, or replacements shall
not operate or be construed to release Tenant from liability hereunder as
aforesaid. Landlord shall in no event be liable in any way whatsoever for
failure to relet the premises, or in the event that the premises are relet, for
failure to collect the rent thereof under such reletting. In no event shall
Tenant be entitled to receive any excess, if any, of such net rent collected
over the sums payable by Tenant to Landlord hereunder.
12.4 Recovery of Damages. Any damage or loss of rent sustained by Landlord
may be recovered by Landlord, at Landlord's option, at the time of the
reletting, or in separate actions, from time to time, as said damage shall have
been ascertained by successive relettings, or, at Landlord's option, may be
deferred until the expiration of the term of this Lease (in which event Tenant
hereby agrees that the cause of action shall not be deemed to have accrued until
the date of expiration of said term). The provisions contained in this paragraph
shall be in addition to and shall not prevent the enforcement of any claim
Landlord may have against Tenant for anticipatory breach of the unexpired term
of this Lease. All rights and remedies of Landlord under this Lease shall be
cumulative and shall not be exclusive of any other rights and remedies provided
to Landlord under applicable law. In the event Tenant becomes the subject debtor
in a case under the Bankruptcy Code, the provisions of this section 12.4 may be
limited by the limitations of damage provisions of the Bankuptcy Code.
12.5 Waiver. If under the provisions hereof Landlord shall institute
proceedings and a compromise or settlement thereof shall be made, the same shall
not constitute a waiver of any covenant, rule or regulation herein contained nor
of any of Landlord's rights hereunder. No waiver by Landlord of any breach of
any covenant, condition, agreement, rule or regulation herein contained shall
operate as a waiver of such covenant, condition, agreement, rule or regulation
itself, or of any subsequent breach thereof.
12.6 Anticipatory Repudiation. If, prior to the commencement of the term of
this Lease, Tenant notifies Landlord of or otherwise unequivocally demonstrates
an intention to repudiate this Lease, Landlord may, at its option, consider such
anticipatory repudiation a breach of this Lease. In addition to any other
remedies available to it hereunder or at law or in equity, Landlord may retain
all rent paid upon execution of the Lease and the security deposit, if any, to
be applied to damages of Landlord incurred as a result of such repudiation,
including without limitation attorneys' fees, brokerage fees, costs of
reletting, loss of rent, etc. It is agreed between the parties that for the
purpose of calculating Landlord's damages, in a building which has other
available space at the time of Tenant's breach, the premises covered by this
Lease shall be deemed the last space rented, even though the premises may be
rerented prior to such other vacant space. Tenant shall pay in full for all
tenant improvements constructed or installed within the demised premises to the
date of the breach, and for materials ordered at its request for the demised
premises.
12.7 Tenant Abandonment of Premises.
(a) Abandonment. If the demised premises shall be deserted or vacated by
Tenant for thirty (30) consecutive days or more without notice to Landlord, and
Tenant shall have failed to make the current rental payment, the premises may be
deemed abandoned. Landlord may consider Tenant in default under this Lease and
may pursue all remedies available to it under this Lease or at law.
(b) Landlord Right to Enter and to Relet. If Tenant vacates or abandons the
premises as defined above, Landlord may, at its option, enter into the premises
without being liable for any prosecution therefor or for damages by reason
thereof. In addition to any other remedy, Landlord, as agent of Tenant, may
relet the whole or any part of the premises for the whole or any part of the
then unexpired lease term. For the purposes of such reletting, Landlord may make
any alterations or modifications of the premises considered desirable in its
sole judgment.
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(c) Rights to Dispose of Tenant Property. If Tenant vacates or abandons the
premises as defined above, any property that Tenant leaves on the premises shall
be deemed to have been abandoned and may either be retained by Landlord as the
property of Landlord or may be disposed of at public or private sale in
accordance with applicable law as Landlord sees fit. The proceeds of any public
or private sale of Tenant's property, or the then current fair market value of
any property retained by Landlord, shall be applied by Landlord against (i) the
expenses of Landlord for removal, storage or sale of the property; (ii) the
arrears of rent or future rent payable under this Lease; and (iii) any other
damages to which Landlord may be entitled hereunder.
(d) Transfer of Tenant Property to Creditors. If Tenant vacates or abandons
the premises, as defined above, Landlord may, upon presentation of evidence of a
claim valid upon its face of ownership or of a security interest in any of
Tenant's property abandoned in the premises, turn over such property to the
claimant with no liability to Tenant.
13. SUBORDINATION
13.1 Subordination. This Lease is subject and subordinate to the lien of
all ground or underlying leases and to all mortgages and/or deeds of trust which
may now or hereafter affect such leases or the real property of which the
demised premises form a part, and to all renewals, modifications,
consolidations, replacements and extensions thereof. This clause shall be
self-operative and no further instrument of subordination shall be required by
any mortgagee or trustee. Notwithstanding the foregoing, in confirmation of such
subordination, Tenant shall at Landlord's request promptly execute any requisite
or appropriate certificate, subordination agreement or other document.
