AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1998
REGISTRATION NO. 333-52607
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NEWTECH ELECTRONICS INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 5190 65-0225504
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
JOEL NEWMAN
CHIEF EXECUTIVE OFFICER
NEWTECH ELECTRONICS INDUSTRIES, INC.
16550 N.W. 10TH AVENUE 16550 N.W. 10TH AVENUE
MIAMI, FLORIDA 33169 MIAMI, FLORIDA 33169
(305) 624-0019 (305) 624-0019
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
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COPIES OF COMMUNICATIONS TO:
PAUL BERKOWITZ, ESQ. GEOFFREY E. LIEBMANN, ESQ.
MICHAEL HEIN, ESQ. CAHILL GORDON & REINDEL
GREENBERG TRAURIG HOFFMAN 80 PINE STREET
LIPOFF ROSEN AND QUENTEL, P.A. NEW YORK, NEW YORK 10005
1221 BRICKELL AVENUE (212) 701-3000
MIAMI, FLORIDA 33131 TELECOPY: (212) 269-5420
(305) 579-0500
TELECOPY: (305) 579-0717
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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, as amended (the "Securities Act"), check the following box. [ ]
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS Subject to Completion, dated July , 1998
- --------------------------------------------------------------------------------
Shares
Newtech Electronics Industries, Inc.
[LOGO]
Common Stock
- --------------------------------------------------------------------------------
Of the shares of Common Stock, par value $0.01 per share (the "Common
Stock"), of Newtech Electronics Industries, Inc., a Florida corporation (the
"Company"), offered hereby (the "Offering"), shares are being offered by
the Company and shares are being offered by certain shareholders of the
Company (the "Selling Shareholders"). See "Selling Shareholders." The Company
will not receive any of the proceeds from the sale of the shares of Common
Stock offered by the Selling Shareholders.
Prior to the Offering, there will be no public market for the Common Stock. It
is currently estimated that the initial public offering price will be between
$ and $ . See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Company has
applied for listing of the Common Stock on the Nasdaq National Market under the
symbol "NTCH."
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 7-17.
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.
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Shareholders(3)
- --------------------------------------------------------------------------------
Per Share $ $ $ $
- --------------------------------------------------------------------------------
Total(3) $ $ $ $
- --------------------------------------------------------------------------------
(1) THE COMPANY AND THE SELLING SHAREHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES OF THE OFFERING, WHICH ARE PAYABLE BY THE
COMPANY, ESTIMATED TO BE $ .
(3) THE SELLING SHAREHOLDERS HAVE GRANTED THE UNDERWRITERS A 30-DAY OPTION TO
PURCHASE UP TO ADDITIONAL SHARES OF COMMON STOCK ON THE SAME TERMS
PER SHARE SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF SUCH OPTION IS
EXERCISED IN FULL, THE TOTAL PRICE TO PUBLIC WILL BE $ , THE TOTAL
UNDERWRITING DISCOUNTS AND COMMISSIONS WILL BE $ AND THE TOTAL
PROCEEDS TO SELLING SHAREHOLDERS WILL BE $ . SEE "UNDERWRITING."
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of the certificates
therefor will be made at the offices of Warburg Dillon Read LLC, New York, New
York on or about , 1998. The Underwriters include:
Warburg Dillon Read LLC Jefferies & Company, Inc.
<PAGE>
[INSIDE FRONT COVER]
[PHOTOGRAPHS OF PRODUCTS; DIAGRAM WITH NAMES OF PRODUCTS, BRANDS AND CUSTOMERS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE CONSOLIDATED
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO (THE "CONSOLIDATED FINANCIAL
STATEMENTS"), APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, INFORMATION SET FORTH IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF
THE UNDERWRITERS' OVER-ALLOTMENT OPTION AND (II) REFLECTS THE MERGER ON APRIL
3, 1998 OF ELECTRONIC INDUSTRIES OF AMERICA, INC. WITH AND INTO THE COMPANY,
WITH THE COMPANY AS THE SURVIVING CORPORATION, AND A SIMULTANEOUS
10,000-FOR-ONE STOCK SPLIT. AS USED HEREIN, THE "COMPANY" MEANS NEWTECH
ELECTRONICS INDUSTRIES, INC., ITS SUBSIDIARIES AND THEIR RESPECTIVE
PREDECESSORS UNLESS THE CONTEXT OTHERWISE REQUIRES.
THE COMPANY
Newtech Electronics Industries, Inc., established in 1990, designs,
sources, manufactures, and markets high-quality, value-priced brand-name
consumer electronic products. The Company offers a broad line of audio, video
and telecommunications products and selected home appliances, including
televisions, video cassette players and recorders ("VCRs"), home audio systems,
compact disc ("CD") players, cassette players, telephones and portable
microwave ovens. The Company's strategy has been to build a portfolio of
licensed and owned brand names, including White-Westinghouse, Admiral, Philco,
Craig and Newtech. By having a portfolio of brand names, the Company is able to
offer retailers proprietary and flexible merchandising programs. The Company
currently sells its products to 15 retailers which operate over 14,000 retail
outlets in the United States and Canada, including mass merchandisers such as
Kmart Corporation ("Kmart") and Wal-Mart Stores, Inc. ("Wal-Mart"), and other
retailers, including Family Dollar Stores, Inc. ("Family Dollar Stores"), Ames
Department Stores, Inc. ("Ames"), Rite-Aid Corporation ("Rite-Aid") and Zellers
Inc. ("Zellers"). In addition, the Company sells its products to customers in
Mexico, the Caribbean and Central and South America. In January 1997, the
Company entered into a long-term strategic alliance with Kmart, pursuant to
which the Company appointed Kmart as the exclusive "discount department store"
to market and sell a range of audio, video and telecommunications products in
the United States under the White-Westinghouse brand name (the
"White-Westinghouse Trademark"). The agreement provides for minimum purchases
by Kmart of a total of $1.1 billion of White-Westinghouse brand consumer
electronic products in specified yearly increments over a seven-and-a-half-year
period. The Company believes that this strategic alliance provides a platform
for significant growth. See "Business--Strategic Alliances." In large part due
to this alliance, from 1996 to 1997, net sales increased 434% to $208.4 million
from $39.1 million. The Company currently sells products to all other U.S.
customers through open purchase orders. The Company plans to grow its business
by expanding its customer base, acquiring and licensing additional brand names,
expanding the territories and product lines available under its existing
licenses, and increasing penetration of existing distribution channels.