13.2 Estoppel Certificates. Tenant shall execute and return within ten (10)
working days any certificate that Landlord may request from time to time,
stating that this Lease is unmodified and in full force and effect, or in full
force and effect as modified, and stating the modification. The certificate also
shall state the amount of base monthly rent and the dates to which the rent has
been paid in advance, and the amount of any security deposit or prepaid rent;
that there is no present default on the part of Landlord, or attach a memorandum
stating any such instance of default; that Tenant has no right to setoff and no
defense or counterclaim against enforcement of its obligations under the Lease;
and that Tenant has no other notice of any sale, transfer or assignment of this
Lease or of the rentals. Failure to deliver the certificate within the ten (10)
working days shall be conclusive upon Tenant for the benefit of Landlord and any
successor to Landlord that this Lease is in full force and effect and has not
been modified except as may be represented by the party requesting the
certificate. If Tenant fails to deliver the certificate within the ten (10)
working days, Tenant by such failure irrevocably constitutes and appoints
Landlord as its special attorney-in-fact to execute and deliver the certificate
to any third party. Notwithstanding the foregoing, the party secured by any
mortgage or deed of trust shall have the right to recognize this Lease and, in
the event of any foreclosure sale under such mortgage or deed of trust, this
Lease shall continue in full force and effect at the option of the party secured
by such mortgage or deed of trust or the purchaser under any such foreclosure
sale. Tenant covenants and agrees that it will, at the written request of the
party secured by any such mortgage or deed of trust, execute, acknowledge and
deliver any instrument that has for its purpose and effect the subordination of
said mortgage or deed of trust to the lien of this Lease. At the option of any
landlord under any ground or underlying lease to which the lease is now or may
hereafter become subject or subordinate, Tenant agrees that neither the
cancellation nor termination of such ground or underlying lease shall, by
operation of law or otherwise, result in cancellation or termination of this
Lease or the obligations of Tenant hereunder.
13.3 Attornment. Tenant convenants and agrees to attorn to any successor to
Landlord's interest in any ground or underlying lease, and in that event, this
Lease shall continue as a direct lease between Tenant herein and such landlord
or its successor. In any case, such landlord or successor under such ground or
underlying lease shall not be bound by any prepayment on the part of Tenant of
any rent for more than one month in advance, so that rent shall be payable under
this Lease in accordance with its terms, from the date of the termination of the
ground or underlying lease, as if such prepayment had not been made. Neither
shall such landlord or successor under such ground or underlying lease be bound
by this Lease or any amendment or modification of this Lease unless, prior to
the termination of such ground or underlying lease, a copy of this Lease or
amendment or modification thereof, as the case may be, shall have been delivered
to such landlord or successor.
14. TENANT HOLDOVER
14.1 With Landlord Consent. If Tenant continues, with the knowledge and
written consent of Landlord obtained at least thirty (30) days prior to the
expiration of the term of this Lease, to remain in the premises after the
expiration of the term of this Lease, then and in that event, Tenant shall, by
virtue of this holdover agreement, become a tenant by the month at the rent
stipulated by Landlord in said holdover agreement, commencing said monthly
tenancy with the first day next after the end of the term above demised. Tenant
shall give to Landlord at least thirty (30) days' written notice of any
intention to quit said premises. Tenant shall be entitled to thirty (30) days'
written notice to quit said premises, except in the event of nonpayment of rent
in advance or of the breach of any other covenant by Tenant, in which event
Tenant shall not be entitled to any notice to quit, the usual thirty (30) days'
notice to quit being hereby expressly waived.
14.2 Without Landlord Consent. In the event that Tenant, without the
consent of Landlord, shall hold over the expiration of the term hereby created,
then Tenant hereby waives all notice to quit and agrees to pay to Landlord for
the period that Tenant is in possession after the expiration of this Lease, a
monthly rent which is three times the total rent (base monthly rent, as
stipulated in section 1.3, plus additional rent, as stipulated in section 1.5)
applicable to the last month of this Lease. Tenant expressly agrees to hold
Landlord harmless from all loss and damages, direct' and consequential, which
Landlord may suffer in defense of claims by other parties against Landlord
arising out of the holding over by Tenant, including without limitation
attorneys' fees which may be incurred by Landlord in defense of such claims.
Acceptance of rent by Landlord subsequent to the expiration of the term of this
Lease shall not constitute consent to any holding over. Landlord shall have the
right to apply all payments received after the expiration date of this Lease or
any renewal thereof toward payment for use and occupancy of the premises
subsequent to the expiration of the term and toward any other sums owed by
Tenant to Landlord. Landlord, at its option, may forthwith re-enter and take
possession of said premises without process, or by any legal process in force.
Notwithstanding the foregoing, Tenant's holdover without Landlord consent due to
acts of God, riot, or war shall be at the total rent applicable to the last
month of the term for the duration of the condition (but not to
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exceed ten days), but such continued occupancy shall not create any renewal of
the term of this Lease or a tenancy from year-to-year, and Tenant shall be
liable for any loss and damages suffered by Landlord as described above.
15. SECURITY DEPOSIT
15.1 Tenant shall deposit with Landlord simultaneously with the execution
of this Lease, the amount stipulated in section 1.6 as a security deposit.
Provided Tenant is not in default in the payment of rent or any other charges
due Landlord, and further provided the demised premises are left in good
condition, reasonable wear and tear excepted, as described in section 6.10, said
deposit (which shall not bear interest to Tenant) shall be returned to Tenant
within thirty (30) days after the termination of this Lease. If Tenant is in
default or if the premises are not left in good condition, then the security
deposit shall be applied to the extent available on account of sums due Landlord
or the cost of repairing damages to the demised premises. In the event of the
sale or transfer of Landlord's interest in the building, Landlord shall have the
right to transfer the security deposit to such purchaser or transferee, in which
event Tenant shall look only to the new Landlord for the return of the security
deposit and Landlord shall thereupon be released from all liability to Tenant
for the return of such security deposit.