THE CONSUMER ELECTRONICS INDUSTRY
The consumer electronics industry is large and diverse, encompassing a
wide variety of technologies and products, including televisions, VCRs, audio
systems, CD players, cassette players and telephones. The Consumer Electronics
Manufacturers Association ("CEMA") estimates that total factory sales to the
U.S. market in 1997 included approximately $8.4 billion of televisions
(including TV/VCR combinations), $2.7 billion of VCRs, $1.7 billion of audio
systems, $4.3 billion of CD players (including portable and home CD players),
$0.3 billion of cassette players and $5.9 billion of telephones and telephone
answering devices. Industry participants have traditionally offered such
merchandise using three principal branding strategies and corresponding price
points: (i) premium brands, such as Sony and Panasonic; (ii) mass-market
brands, such as General Electric ("GE") and Magnavox; and (iii) value-priced
brands, such as White-Westinghouse and GPX.
3
<PAGE>
BUSINESS STRATEGY
The Company plans to establish itself as the leading supplier of high
quality, value-priced consumer electronic products and selected household
appliances. The Company believes that its portfolio of well-recognized brand
names, superior design capabilities, flexible and low-cost sourcing and
manufacturing and responsive after-sales service provide it with competitive
advantages in achieving this goal.
OPERATING STRATEGY. The Company's operating strategy is based on the
following key elements:
/bullet/ OFFER A PORTFOLIO OF WELL-RECOGNIZED BRAND NAMES. The Company
believes that its strategy of offering a portfolio of well-recognized
brand names enables retailers to differentiate themselves in the
marketplace through proprietary and flexible merchandising programs. For
example, the Company's recent strategic alliance with Kmart designates
Kmart as the exclusive "discount department store" to market and sell a
range of audio, video and telecommunications products in the United States
under the White-Westinghouse Trademark.
/bullet/ OFFER HIGH-QUALITY PRODUCTS OF SUPERIOR DESIGN. The Company has
assembled an in-house design and engineering team with significant
industry experience and expertise. The Company believes that the superior
design and style of its products distinguish them from those of its
competitors in the value-priced category and help drive consumer
purchasing decisions. In addition, the Company highlights the design and
style features of its products with detailed descriptions and
illustrations on packaging, which the Company believes further
distinguishes its products from those of its competitors.
/bullet/ MAINTAIN LOW-COST, FLEXIBLE SOURCING AND MANUFACTURING
CAPABILITIES. The Company's products are manufactured both at the
Company's facility in the People's Republic of China (the "PRC") and at
various third-party facilities throughout the world. The Company believes
that its manufacturing facility allows flexibility in sourcing products
and a better understanding of manufacturing cost and time parameters,
which provide the Company with leverage in negotiating with outside
manufacturers.
/bullet/ PROVIDE RESPONSIVE AFTER-SALES SERVICE. The Company believes that
after-sales service is an important competitive factor in the consumer
electronics industry and that its model of responsive after-sales service
is superior to others in the value-priced segment. This model is based on
a toll-free interactive phone system that directs callers to independent
local service centers staffed by in-house and outsourced personnel who
provide basic troubleshooting and advanced technical support, thus
enabling the Company to provide responsive service at a reasonable cost to
the Company.
GROWTH STRATEGY. The Company plans to continue to grow its business using
a strategy comprised of the following principal elements:
/bullet/ EXPAND ITS CUSTOMER BASE. The Company believes that it has
significant opportunities to increase the number of outlets at which its
products are sold. For example, in the second half of 1997, the Company
began selling products to Ames, Bradlees, Inc. ("Bradlees"), Musicland
Stores Corp. ("Musicland") and Heilig Meyers Co. ("Heilig Meyers"). Also,
the Company has recently received its first purchase order from Zellers, a
division of Hudson Bay Company, one of the largest retailers in Canada.
The Company plans to pursue additional proprietary strategic alliances
similar to its arrangement with Kmart, as well as other merchandising
programs.
/bullet/ ACQUIRE AND LICENSE ADDITIONAL BRAND NAMES. The Company plans to
continue to acquire and license additional brand names in order to
maximize its ability to provide retailers with proprietary and flexible
merchandising programs. Towards this end, in September 1997, the Company
obtained a license to sell portable microwave ovens in the United States
and Canada
4
<PAGE>
under the Philco brand name, the Company's first product offering outside
of the consumer electronics industry. In addition, in December 1997, the
Company acquired the Craig trademark, a well-recognized brand name in the
consumer electronics industry, under which the Company sells a broad range
of its audio, video and telecommunications products, as well as portable
microwave ovens. Although the acquisition of additional brand names may
require the expenditure of funds, the Company believes that entering into
new or modified license and distribution agreements will not involve
significant costs.
/bullet/ EXPAND THE SCOPE OF EXISTING BRANDS. The Company plans to continue
to negotiate for the expansion of the territories and product lines under
its existing brand-name licenses. In September 1997, the Company secured
the right to add portable microwave ovens to the consumer electronic
products it sells under the White-Westinghouse Trademark in the United
States and Canada. In addition, in December 1997, the Company expanded its
marketing territory for the Admiral brand name to include Mexico.
/bullet/ INCREASE PENETRATION OF EXISTING DISTRIBUTION CHANNELS. The
Company plans to leverage its customer relationships and success in
broadening product lines and acquiring and licensing additional brand
names to increase product sales to existing customers. The Company
believes that this strategy is responsive to the desire of major retailers
to source products through fewer vendors.
THE OFFERING
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<S> <C>
Common Stock offered by the Company ....................... shares
Common Stock offered by the Selling Shareholders .......... shares
Common Stock to be outstanding after the Offering ......... shares(1)
Use of proceeds by the Company ............................ The Company intends to apply the net
proceeds of the Offering to repayment
of certain indebtedness, possible future
acquisitions and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol .................... NTCH
</TABLE>
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(1) Does not include: (i) shares of Common Stock reserved for
issuance upon exercise of the Underwriters' over-allotment option, (ii) an
aggregate of 649,000 shares of Common Stock reserved for issuance upon
exercise of outstanding options under the Company's 1997 Stock Option Plan
and (iii) an aggregate of 351,000 shares of Common Stock reserved for
issuance upon exercise of options available for grant under the 1997 Stock
Option Plan.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales .............................................. $ 13,353 $ 39,060 $ 208,417
Cost of products sold .................................. 11,993 35,172 186,433
------------ ------------ ------------
Gross profit ........................................... 1,360 3,888 21,984
Selling expenses(1) .................................... 846 1,285 10,533
General and administrative expenses .................... 1,155 1,842 4,598
Write-off of advances to affiliate ..................... -- 980 --
------------ ------------ ------------
Total expenses ......................................... 2,001 4,107 15,131
------------ ------------ ------------
Income (loss) from operations .......................... (641) (219) 6,853
Other (income) expense:
Interest expense ...................................... 307 201 1,763
Interest and other income ............................. (197) (587) (581)
------------ ------------ ------------
Total other (income) expense ........................... 110 (386) 1,182
------------ ------------ ------------
Income (loss) before income taxes ...................... (751) 167 5,671
Income tax benefit ..................................... -- (135) (351)
------------ ------------ ------------
Net income (loss) ...................................... $ (751) $ 302 $ 6,022
============ ============ ============
Net income (loss) per common share
Basic and diluted ..................................... $ (0.08) $ 0.03 $ 0.60
Weighted average number of common shares outstanding
Basic ................................................. 10,000,000 10,000,000 10,000,000
Diluted(2) ............................................ 10,000,000 10,000,000 10,093,024
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1997 1998
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<S> <C> <C>
STATEMENT OF OPERATIONS:
Net sales .............................................. $ 8,420 $ 38,900
Cost of products sold .................................. 7,210 35,358
------------ ------------
Gross profit ........................................... 1,210 3,542
Selling expenses(1) .................................... 543 1,728
General and administrative expenses .................... 867 1,986
Write-off of advances to affiliate ..................... -- --
------------ ------------
Total expenses ......................................... 1,410 3,714
------------ ------------
Income (loss) from operations .......................... (200) (172)
Other (income) expense:
Interest expense ...................................... 53 735
Interest and other income ............................. (122) (128)
------------ ------------
Total other (income) expense ........................... (69) 607
------------ ------------
Income (loss) before income taxes ...................... (131) (779)
Income tax benefit ..................................... (201) (285)
------------ ------------
Net income (loss) ...................................... $ 70 $ (494)
============ ============
Net income (loss) per common share
Basic and diluted ..................................... $ 0.01 $ (0.05)
Weighted average number of common shares outstanding
Basic ................................................. 10,000,000 10,000,000
Diluted(2) ............................................ 10,000,000 10,309,350
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
--------------------------
PRO FORMA AS
ACTUAL ADJUSTED(3)(4)
---------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .......... $ 2,210 $
Current assets ..................... 55,468
Total assets ....................... 62,056
Total debt ......................... 33,826
Total shareholders' equity ......... 11,791
</TABLE>
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(1) Selling expenses in 1995, 1996, 1997 and the three months ended March 31,
1998 included freight costs of $49,000, $20,000, $4.5 million and
$124,000, respectively. Approximately $4.3 million of such freight costs
in 1997 were due primarily to the Company's decision to airfreight
products to customers during the 1997 holiday season. The additional
airfreight costs resulted mainly from delays in bringing the Company's PRC
manufacturing facility to required production levels.
(2) Includes the impact of 649,000 shares of Common Stock issuable upon the
exercise of outstanding stock options granted under the Company's 1997
Stock Option Plan. See Note 10 to the Company's Consolidated Financial
Statements included elsewhere in this Prospectus.
(3) Adjusted to reflect the sale of shares of Common Stock offered by
the Company at an assumed public offering price of $ per share and
the application of the estimated net proceeds therefrom as set forth in
"Use of Proceeds."
(4) Gives pro forma effect to (i) the repayment to the Company of an
approximately $271,000 loan to Joel Newman, the Company's Chairman, Chief
Executive Officer and President and 45.0% shareholder, and (ii) the
payment of certain share subscription receivables, consisting of
promissory notes in the aggregate principal amount of $5.0 million issued
to the Company by Windmere Holdings Corporation, a 50.0% shareholder of
the Company, as consideration for the purchase of Common Stock. See
"Capitalization," "Management" and "Certain Transactions." Mr. Newman has
agreed to repay in full the loan with a portion of the net proceeds to him
from the sale of Common Stock in the Offering. With respect to the
promissory notes issued to the Company by Windmere Holdings Corporation,
one such promissory note, in the principal amount of $3.0 million, has
been repaid in full, and Windmere Holdings Corporation has agreed to repay
in full the other promissory note, in the principal amount of $2.0
million, with a portion of the net proceeds to such Selling Shareholder
from the sale of Common Stock in the Offering. See "Use of Proceeds" and
"Principal and Selling Shareholders."
6
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE
PURCHASING ANY OF THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS
CERTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING,
BUT NOT LIMITED TO, THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE
IN THIS PROSPECTUS.
DEPENDENCE ON KMART AGREEMENT
On January 27, 1997, the Company entered into an agreement with Kmart (the
"Kmart Agreement") pursuant to which the Company appointed Kmart as the
exclusive "discount department store" to market and sell a broad range of
audio, video and telecommunications products in the United States under the
White-Westinghouse Trademark licensed to the Company by White Consolidated
Industries, Inc. ("WCI"). See "Business--Brand Portfolio--White-Westinghouse"
and "--Strategic Alliances." During 1997 and the three months ended March 31,
1998, Kmart purchased approximately $158.7 million and $28.9 million,
respectively, of merchandise from the Company pursuant to the Kmart Agreement,
which accounted for approximately 76.0% and 74.0% respectively, of the
Company's net sales. The termination of the Kmart Agreement would, and any
significant modification thereof could, have a material adverse effect on the
Company's business, financial condition and results of operations.
The Kmart Agreement provides for minimum purchases by Kmart which increase
throughout its term (with specified minimums applying to each of the audio,
video and telephone categories) and the payment of penalties for shortfalls. In
the event that aggregate U.S. retail sales in the consumer electronics industry
for any particular category decrease by more than 10% in any year from that
sold in the prior year, Kmart has the right to reduce the minimum purchase
requirements for such category to an amount not less than 80% of the minimum
for such period. There can be no assurance that U.S. retail consumer electronic
sales will not decrease, causing a reduction in Kmart's minimum purchase
requirements.
Kmart further has the right to procure the manufacture of products from
other manufacturers under the White-Westinghouse Trademark on behalf of the
Company, which procurements count towards its minimum purchase requirements. In
such cases, Kmart has the option of paying the purchase price to the
third-party manufacturers directly or making such payment to the Company, in
which case the Company pays the third-party manufacturers. In the event that
Kmart fails to pay a third-party manufacturer, the Company must make the
payment. During 1997 and the three months ended March 31, 1998, Kmart purchased
approximately $79.1 million and $14.7 million, respectively, of merchandise
from third parties under the Kmart Agreement and, pursuant to the Kmart
Agreement, paid the Company a percentage of such amount. Because the Company's
gross profit is higher for the sales of its own products than its gross profit
on third-party manufacturer sales under the Kmart Agreement, an increase in the
percentage of third-party manufacturer sales could lower its overall gross
profit and have a material adverse effect on the Company's business, financial
condition and results of operations.
The initial term of the Kmart Agreement is through June 30, 2004; however,
each of Kmart and the Company have the right, by written notice given prior to
June 30, 2000, to terminate the agreement without cause any time after June 30,
2002. Each of Kmart and the Company further have the right to terminate the
agreement without cause on June 30, 2003 and on each June 30 thereafter; in the
case of the Company, such termination requires 12 months' notice.