16. QUIET ENJOYMENT
16.1 So long as Tenant shall observe and perform the covenants and
agreements binding on it hereunder, Tenant shall at all times during the term
herein granted, peacefully and quietly have and enjoy possession of the premises
without any encumbrance or hindrance by, from or through Landlord, except as
provided for elsewhere under this Lease. Nothing in this section shall prevent
Landlord from performing alterations or repairs on other portions of the
building not leased to Tenant, nor shall performance of such alterations or
repairs be construed as a breach of this convenant by Landlord.
17. SUCCESSORS
17.1 All rights, remedies and liabilities herein given to or imposed upon
either of the parties hereto, shall extend to their respective heirs, executors,
administrators, successors, and assigns. This provision shall not be deemed to
grant Tenant any right to assign this Lease or to sublet the premises.
18. WAIVER OF JURY TRIAL
18.1 Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other one or in respect of any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant hereunder,
Tenant's use or occupancy of the demised premises, and/or any claim of "injury
or damage."
19. LIMITATION OF LIABILITY
19.1 Notwithstanding anything to the contrary contained in this Lease, if
any provision of this Lease expressly or impliedly obligates Landlord not to
unreasonably withhold its consent or approval, an action for declaratory
judgment or specific performance will be Tenant's sole right and remedy in any
dispute as to whether Landlord has breached such obligation.
20. PRONOUNS & DEFINITIONS
20.1 Feminine or neuter pronouns shall be substituted for those of the
masculine form, and the plural shall be substituted for the singular number, in
any place or places herein in which the context may require such substitution or
substitutions. Landlord and Tenant herein for convenience have been referred to
in the neuter form.
20.2 Wherever the word "premises" is used in this Lease, it shall refer to
the demised premises described in section 1.1, unless the context clearly
requires otherwise.
21. NOTICES
21.1 Addresses for Notices. All notices required or desired to be given
hereunder by either party to the other shall be personally delivered or given by
certified or registered mail and addressed as specified in section 1.10. Either
party may, by like written notice, designate a new address to which such notices
shall be directed.
21.2 Effective Date of Notice. Notice shall be deemed to be effective when
personally delivered or received or rejected unless otherwise stipulated herein.
22. EXHIBITS; SPECIAL PROVISIONS
22.1 Incorporation in Lease. It is agreed and understood that any Exhibits
and Special Provisions referred to in sections 1.11 and 1.12, respectively, and
attached hereto, form an integral part of this Lease and are hereby incorporated
by reference.
22.2 Conflicts. If there is a conflict between a Special Provision hereto
and the Specific Provisions or General Provisions of this Lease, the Special
Provision shall govern.
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23. CAPTIONS
23.1 All section and paragraph captions herein are for the convenience of
the parties only, and neither limit nor amplify the provisions of this Lease.
24. ENTIRE AGREEMENT; MODIFICATION
24.1 This Lease, all Exhibits hereto, and Special Provisions incorporated
herein by reference contain all the agreements and conditions made between the
parties and may not be modified orally or in any other manner than by an
agreement in writing, signed by the parties hereto.
25. SEVERABILITY
25.1 The unenforceability, invalidity, or illegality of any provision
herein shall not render any other provision herein unenforceable, invalid, or
illegal.
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26. LIMIT ON ADDITIONAL RENT
26.1 Notwithstanding the provisions of section 2.2(c), Landlord agrees that
the additional rent stipulated in section 1.5(c) based upon increases in the CPI
that Tenant is obligated to pay in any calendar year during the term of this
Lease, shall not be more than Four Percent (4%) above the total of base annual
rent stipulated in section 1.3 and additional rent stipulated in section 1.5(c)
payable for the preceding calendar year.
26.2 Notwithstanding the provisions of section 2.2(b), Landlord agrees that
the additional rent stipulated in section 1.5(b) based upon increases in
operating expenses that Tenant is obligated to pay in any calendar year during
the term of this Lease, shall not be more than Nine Percent (9%) above the
additional rent for operating expenses stipulated in section 1.5(b) payable for
the preceding calendar year.
27. WAIVER OF RENT
27.1 Notwithstanding anything to the contrary in section 2.1, Landlord
agrees to waive the first Six (6) months' Base Annual Rent due hereunder.
28. LANDLORD IMPROVEMENTS
28.1 Landlord agrees at its expense to remodel or make improvements to the
demised premises substantially in accordance with the attached plan (Exhibit
"A"), including painting, rearranging of floor telephone and floor electrical
outlets, recarpeting with building standard carpet, installing a new ceiling
with recessed lighting, new shelving and dedicated power outlets as required.
Landlord makes no representation that carpeting or special improvements that may
presently be in the demised premises will remain for Tenant's use.
28.2 In the event Landlord has not substantially completed remodeling the
demised premises within Sixty (60) days after the Lease Commencement Date, then
Tenant's obligation to pay rent shall abate until substantial completion is
achieved.
29. PARKING
29.1 Landlord agrees to arrange for parking in the garage of the building
described in section 1.1 for up to Nine (9) automobiles of Tenant or Tenant's
employees at the prevailing monthly rate for such service.
30. LATE FEE
30.1 In section 2.9, change 'five percent (5%)' to "two percent (2%)"; and
in the last line, after 'unpaid' insert "provided, however, that the maximum
late fee on any single due amount shall not exceed Twenty-Four Percent (24%)".
31. OCCUPANCY PERMIT
31.1 Notwithstanding anything to the contrary in section 3.3, Landlord,
with Tenant's cooperation, will obtain the necessary occupancy permit.
32. SUBLETTING
32.1 In section 4.1, in the third line, after 'consent' insert "which shall
not be unreasonably withheld" and delete the rest of the sentence; and delete
the 5th sentence entirely.
32.2 In section 4.2, delete the last sentence entirely.
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32.3 Notwithstanding the provisions of section 4.3 to the contrary, in the
event Landlord does not exercise its right to terminate this Lease, Tenant may
sublet all or a portion of the demised premises after first obtaining the
written consent of the Landlord, provided that Fifty Percent (50%) of the excess
of any rent accruing to Tenant as a result of such sublease over the rent then
being paid by Tenant shall be paid by Tenant to the Landlord as additional
monthly rent.
33. BUILDING SERVICES
33.1 In section 5.1, in the first line, after 'furnish' insert "24 hours
per day, 7 days per week"; in the second line, after "calculators" insert
"desktop computers".
33.2 Notwithstanding anything to the contrary in Section 5.1, Landlord will
operate and maintain the building to standards consistent with other first class
buildings in Rockville, and will use its best efforts to repair and maintain the
building properly.
33.3 In subsection 5.3(b), in the third line, change 'two (2)' to "four
(4)".
34. RULES AND REGULATIONS
34.1 In section 6.9, delete the 2nd sentence entirely and add the following
at the end of the paragraph:
"However, any such additional rules and regulations must be reasonable
and Tenant shall not be bound thereby until after thirty (30) days' prior
written notice of such rule or regulation."
35. LANDLORD'S ACCESS
35.1 In section 7.1, in the fourth line, change 'six (6)' to "three (3)".
35.2 Notwithstanding Landlord's access rights, Landlord shall not
unreasonably disturb or adversely affect Tenant's business.
36. DAMAGE TO THE DEMISED PREMISES
36.1 In section 9.1, in the third line, after 'Landlord' insert "after ten
(10) days' prior written notice to Tenant".
36.2 Notwithstanding anything in section 9.1, Landlord's repairs shall not
exceed in quality the level of improvements in the demised premises as existing
prior to such damage.
36.3 In section 9.3, in the 9th line, after 'then Landlord' insert "or
Tenant" and in the 10th line, change 'Tenant' to "the other".
37. LANDLORD'S INSURANCE
37.1 Landlord shall obtain and maintain fire and casualty insurance
covering the Building in an amount equal to its replacement value.
17
<PAGE>
38. CONDEMNATION
38.1 In section 10.1, in the seventh line, before 'opinion' insert "or
Tenant's"; after 'Landlord' insert "or Tenant"; and change 'Tenant' to "the
other".
39. BANKRUPTCY
39.1 In subsection 11.1(b), in the first line, after 'assets' insert "which
is not dismissed within thirty (30) days".
40. DEFAULT
40.1 Notwithstanding anything to the contrary in sections 2.1 and 12.l, if
Tenant defaults in the payment of rent, or defaults in the performance of any
other covenants, conditions and agreements, or rules and regulations herein
contained, Landlord shall give Tenant written notice of such default. If Tenant
fails to cure any rent (or additional rent) default within ten (10) days, or
fails to cure any other default within twenty (20) days after such notice, or if
such other default is of such nature that it cannot be completely cured within
said twenty (20) days, if Tenant does not commence such curing within twenty
(20) days and thereafter proceed with reasonable diligence and in good faith,
then Landlord may terminate this Lease on not less than ten (10) days notice to
Tenant. On the date specified in such notice, the term of this Lease shall
terminate, and Tenant shall then quit and surrender the premises to Landlord. If
this Lease shall have been so terminated by Landlord, Landlord may at any time
thereafter take possession of the demised premises by any lawful means and
remove Tenant or other occupants and their effects. Nevertheless, in the event
Tenant fails to pay rent two (2) times or more in any twelve (12) month period
or repeatedly or continuously violates covenants, conditions and agreements or
rules and regulations herein contained, then Landlord shall not be required to
send written notice before proceeding with its remedies under section 12. Tenant
acknowledges that the purpose of this provision is to prevent repetitive
defaults by Tenant under the Lease, which works a hardship upon Landlord and
deprives Landlord of the timely performance by Tenant hereunder.
40.2 Notwithstanding anything in section 12, Landlord will use its best
efforts to mitigate Tenant's damages.
41. NON-DISTURBANCE
41.1 Notwithstanding anything to the contrary in section 13, Landlord
agrees to use its best efforts to obtain a nondisturbance agreement from
existing and future mortgagees granting unto Tenant the right to continue
peacefully in possession of the demised premises in the event of foreclosure
under any existing or future deed of trust or termination of any existing or
future ground lease, as long as Tenant is not in default under this Lease. Such
agreement shall be contingent upon Tenant's agreement to attorn to and recognize
any purchaser at any foreclosure sale, any subsequent ground lessor, its
successors or assigns, as the successor-in-interest to Landlord in the event of
foreclosure or termination of such ground lease.
42. ESTOPPEL CERTIFICATES
42.1 In section 13.2, delete the fourth sentence entirely.
18
<PAGE>
43. TENANT'S HOLDOVER
43.1 In section 14.2, in the third line, change 'three' to "one and one
half".