Kmart also has the right to terminate the agreement upon the termination
of the January 27, 1997 contract between Kmart and Salton/Maxim Housewares,
Inc. ("Salton") for the sale of kitchen housewares, personal care products,
fans, heaters and electrical air cleaners and humidifiers under the
White-Westinghouse Trademark (the "Salton Agreement"). The termination
provisions of the Salton Agreement are substantially the same as those of the
Kmart Agreement, and the Company has no control over the performance or
termination of the Salton Agreement. In addition, Salton's license agreement
with WCI for the sale of kitchen housewares under the White-Westinghouse
Trademark
7
<PAGE>
expires June 30, 1998, and Salton's license agreement with WCI for the sale of
personal care products, fans, heaters and electrical air cleaners and
humidifiers under the White-Westinghouse Trademark expires December 31, 1998.
Each such license agreement may be extended for 13 one-year periods at the
option of Salton, provided that Salton meets certain minimum sales levels. In
addition, either party may terminate such license agreements without cause on
12 months' notice beginning in 2001. The Company has no control over the
performance or termination of the Salton Agreement with Kmart or Salton's
license agreements with WCI. Furthermore, an adverse decision in the Trademark
Litigation discussed below could result in Salton being limited in further use
of the White-Westinghouse Trademark and in termination or significant
modification of the Salton Agreement. See "--Trademark Litigation." Fifty
percent of Salton's outstanding shares of common stock are owned by Windmere
Holdings Corporation ("Windmere"), a wholly-owned subsidiary of
Windmere-Durable Holdings, Inc. ("Windmere-Durable"). Upon the completion of
the Offering, Windmere will own in the aggregate approximately % of the
outstanding shares of the Company's Common Stock. See "--Control by Principal
Shareholders."
Kmart also has the right to terminate the Kmart Agreement on the basis of
any claim which Kmart reasonably believes impairs or would impair Kmart's
ability to receive the benefits of the Kmart Agreement, whether relating to any
or all products. See "--Trademark Litigation." In the Trademark Litigation, CBS
seeks, among other things, a preliminary injunction enjoining the Company,
Salton, Windmere-Durable and WCI from using the White-Westinghouse Trademark in
connection with the sale of certain products, including products in categories
representing 42.0% of the products now being sold by the Company to Kmart under
the Kmart Agreement.
TRADEMARK LITIGATION
In November 1996, WCI filed suit for injunctive relief and damages against
Westinghouse Electric Corporation (now known as CBS Corporation ("CBS")) in the
United States District Court for the Northern District of Ohio alleging that
CBS's grant of licenses to the Westinghouse trademark for use on lighting
products, fans and electrical accessories for use in the home violates WCI's
rights to the Westinghouse trademark and constitutes a breach of the agreements
under which CBS's predecessor sold WCI its appliance business and certain
trademark rights in 1975. In response to that suit, CBS filed a related action
in December 1996 in the United States District Court for the Western District
of Pennsylvania, naming WCI, the Company, Windmere-Durable, Salton and certain
other parties as defendants. The two actions have now been consolidated in the
Pennsylvania court (the "Trademark Litigation"). CBS's complaint alleges among
other things that WCI's license to the Company to use the White-Westinghouse
Trademark on CD players, audio systems that include CD players, VCRs, TV-VCR
combinations, headphones, and telephones, telephone answering machines and
telephone accessories infringes its right to the Westinghouse trademark. CBS
does not appear to be challenging the validity of the Company's license to use
the mark on TVs without VCRs, on radios, on audio systems or cassette tape
players that do not include CD players, on stereo speakers or on microwave
ovens. CBS seeks an injunction prohibiting the Company, Salton and WCI from
using the White-Westinghouse Trademark on products not specifically enumerated
in the transaction documents, and unspecified damages and attorneys' fees. An
adverse decision in the Trademark Litigation could result in the Company being
limited in further use of the White-Westinghouse Trademark and in termination
or significant modification of the Kmart Agreement, any of which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
The legal costs that may be incurred in defending against this action
could be substantial; however, pursuant to an indemnification agreement among
WCI, Kmart and Windmere-Durable, WCI is defending and indemnifying Kmart and
Windmere-Durable for all costs and expenses for claims, damages and losses,
including the costs of litigation, and, pursuant to the license agreements with
WCI, WCI is defending and indemnifying Salton and the Company for all costs and
expenses for claims, damages and losses, including the costs of litigation. In
addition, the litigation could be protracted and result in diversion of
management and other resources of the Company. The Company believes that its
use of the White-Westinghouse Trademark does not infringe upon or otherwise
violate CBS's trademark rights. There can be no assurance that WCI will prevail
in its lawsuit or that WCI, the Company and
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their codefendants will prevail in their opposition to CBS's lawsuit. In the
event that a favorable outcome for the Company is not obtained, the Company
intends to vigorously pursue its rights under the license agreements described
above, including the right to indemnification, although there can be no
assurance that the parties to the license agreements will agree on the scope of
the indemnity.
Related proceedings have also been commenced before the Trademark Trial
and Appeal Board (the "Trademark Board") of the United States Patent and
Trademark Office in opposition to WCI's and CBS's efforts to register certain
uses of the Westinghouse and White-Westinghouse trademarks. Although the
Company is not a party to those proceedings, some of them relate to the
Company's uses of the White-Westinghouse Trademark. Those proceedings have been
stayed pending resolution of the Trademark Litigation in the Pennsylvania
court. Even if the Trademark Litigation is resolved, it is possible that these
proceedings before the Trademark Board will continue and will have a material
adverse effect upon the Company's business, financial condition and results of
operations.
DEPENDENCE ON CERTAIN LICENSE AGREEMENTS
The Company licenses certain brand names under which it markets most of
its products. These licenses are granted pursuant to license agreements which
generally provide for royalty payments based on the value of the goods sold as
well as minimum royalty amounts and sales of trademarked products. In addition,
they are subject to termination or non-renewal at the option of the lessor if
certain minimum sales targets are not met. There can be no assurance that the
Company will meet such minimum royalty or sales targets. The termination or
non-renewal of a license agreement could have a material adverse effect on the
Company's business, financial condition and results of operations.
WHITE-WESTINGHOUSE AND PHILCO. The Company has an exclusive license from
WCI to sell consumer audio, video and telecommunications products in the United
States and Canada under the White-Westinghouse Trademark. The initial term of
the agreement is through December 31, 1998 and may be extended at the Company's
option for up to 14 one-year renewal terms through December 31, 2012. The
Company has an exclusive license from WCI to sell portable microwave ovens in
the United States and Canada under the White-Westinghouse Trademark. The
initial term of the agreement is through December 31, 2003 and may be extended
at the Company's option for up to six two-year renewal terms through December
31, 2015. The Company has an exclusive license from WCI to sell portable
microwave ovens in the United States and Canada under the Philco brand name.
The initial term of the agreement is through December 31, 2003 and may be
extended at the Company's option for up to six two-year renewal terms through
December 31, 2015. WCI may, at its option, terminate each agreement during a
renewal term if certain minimum sales targets are not met. See "Business--Brand
Portfolio--White-Westinghouse" and "Business--Brand Portfolio--Philco."
ADMIRAL. The Company has an exclusive license from Maytag Corporation to
sell audio and video products in most countries in the Caribbean, South and
Central America and Mexico under the Admiral brand name. The initial term of
the agreement is through December 31, 2003 and may be extended at the Company's
option for up to two five-year renewal terms through December 31, 2013,
provided certain performance goals have been achieved during the initial term
or the first renewal term, as the case may be. See "Business--Brand
Portfolio--Admiral."
INVENTORY MANAGEMENT RISKS
The Company is subject to significant risks in connection with its
inventory management. In order to assure an adequate supply of products to meet
the relatively high demand during the third and fourth quarters of each year,
the Company must commit to acquire products six to nine months in advance of
delivery. If the Company underestimates its need for inventory or experiences
delays in production, the Company may have to operate its plant on a more
expensive overtime basis, pay a significant premium to obtain the necessary
contract-manufacturing capacity or ship products by air rather than less
expensive ground or sea transportation in order to meet customer orders. In
such event, profit margins, sales and/or customer relationships could be
materially adversely affected. For example, in 1997, the Company incurred
approximately $4.3 million of freight costs due primarily to the Company's
decision to airfreight products to customers during the 1997 holiday season.
Such additional airfreight costs
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resulted mainly from delays in bringing the Company's PRC manufacturing
facility to required production levels. Similarly, if the Company overestimates
its inventory needs, the Company will be required to reduce prices in order to
dispose of such inventory or increase borrowings to finance the carrying costs
of such inventory, thereby adversely affecting its profitability and cash
flows. There can be no assurance that the Company will be able to borrow such
amounts on reasonable terms, if at all. To the extent that the Company is
unable to adequately plan, time, and budget its sourcing and manufacturing
operations, incurs delays in delivery, fails to adequately forecast prices and
demand or reduce costs when necessary, a material adverse effect on the
Company's business, financial condition and results of operations could result.
See "--Seasonality and Fluctuations in Quarterly Performance" and
"Business--Sourcing and Manufacturing."
RISK OF PRODUCT RETURNS AND WARRANTY CLAIMS
The Company incurs expenses as a result of product returns and warranty
claims. Such returns and warranty claims may result from defective goods,
inadequate performance relative to customer expectations, improper packaging,
liberal retailer return policies and other causes which may be outside the
Company's control. During the three years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1998, product returns and warranty
claims were approximately 3.8%, 0.8%, 1.6% and 2.3%, respectively, of gross
sales. In 1995, 1996, 1997 and the three months ended March 31, 1998,
approximately 97.0%, 83.0%, 75.0% and 73.0%, respectively, of the Company's
gross sales were made under net sale arrangements, whereby the Company's
customers are responsible for product returns, which cannot be returned to the
Company. While the Company plans to maintain or increase the percentage of
sales that are on a net basis, there can be no assurance that the Company will
be successful in maintaining or increasing such percentage. Any significant
increase in product returns and warranty claims could have a material adverse
effect on the Company's business, financial condition and results of
operations.
LIMITED DISTRIBUTION CHANNELS AND CONCENTRATION OF CUSTOMERS AND CREDIT RISK
The Company has been, and is, highly dependent upon its largest customers
and has derived, and is expected to derive, a substantial percentage of its
revenues from such customers. In particular, the Company's largest customer,
Kmart, accounted for approximately 76.0% and 74.0% of the Company's net sales
during 1997 and the three months ended March 31, 1998, respectively, and in
1996 net sales to each of the following customers represented more than 10% of
the Company's net sales: (i) Kmart represented 37%, (ii) Wal-Mart represented
34%, (iii) Sanyo do Brasil represented 12%, and (iv) Family Dollar Stores
represented 11%. The Company's top five customers accounted for approximately
95%, 90.0% and 85.8% of net sales during 1996, 1997 and the three months ended
March 31, 1998, respectively. Although certain of the Company's customers have
posted standby letters of credit which may be drawn upon by the Company in the
event of payment default, such letters of credit may not be sufficient to
reimburse the Company fully for all outstanding invoices. The loss of any one
of the Company's largest customers or the failure of any one of such customers
to pay on a timely basis could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Customers."
SUBSTANTIAL COMPETITION
The consumer electronics industry is extremely competitive and is
dominated by large and well-capitalized companies. The Company competes with
the entire consumer electronics industry for consumer dollars, shelf space for
products and sales support. The Company's competitors may not need to rely on
external financing or relationships with independent manufacturers to the same
extent as the Company. Furthermore, the Company's competitors may experience
cost advantages depending on labor costs, currency exchange rates and other
factors in the countries in which their manufacturing operations are located,
relative to the countries in which the Company's products are manufactured. The
Company has adopted a marketing strategy that targets the value-priced segment
of the consumer electronics market, which is particularly price sensitive.
There is competition among a number of brands in this market segment, including
Emerson and GPX. In addition, although Magnavox, GE, Sony and
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Panasonic brand products are not currently emphasized in the value-priced
segment of the market, they do compete with the Company's products for consumer
dollars, shelf space and sales support. To the extent that these brands compete
directly with the Company's brands on the basis of price, or their product
prices were otherwise reduced, the Company's ability to market and sell
competitive products could be severely affected, which would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Strategy," "--Customers," and "--Competition."
DEPENDENCE ON KEY INDIVIDUALS
The success of the Company is dependent upon the continued services of the
Company's senior management. The loss of the services of these individuals,
including Joel Newman, its Chairman of the Board, President and Chief Executive
Officer, and Hatch Masuda, its Senior Vice President, Design and Product
Development, could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company has entered into
two-year employment agreements with Messrs. Newman and Masuda effective upon
the consummation of the Offering. The Company does not maintain key person life
insurance policies on any members of management. See "Management--Employment
Agreements and Termination of Employment and Change in Control Arrangements."
The Company believes that its future success will also depend in part upon
its ability to attract and retain qualified management personnel. Competition
for such personnel is intense and the Company competes for qualified personnel
with numerous other employers, some of whom have greater financial and other
resources than the Company. There can be no assurance that the Company will be
successful in attracting and retaining such personnel. See "Management."