44. JURY TRIAL
44.1 Section 18.1 is hereby deleted in its entirety.
45. EXECUTION OF DOCUMENT
45.1 In the event Tenant does not execute and return this document by the
close of business on October 7, 1988, then Landlord may market the subject space
to others without further notice to Tenant.
46. ADDITIONAL RENT
46.1 Notwithstanding anything in section 2.2, Operating Expenses shall not
include: costs incurred in improving or remodeling any space for tenants in the
building; any costs reimbursed to Landlord by insurance or any other third
party.
46.2 In subsection 2.3 (d), in the 8th line, after 'refunded' insert
"within ten (10) business days".
47. ALTERATIONS
47.1 In subsection 6.4 (b), in the ninth and tenth lines, change 'five (5)'
to "thirty (30)".
48. SIGNAGE
48.1 Landlord will provide Tenant with a listing on the building directory
and a sign for Tenant's suite entrance.
49. MOVING AND DELIVERIES
49.1 In subsection 6.8 (a), at the end of the 1st sentence, add "except as
Tenant may otherwise agree with the building manager".
50. LANDLORD'S NEGLIGENCE
50.1 (a) Nothing contained in section 8.2 shall be construed to require
Tenant to indemnify and hold harmless Landlord, its agents or employees, from
Landlord's liability to third parties for its negligent or willful acts or
omissions or the expenses of defending against claims arising therefrom.
(b) Notwithstanding anything to the contrary in section 8, Landlord shall
be liable for its negligent or willful acts or omissions and that of its agents
or employees.
19
<PAGE>
51. MUTUAL WAIVER OF SUBROGATION
51.1 Tenant hereby waives any right it may have against Landlord or
Landlord's Agent on account of any loss or damage occasioned to Tenant, its
property, the Demised Premises or its contents arising from any risk generally
covered by fire and extended coverage insurance, whether or not such a policy
shall be in force. Landlord hereby waives any rights it may have against Tenant
on account of any loss or damage occasioned to Landlord, its property, or to the
Building of which the Demised Premises are a part arising from any risk
generally covered by fire and extended coverage insurance, whether or not such a
policy shall be in force.
52. TENANT'S INSURANCE
52.1 In subsection 8.4 (b), in the second line, insert an apostrophe after
'demised premises' and delete 'and its'.
53. BANKRUPTCY
53.1 Subsection 11.2 (e) is hereby deleted entirely.
53.2 In subsection 11.2 (f), in the third line, change 'five (5)' to "ten
(10)".
54. ANTICIPATORY REPUDIATION
54.1 In section 12.6, delete the second to last sentence of the paragraph
entirely.
55. ATTORNMENT
55.1 In section 13.3, delete the last sentence entirely.
56. SECURITY DEPOSIT
56.1 Tenant shall open a certificate of deposit account in the name of
Charles E. Smith Management, Inc. (Landlord's exclusive agent) at First American
Bank, or another local bank reasonably acceptable to Landlord, and shall
immediately deposit the amount stipulated in section 1.6 as a security deposit
into the account. The account shall be set up so that only Charles E. Smith
Management, Inc. will be permitted to withdraw the principal amount until the
expiration of this Lease term, or any extensions thereof and Tenant shall
provide Charles E. Smith Management, Inc. with a certificate of deposit and
signature cards required to draw upon such funds. Provided Tenant is not in
default in the payment of rent or any other charges due Landlord, and further
provided the demised premises are left in good condition, reasonable wear and
tear excepted, as provided in, section 6.10, said deposit shall be returned to
Tenant within thirty (30) days after said Lease expiration.
If Tenant is in default or if the premises are not left in good condition, then
after notice to Tenant, as provided in section 6.10, the security deposit shall
be applied to the extent available on account of sums due Landlord or the cost
of repairing damages to the demised premises. Landlord shall have the right to
approve any restrictions on its power to draw on such funds due to Tenant's
default. In the event of the sale or transfer of Landlord's interest in the
building, Landlord shall have the right to transfer the security deposit to such
purchaser or transferee, in which event Tenant shall look only to the new
Landlord for the return of the security deposit and Landlord shall thereupon be
released from all liability to Tenant for the return of such security deposit.
All interest accrued on the account and paid by the bank shall belong to Tenant
solely, and Landlord shall have no right thereto.
20
<PAGE>
57. TEMPORARY SPACE
57.1 If, due to Landlord's fault, Landlord is unable to substantially
complete remodeling of the demised premises by December 1, 1988, Landlord will
locate alternate space of a minimum 2,200 square feet in the building sufficient
to allow Tenant to operate until the demised premises are ready. Landlord will
reimburse Tenant's expenses of relocating from such temporary space to the
demised premises, including telephone connection expenses, upon presentation of
paid receipts or invoices from Tenant's contractors.
58. CONSENTS AND APPROVALS
58.1 Whenever Landlord's or Tenant's consent or approval is required
hereunder, it shall not be unreasonably withheld or delayed.
21
<PAGE>
EXHIBIT A
[FLOOR PLAN]
[GRAPHIC OMITTED]
22
<PAGE>
EXHIBIT "C"
BUILDING RULES AND REGULATIONS
1. Tenant shall not obstruct or interfere with the rights of other tenants of
the Building, or of persons having business in the Building, or in any way
injure or annoy such tenants or persons. Tenant will not conduct any
activity within the Demised Premises which will create excessive traffic or
noise anywhere in the Building.