INTEGRATION OF POTENTIAL ACQUISITIONS
The Company plans to use a portion of the net proceeds from the Offering
for acquisitions of brand names, product lines and other companies or assets
that the Company believes would complement or expand its existing business.
Acquisitions involve a number of risks that could adversely affect the
Company's operating results, including: (i) the diversion of management's
attention; (ii) the risk that the acquired assets or the operations and
personnel of the acquired companies will not be effectively integrated; (iii)
the amortization of acquired intangible assets; (iv) the assumption of
potential liabilities, disclosed or undisclosed, associated with the assets or
businesses acquired, which liabilities may exceed the amount of
indemnification, if any, available from the seller; (v) the risk that the
financial and accounting systems utilized by the businesses acquired will not
meet the Company's standards; (vi) the risk that the businesses acquired will
not maintain the quality of services that the Company has historically
provided; (vii) the dilutive effect of the use of the Company's Common Stock as
consideration for acquisitions; and (viii) the inability to attract and retain
qualified management. There can be no assurance that the Company will
consummate future acquisitions on satisfactory terms, if at all, that adequate
financing will be available on terms acceptable to the Company, if at all, or
that any acquired operations will be successfully integrated or that such
operations will ultimately have a positive impact on the Company's business,
financial condition and results of operations. See "Business--Strategy."
RISKS ASSOCIATED WITH DEVELOPMENT AND MANUFACTURING
The Company's product design and engineering team typically develops new
products over a period of six months. Thereafter, the preparation of the
manufacturing process through the first production run generally requires
another three to six months. Any delays in the foregoing process could prevent
the Company from receiving expected revenue from the sales of that product,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company does not maintain long-term
purchase contracts with manufacturers and operates principally on a purchase
order basis. The loss of a supplier could, in the short-term, have a material
adverse effect on the Company's business, financial condition and results of
operations until alternative supply arrangements were secured. See
"Business--Sourcing and Manufacturing."
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AVAILABILITY OF TECHNOLOGY
The Company relies on available technology developed by others as the
basis for the operations and features of its products. The Company currently
has no intention of expanding its business to include the development of
innovative technology. As a result, the Company is subject to the risk that a
technological development not available to it will result in the obsolescence
of various of its products or competitive advantages to the developers of such
technology. The Company is also subject to the risk that some technological or
new product development that is not available to the Company, either due to
third-party proprietary protection, cost, or otherwise, could render the
marketing of the Company's products difficult or not profitable due to
competitive pressure from the new development. See "Business--Product Design
and Development."
SEASONALITY AND FLUCTUATIONS IN QUARTERLY PERFORMANCE
The Company's business is highly seasonal, with operating results varying
substantially from quarter to quarter. During 1997, approximately 82.5% of the
Company's sales took place in the third and fourth quarters of the calendar
year. In order to facilitate sales during the year-end buying season, the
Company must make financial commitments and pay for product inventory and
certain expenses well in advance of any sales of such inventory. Typically, the
Company expects to experience lower profitability or losses in the first and
second quarters of each year for this reason. As a result, if the timing or
amount of customer orders fall below the Company's expectations, operating
results and cash flows would be materially adversely affected because expenses
based on these expectations will have already been incurred. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH RETAIL SALES
The Company is subject to many of the same economic factors that impact
other designers and manufacturers of retail-oriented products, including costs
of materials, insurance, inflation, transportation, and retail sector and
general economic conditions, which can impact consumer demand in general and
for the Company's products in particular. These factors could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, because the Company's business strategy is heavily
dependent on the use of brand names, adverse publicity with respect to products
that are not sold by the Company but bear the brand names used by the Company
could have a material adverse effect on the Company's business, financial
condition and results of operations, notwithstanding the fact that the products
at issue are different than those sold by the Company.
PRODUCT LIABILITY
Any defects in the Company's products that result in personal injury could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company maintains insurance to cover such risks;
however, the coverage in certain events may not be adequate to insure against
all product liability claims.
DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS; YEAR 2000 ISSUES
The Company believes that the successful operation of the Company's
business is dependent in part on its computerized inventory management, order
processing and distribution systems and other computer software programs and
operating systems. These systems will require modification, improvement or
replacement as the Company grows. The Company may, from time to time,
experience delays, complications or expenses in integrating and operating these
systems, any of which could have a material adverse effect upon the Company's
business, financial condition and results of operations.
The Company has implemented a Year 2000 program to ensure that its
computer systems and applications will function properly beyond 1999. While the
Company believes that it has allocated adequate resources for this purpose and
expects its Year 2000 date conversion program to be completed successfully on a
timely basis, no assurance can be given that these efforts will be successful
or that such
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efforts will be completed on a timely basis. The failure to successfully
complete such implementation on a timely basis may cause interruptions in
operations which could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, although
the Company is discussing with its vendors and customers the possibility of any
interface difficulties which may affect the Company, the ability of third
parties with whom the Company transacts business to address their Year 2000
issues is outside the Company's control and no assurance can be given that such
interface difficulties will not arise or that such difficulties will not have a
material adverse effect on the Company's business, financial condition or
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
RISK OF DOING BUSINESS IN FOREIGN COUNTRIES; RISK OF IMPORT LIMITATIONS
The Company's products are principally manufactured in the PRC both at the
Company's manufacturing facility and by independent manufacturers. The Company
has also engaged independent manufacturers in Indonesia, Malaysia, Mexico,
Thailand and the Philippines. The Company does not have long-term contracts
with any of its independent manufacturers. Manufacturing in the PRC and in
other foreign countries is subject to a number of risks, including but not
limited to transportation delays and interruptions, political and economic
disruptions, the imposition of tariffs and import and export controls, loss of
property or revenue from expropriation or political demands, and changes in
governmental policies. While the Company to date has not experienced any
material adverse effects due to such risks, there can be no assurance that such
events will not occur in the future and possibly result in increases in costs
and delays of, or interference with, product deliveries resulting in losses of
sales and damage to customer relationships.
Generally, the PRC and other countries in which the Company does business
may not offer legal mechanisms to redress an unfair trade practice, contract
breach, or other problem requiring the enforcement of contractual provisions or
other redress. In particular, the PRC does not have a well-developed,
consolidated body of law governing foreign investment enterprises, and the
administration of laws and regulations by government agencies may be subject to
considerable discretion and variation and administrative review and approval by
various national and local agencies of the PRC government. As a result, in the
event of any damage to the Company resulting from the breach of a contract, the
failure to fulfill manufacturing commitments, the taking of Company property,
or other similar event creating a loss for the Company or interruption of its
business, there may not be an adequate avenue of recourse against the parties
responsible for such damages.