2. Canvassing, soliciting and peddling in the Building are prohibited, and
Tenant shall cooperate to prevent such activities.
3. Tenant shall not bring or keep within the Building any animal, bicycle,
motorcycle, or other type of vehicle except as required by law.
4. All office equipment and any other device of any electrical or mechanical
nature shall be placed by Tenant in the Demised Premises in settings
approved by Landlord, so as to absorb or prevent any vibration, noise, or
annoyance. Tenant shall not construct, maintain, use or operate within the
Demised Premises or elsewhere in the Building or outside of the Building
any equipment or machinery which produces music, sound or noise, which is
audible beyond the Demised Premises. Tenant shall not cause improper
noises, vibrations or odors within the Building.
5. Tenant shall not deposit any trash, refuse, cigarettes, or other substances
of any kind within or out of the Building, except in the refuse containers
provided therefor. No material shall be placed in the trash boxes or
receptacles if such material is of such nature that it may not be disposed
of in the ordinary and customary manner of removing and disposing of office
building trash and garbage without being in violation of any law or
ordinance governing such disposal. Tenant shall be charged the cost of
removal for any items left by Tenant that cannot be so removed. All garbage
and refuse disposal shall be made only through entryways and elevators
provided for such purposes and at such times as Landlord shall designate.
Tenant shall not introduce into the Building any substance which might add
an undue burden to the cleaning or maintenance of the Demised Premises or
the Building. Tenant shall exercise its best efforts to keep the sidewalks,
entrances, passages, courts, lobby areas, garages or parking areas,
elevators, escalators, stairways, vestibules, public corridors and halls in
and about the Building (hereinafter "Common Areas") clean and free from
rubbish. No tenant shall cause any unnecessary labor by reason of such
tenant's carelessness or indifference in the preservation of good order and
cleanliness. Landlord shall not be responsible to any tenant for any loss
of property on the Demised Premises, however occurring, or for any damage
done to the effects of any tenant by the cleaning service or any other
employee or any other person.
6. Tenant shall use the Common Areas only as a means of ingress and egress,
and Tenant shall permit no loitering by any persons upon Common Areas or
elsewhere within the Building. The Common Areas and roof of the Building
are not for the use of the general public, and Landlord shall in all cases
retain the right to control or prevent access thereto by all persons whose
presence, in the judgment of Landlord, shall be prejudicial to the safety,
character, reputation or interests of the Building and its tenants. Tenant
shall not enter or install equipment in the mechanical rooms, air
conditioning rooms, electrical closets, janitorial closets, or similar
areas or go upon the roof of the Building without the prior written consent
of Landlord. No tenant shall install any radio or television antenna,
loudspeaker, or other device on the roof or exterior walls of the Building.
7. Without limitation upon any of the provisions of the Lease, Tenant shall
not mark, paint, drill into, cut, string wires within, or in any way deface
any part of the Building, without the prior written consent of Landlord,
and as Landlord may direct. Upon removal of any wall decorations or
installations or floor coverings by Tenant, any damage to the walls or
floors shall be repaired by Tenant at Tenant's sole cost and expense.
Tenant shall not lay linoleum or similar floor coverings so that the same
shall come into direct contact with the floor of the Demised Premises and,
if linoleum or other similar floor covering is to be used, an interlining
of builder's deadening felt shall be first affixed to the floor, by a paste
or other materials soluble in water. The use of cement or other similar
adhesive material is expressly prohibited. Floor distribution boxes for
electric and telephone wires must remain accessible at all times.
8. Tenant shall not install or permit the installation of any awnings, shades,
mylar films or sunfilters on windows. Tenant shall cooperate with Landlord
in obtaining maximum effectiveness of the cooling system of the Building by
closing drapes and other window coverings when the sun's rays fall upon
windows of the Demised Premises. Tenant shall not obstruct, alter or in any
way impair the efficient operation of Landlord's heating, ventilating, air
conditioning, electrical, fire, safety or lighting systems, nor shall
Tenant tamper with or change the setting of any thermostat or temperature
control valves in the Building.
9. Tenant shall not use the washrooms, restrooms and plumbing fixtures of the
Building, and appurtenances thereto, for any other purpose than the purpose
for which they were constructed, and Tenant shall not deposit any
sweepings, rubbish, rags or other improper substances therein. Tenant shall
not waste water by interfering or tampering with the faucets or otherwise.
If Tenant or Tenant's servants, employees, agents, contractors, jobbers,
licensees, invitees, guests or visitors cause any damage to such washrooms,
restrooms, plumbing fixtures or appurtenances, such damage shall be
repaired at Tenant's expense, and Landlord shall not be responsible
therefor.
10. Subject to applicable fire or other safety regulations, all doors opening
onto Common Areas and all doors upon the perimeter of the Demised Premises
shall be kept closed and, during non-business hours, locked, except when in
use for ingress or egress. If Tenant uses the Demised Premises after
regular business hours or on non-business days, Tenant shall lock any
entrance doors to the Building or to the Demised Premises used by Tenant
immediately after using such doors. Tenant shall cooperate with energy
conservation by limiting use of lights to areas occupied during
non-business hours.
Exh. C-1
<PAGE>
11. Employees of Landlord shall not receive or carry messages for or to Tenant
or any other person, nor contract with nor render free or paid services to
Tenant or Tenant's servants, employees, contractors, jobbers, agents,
invitees, licensees, guests or visitors. In the event that any of
Landlord's employees perform any such services, such employees shall be
deemed to be the agents of Tenant regardless of whether or how payment is
arranged for such services, and Tenant hereby indemnifies and holds
Landlord harmless from any and all liability in connection with any such
services and any associated injury or damage to property or injury or death
to persons resulting therefrom.
12. All keys to the exterior doors of the Demised Premises shall be obtained by
Tenant from Landlord, and Tenant shall pay to Landlord a reasonable deposit
determined by Landlord from time to time for such keys. Tenant shall not
make duplicate copies of such keys. Tenant shall, upon the termination of
its tenancy, provide Landlord with the combinations to all combination
locks on safes, safe cabinets and vaults and deliver to Landlord all keys
to the Building, the Demised Premises and all interior doors, cabinets, and
other key-controlled mechanisms therein, whether or not such keys were
furnished to Tenant by Landlord. In the event of the loss of any key
furnished to Tenant by Landlord, Tenant shall pay to Landlord the cost of
replacing the same or of changing the lock or locks opened by such lost key
if Landlord shall deem it necessary to make such a change. The word "key"
as used herein shall refer to keys, keycards, and all such means of
obtaining access through restricted access systems.
13. For purposes hereof, the terms "Landlord", "Tenant", "Building" and
"Demised Premises" are defined as those terms are defined in the Lease to
which these Rules and Regulations are attached. The term "Building" shall
include the Demised Premises, and any obligations of Tenant hereunder with
regard to the Building shall apply with equal force to the Demised Premises
and to other parts of the Building.
14. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part the agreements,
covenants, conditions and provisions of any lease of Demised Premises in
the Building.
Exh. C-2
<PAGE>
EXHIBIT D
CLEANING SERVICES BY LANDLORD
A. Daily
Monday through Friday except legal holidays.
1. Empty waste baskets, clean ash trays.
2. Dust accessible areas of desk tops.
3. Vacuum carpet in elevator lobbies, reception areas, and other high
traffic areas.
4. Mop spillages on tile floors.
B. Weekly
1. Dust accessible areas of furniture convectors and other furnishings.
2. Vacuum office area carpeting.
C. Monthly
1. Mop and buff tile floors.
2. Dust Venetian blinds, window frames, and exterior of lighting
fixtures.
3. Clean glass in doors and partitions.
4. Spot clean walls.
5. Clean telephones.
D. Quarterly
1. Clean and refinish tile floors where necessary.
2. Clean baseboards.
E. Semi-annually
1. Wash windows.
F. Annually
1. Wash light fixtures, and lenses.
2. Clean Venetian blinds.
NOTE: Cleaners will not move paper or other material from surfaces to be
cleaned, dusted or vacuumed. Trash not in waste baskets should be
clearly marked "trash". Cleaning of private kitchens or bathrooms is
the responsibility of Tenant.
<PAGE>
ADDITIONAL SPACE
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE made this 1st day of September, 1992, by and
between BUILDING NO. 7 ASSOCIATES, a Maryland joint venture (hereinafter
"Landlord"), and SHERWOOD BRANDS, INC., a North Carolina corporation
(hereinafter "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant desire to amend that certain lease agreement
dated October 14, 1988 (the "Lease"), which provides for the leasing of Suite
1080, consisting of approximately 2,831 square feet on the Tenth (10th) floor at
6110 Executive Boulevard, Rockville, Maryland, as extended to November 30, 1998,
by a First Lease Extension Agreement of even date herewith; and
WHEREAS, Tenant desires to lease an additional area, of 789 square feet on
the Tenth (10th) floor of said building known as Suite 1081, as delineated on
the attached plan.
NOW, THEREFORE, the parties hereto agree as follows:
1. Area. Landlord hereby leases to Tenant and Tenant leases from
Landlord, Suite 1081, containing approximately 789 square feet of
additional space on the Tenth (10th) floor (the "additional leased space"),
making the total demised premises 3,620 square feet.
2. Term. The term of the additional leased space shall commence
September 1, 1992, and shall expire contemporaneously with the term of the
Lease, as extended.
3. Rent. The base monthly rent for the additional leased space shall
be Five Hundred Twenty-Six Dollars ($526.00), thereby increasing the total
base monthly rent from Three Thousand Nineteen and 73/100 Dollars
($3,019.73) to Three Thousand Five Hundred Forty-Five and 73/100 Dollars
($3,545.73), payable in advance in accordance with the terms of the Lease.
4. Additional Rent. Tenant's pro rata share of any increases in real
estate taxes and operating expenses commencing December 1, 1992, shall be
increased by .40 percentage point from 1.43% to 1.83%.
5. Acceptance of Space. Tenant shall accept the additional leased
space in its existing "as is" condition and shall be obligated for the
payment of rent immediately, regardless of any time required by Tenant to
construct, alter or redecorate the additional leased space to Tenant's
requirements.
6. Rent Waiver. Provided Tenant is not then in default under any of
the terms and conditions of the Lease, then notwithstanding anything to the
contrary in Section 2.1 of the Lease, Landlord agrees to waive payment of
Two Hundred Thirty-Six and 67/100 Dollars ($236.67) of Base Annual Rent due
in each of the first (1st) through the fourth (4th) months of the term for
the additional leased space only.