MOST FAVORED NATION RISK
The Company has a significant amount of its assets in the PRC, primarily
consisting of inventory, equipment and molds. The supply and cost of products
manufactured in the PRC can be adversely affected, among other reasons, by
changes in foreign currency exchange rates, increased import duties, imposition
of tariffs, imposition of import quotas, interruptions in sea or air
transportation and political or economic changes. Presently, products imported
into the United States from the PRC are subject to favorable duty rates based
on the "Most Favored Nation" status of the PRC ("MFN Status"). MFN Status is
reviewed on an annual basis by the United States President and Congress and was
renewed in June 1997.
If MFN Status for goods produced in the PRC were removed, there would be a
substantial increase in tariffs imposed on goods of PRC origin entering the
United States, including those manufactured by the Company, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company produces products in other
locations, at the present time, the Company plans to continue its production
primarily in the PRC.
CURRENCY RISKS
Although the Company currently effects substantially all of its
transactions in United States dollars and most of its sales are made in the
United States, in those situations in which transactions are in foreign
currencies the Company is exposed to risks such as currency instability,
currency exchange
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losses and the ability to repatriate earnings under existing exchange control
laws. Moreover, the Company's operations in the PRC involve manufacturing and
other business operations that rely upon a currency other than the United
States dollar. The Company does not currently engage in hedging, and no
assurance can be given that an effective currency hedging policy could offset
these currency risks.
GOVERNMENT REGULATION
Most of the Company's customers (as well as several state and local
authorities) require that the Company's products meet the safety standards of
the Underwriters Laboratories, Inc. The Company's telephones and clock radios
sold for use in the United States must be registered with and approved by the
United States Federal Communications Commission (the "FCC") and its portable
microwave ovens must be registered with and approved by the United States Food
and Drug Administration (the "FDA"). Products sold in Canada must comply with
the standards of the Canadian Standards Association. In addition, the Company's
products must meet the applicable safety standards imposed by the other
countries in which they are sold. The Company is subject to numerous tariffs,
duties, charges and assessments on the import of its products. The Company
retains import agencies and expediters to facilitate the import of its products
and the payment of these charges and duties. Although these duties and charges
have not substantially affected the Company's ability to market its products
for delivery in the United States and elsewhere, regulations affecting these
charges and duties are subject to change, which could have the effect of
increasing the cost of goods imported and sold by the Company. See
"Business--Regulation."
NO DIVIDENDS
The Company presently intends to retain all earnings, if any, for the
operation and development of its business and does not anticipate paying any
cash dividends on the Common Stock in the foreseeable future. Any future
determination as to the payment of cash dividends will be at the discretion of
the Board of Directors and will depend on a number of factors, including future
earnings, capital requirements, the financial condition and prospects of the
Company, any restrictions under credit agreements existing from time to time,
and such other factors as the Company's Board of Directors may deem relevant.
In addition, the Company's new credit facility will contain covenants that
restrict the Company from making certain capital and other distributions. The
Company has invested, and intends to continue to invest, the earnings of its
foreign subsidiaries in foreign operations indefinitely, rather than distribute
them to the Company. As a result, U.S. income taxes have not been provided for
on such undistributed earnings. At December 31, 1996 and 1997, the cumulative
amount of undistributed earnings on which the Company had not recognized United
States income taxes was approximately $2.2 million and $7.5 million,
respectively. See "Use of Proceeds" and "Dividend Policy."
CONTROL BY PRINCIPAL SHAREHOLDERS
Upon completion of the Offering, the current shareholders of the Company
will own approximately % of the outstanding shares of Common Stock
(approximately % if the Underwriters' over-allotment option is exercised
in full). Included in this percentage are shares of Common Stock owned by Joel
Newman and Windmere, who in the aggregate will own approximately % of the
outstanding shares of Common Stock (approximately % if the Underwriters'
over-allotment option is exercised in full). Accordingly, the Company's current
shareholders, as a group, will have the ability to control all matters
requiring shareholder approval, including the election of the Company's
directors and any amendments to the Company's Amended and Restated Articles of
Incorporation (the "Articles") and Amended and Restated Bylaws (the "Bylaws"),
and to control the business of the Company. Such control could preclude any
acquisition of the Company and could adversely affect the market price of the
Common Stock. See "Principal and Selling Shareholders" and "Description of
Capital Stock." In addition, the Company leases an aircraft from a corporation
wholly-owned by Mr. Newman, and Windmere provides the Company with certain
administrative services with respect to its PRC manufacturing facility. See
"Certain Transactions."
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
shares of Common Stock, of which the shares sold in the Offering (plus
an additional shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares owned by an
affiliate of the Company, which will be subject to the resale limitations of
Rule 144 ("Rule 144") under the Securities Act. The remaining shares
(the "Restricted Shares") are subject to certain restrictions described below.
Holders of of the Restricted Shares will be eligible to sell a portion of
such shares pursuant to Rule 144 beginning 90 days after the date of this
Prospectus, subject to the manner of sale, volume, notice and information
requirements of Rule 144. Notwithstanding the eligibility of certain shares to
be sold following the completion of the Offering, such shares are subject to
certain additional restrictions on transfer pursuant to certain agreements
described below.
The Company and its executive officers, directors, and the Selling
Shareholders have agreed with Warburg Dillon Read LLC (the "Lock-up
Agreements") that they will not sell, contract to sell, pledge, grant any
option to purchase, transfer or otherwise dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into, or exchangeable
for, Common Stock or warrants or other rights to purchase or acquire shares of
Common Stock or permit the registration of shares of Common Stock, for a period
of 180 days after the date of this Prospectus, without the prior written
consent of Warburg Dillon Read LLC, except, without such consent, the Company
may issue and register, and the Company and the Selling Shareholders may sell,
the shares of Common Stock offered in the Offering (including the Underwriters'
over-allotment option). Warburg Dillon Read LLC, in its sole discretion,
without notice, may release some or all of the shares subject to Lock-up
Agreements from time to time. Sales of substantial amounts of Common Stock in
the public market, or the availability of such shares for future sale, could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise additional capital through an offering of its
equity securities. See "Shares Eligible for Future Sale" and "Underwriting."
In addition, 1,000,000 shares of Common Stock have been reserved for
issuance under the Company's 1997 Stock Option Plan (the "Plan"), 649,000 of
which are currently subject to outstanding options. With respect to 618,700 of
such options which were granted February 28, 1997, (i) as of the date of this
Prospectus, 123,740 will be vested, and (ii) 123,740 will vest on each February
28, commencing February 28, 1999. With respect to 29,900 of such options, 5,980
will vest on each anniversary of October 27, 1997, the date they were granted.