CL1-637
<PAGE>
FIRST AMENDMENT TO LEASE
PAGE TWO
7. Base Year. For the additional leased space only the Base Year for
additional rent based on increases in Operating Expenses and Real Estate
Taxes shall be calendar year 1992, and the base period for CPI shall be
November, 1992.
8. Parking. Landlord agrees to provide Tenant with one (1) unreserved
parking space at no cost for the term of the Lease.
9. Improvements. Notwithstanding Section 6.4 of the Lease agreement,
Landlord agrees that any improvements made to the additional leased space
are considered the property of Tenant. In addition, Landlord agrees that
all cabinetry, shelving, and plumbing fixtures in the entire premises are
the property of Tenant and may be removed at the expiration of the Lease at
Tenant's option.
10. Execution of Document. In the event Tenant does not execute and
return this document by the close of business on September 30, 1992, then
Landlord may market the subject space to others without further notice to
Tenant.
11. All of the terms and conditions of the Lease, as modified by this
First Amendment to Lease, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year hereinbefore first written.
WITNESS: LANDLORD: BUILDING NO. 7
ASSOCIATES
[ILLEGIBLE] BY [ILLEGIBLE] (SEAL)
- ---------------------------------- -------------------------------
Joint Venturer
ATTEST: TENANT: SHERWOOD BRANDS, INC.
[ILLEGIBLE] BY /s/ Anat Schwartz (SEAL)
- ---------------------------------- -------------------------------
Secretary Name: Anat Schwartz
(Corporate Seal) Title: VP - Finance
<PAGE>
LEASE EXTENSION AGREEMENT
-------------------------
THIS LEASE EXTENSION AGREEMENT made this _______ day of _______________,
1992, by and between BUILDING NO. 7 ASSOCIATES, a Maryland joint venture
(hereinafter "Landlord"), and SHERWOOD BRANDS, INC., a North Carolina
corporation (hereinafter "Tenant").
WITNESSETH:
WHEREAS, the parties hereto entered into a lease agreement dated October
14, 1988 (the "Lease"), which provides for the leasing of Suite 1080, consisting
of approximately 2,831 square feet of office space in the building located at
6110 Executive Boulevard, Rockville, Maryland for a term expiring November 30,
1993; and
WHEREAS, the parties hereto desire to extend the term of the aforesaid
Lease.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Lease is hereby extended for a further period of Five (5)
years, commencing December 1, 1993 and expiring November 30, 1998.
2. Commencing September 1, 1992, the base monthly rent for the
existing and extended terms shall be Three Thousand Nineteen and 73/100
Dollars ($3,019.73).
3. For the extended term only, the base period for additional rent
based on increases in the CPI only shall be November, 1992, and Tenant
shall commence paying CPI additional rent on September 1, 1993.
4. All of the terms and conditions of the Lease as modified by this
Lease Extension Agreement, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year hereinabove first written.
WITNESS: LANDLORD: BUILDING NO. 7
ASSOCIATES
[ILLEGIBLE] BY [ILLEGIBLE] (SEAL)
- ---------------------------------- -------------------------------
Joint Venturer
ATTEST: TENANT: SHERWOOD BRANDS, INC.
[ILLEGIBLE] BY /s/ Anat Schwartz (SEAL)
- ---------------------------------- -------------------------------
Secretary Name: Anat Schwartz
(Corporate Seal) Title: VP - Finance
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1. SHERWOOD BRANDS, LLC, a Maryland limited liability company.
2. SHERWOOD BRANDS OVERSEAS, INC., a Bahamas corporation.
<PAGE>
EXHIBIT 23.1
Consent of Independent Certified Public Accountants
To the Board of Directors
Sherwood Brands, Inc. and Subsidiaries
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our reports dated October 7, 1997, except
for Note 18, the date of which is December 12, 1997, relating to the
consolidated financial statements of Sherwood Brands, Inc. and Subsidiaries,
which is contained in that Prospectus, and of our report dated October 7, 1997,
except for Note 18, the date of which is December 12, 1997, relating to the
Schedule, which is contained in Part II of the Registration Statement.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Washington, D.C.
January 21, 1998
<PAGE>
Report of Independent Certified Public Accountants
on Financial Statement Schedule
Sherwood Brands, Inc. and Subsidiaries
The audits referred to in our report to Sherwood Brands, Inc. and
Subsidiaries, dated October 7, 1997, except for Note 18, the date of which is
December 12, 1997, which is contained in the Prospectus constituting part of
this Registration Statement, included the audit of the financial statement
schedule listed in the accompanying index for each of the two years in the
period ended July 31, 1997. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statement schedule based upon our audits.
In our opinion, such schedule presents fairly, in all material
respects, the information set forth therein.
BDO Seidman, LLP
Washington, D.C.
October 7, 1997, except
for Note 18, the date
of which is December 12, 1997
<PAGE>
Schedule II
Sherwood Brands, Inc. and Subsidiaries
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Charged
Balance to Costs Balance at
Beginning and End
Description of Period Expenses Deduction of Period
----------- --------- -------- --------- ---------
<S> <C> <C> <C> <C>
Year ended July 31, 1996
Allowance for doubtful accounts $ 19,000 $ 33,900 $ (31,000) $ 21,900
Reserve for slow moving inventory $ - $ - $ - $ -
Year ended July 31, 1997
Allowance for doubtful accounts $ 21,900 $ 72,600 $ (71,100) $ 23,400
Reserve for slow moving inventory $ - $ 18,200 $ - $ 18,200
</TABLE>