With respect to 400 of such options, 80 will vest on each anniversary of
November 30, 1997, the date they were granted. Once vested, the shares issuable
upon the exercise all the foregoing options would be eligible for resale
subject to compliance with Rule 701 ("Rule 701") under the Securities Act, the
stock option agreements and the Lock-up Agreements with Warburg Dillon Read LLC
described above. Under the stock option agreements pursuant to which the
options were granted, one fifth of the options granted to each employee vest on
each anniversary of the date of grant; provided, however, that the exercise of
any of the options or the sale or other disposition of any shares of Common
Stock acquired pursuant to the exercise of such options for a period of 180
days after the date of this Prospectus without the prior written consent of the
Underwriters is prohibited. Additionally, the Company intends to file
registration statements under the Securities Act to register all shares of
Common Stock subject to then outstanding stock options and Common Stock
issuable pursuant to the Plan. The Company expects to file these registration
statements following the closing of the Offering, and such registration
statements are expected to become effective upon filing. Shares covered by
these registration statements will thereupon be eligible for sale in the public
markets, subject only to the limitations of Rule 144 that are applicable to
affiliates, the Lock-up Agreements and the exercise and vesting schedule in the
respective stock option agreements. See "Management--Stock Option Plan" and
"Shares Eligible for Future Sale."
Upon the expiration of 180 days after the date of this Prospectus,
Windmere and Joel Newman, the Company's Chairman, Chief Executive Officer and
President, together will hold an aggregate of shares ( shares if
the Underwriters' over-allotment option is exercised in full), as well as
options held by Mr. Newman to acquire 175,000 shares, and each will have the
right to (i) request that the Company register, as expeditiously as possible,
any or all of the Common Stock then owned by such
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shareholder, including all shares of Common Stock issuable pursuant to any
derivative securities of the Company then held by such shareholder and (ii)
include such shares of Common Stock in registrations proposed to be effected by
the Company. See "Shares Eligible for Future Sale--Registration Rights."
Following the Offering, the Company may issue its Common Stock from time
to time in connection with the acquisition of the assets or capital stock of
acquisition targets. Such securities may be issued in registered transactions
or in transactions exempt from registration under the Securities Act.
REPAYMENT OF LOANS TO SHAREHOLDERS AND AFFILIATES
As a result of the Offering, two of the Company's shareholders will
receive sufficient funds to enable them to repay all of their indebtedness to
the Company. Windmere has agreed to repay a promissory note in the principal
amount of $2.0 million due April 15, 2001 and bearing interest at the rate of
8.0% per annum that was issued to the Company as consideration for the purchase
of Common Stock. Joel Newman, the Company's Chairman, Chief Executive Officer
and President, has agreed to repay an approximately $224,000 loan from the
Company that bears interest at the rate of 7.0% per annum and is payable on
demand and an approximately $330,000 loan made by the Company to a corporation
wholly-owned by Mr. Newman. See "Capitalization," "Management" and "Certain
Transactions."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there will be no public market for the Common Stock
and there can be no assurance that an active public market for the Common Stock
will develop or, if a trading market does develop, that it will continue after
the Offering. The initial public offering price will be determined by
negotiations among the Company, the Selling Shareholders and the Underwriters.
See "Underwriting" for a description of the factors considered in determining
the initial public offering price. The market price of the Common Stock could
be subject to significant fluctuations in response to variations in financial
results or announcements of material events by the Company or its competitors.
Quarterly operating results of the Company, changes in general conditions in
the economy or the consumer electronics industry or other developments
affecting the Company or its competitors could cause the market price of the
Common Stock to fluctuate substantially. In addition, the equity markets have,
on occasion, experienced significant price and volume fluctuations that have
affected the market prices for many companies' securities and that have often
been unrelated to the operating performance of these companies. Any such
fluctuations that occur following completion of the Offering may adversely
affect the market price of the Common Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of Florida Law and the Articles and Bylaws of the
Company may make a change in control of the Company more difficult to effect,
even if a change in control were in the shareholders' interest. In addition,
the Articles allow the Board of Directors to determine the terms of preferred
stock which may be issued by the Company without approval of the holders of the
Common Stock, and thereby enable the Board of Directors to inhibit the ability
of the holders of the Common Stock to effect a change in control of the
Company. See "Description of Capital Stock--Provisions with Possible
Anti-Takeover Effect."
Employment agreements between the Company and each of Joel Newman, the
Company's Chairman, Chief Executive Officer and President, Hatch Masuda, the
Company's Senior Vice President, Design and Product Development, and Leonor
Schuck, the Company's Vice President, Finance and Chief Financial Officer,
require the Company to pay certain amounts upon termination of employment
following certain events, including a change in control of the Company. Such
agreements may inhibit a change in control of the Company. See
"Management--Employment Agreements and Termination of Employment and Change in
Control Arrangements."
16
<PAGE>
BROAD DISCRETION OF MANAGEMENT IN APPLYING PROCEEDS OF OFFERING
The Company intends to use the net proceeds of the Offering for repayment
of certain indebtedness, possible future acquisitions and general corporate
purposes. To the extent proceeds are used for purposes other than the repayment
of debt, the Company's management will have broad discretion in applying the
net proceeds of the Offering. See "Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of shares of Common Stock in the Offering will experience
immediate and substantial dilution of approximately $ in the net
tangible book value per share of Common Stock from the initial public offering
price. See "Dilution."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered by the Company (at an assumed initial public offering
price of $ per share, the midpoint of the range of estimated offering
prices set forth on the cover page hereof), after deducting underwriting
discounts and commissions and estimated offering expenses, are estimated to be
approximately $ million. The Company will not receive any of the proceeds
from the sale of any Common Stock by the Selling Shareholders. Of the net
proceeds to the Company, (i) approximately $ million will be used to repay
a portion of the Company's outstanding bank indebtedness, (ii) approximately
$11.0 million will be used to repay the outstanding indebtedness of two of its
wholly-owned Hong Kong subsidiaries to an affiliate of Windmere, and (iii) the
remaining net proceeds will be applied to fund possible future acquisitions and
for general corporate purposes. See "Certain Transactions." There are no
present understandings, commitments or agreements with respect to any future
acquisition. Pending the application of the remaining net proceeds, the Company
will invest such proceeds in money market funds or other short-term, investment
grade, interest bearing securities.
As of June 26, 1998, the outstanding balance under the Company's revolving
credit facility consisted of $29.8 million, bearing interest at the rate of
8.5% per annum and payable on June 8, 2001. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Certain Transactions."
Indebtedness of the Company's Hong Kong subsidiaries to be repaid consists
of approximately $11.0 million bearing interest at 1.0% above the prime rate of
NationsBank, National Association (South) (which prime rate was 8.5% as of
March 31, 1998), approximately $6.2 million of which is payable in October
2003, approximately $1.8 million of which is payable in 24 equal quarterly
installments from 1998 through 2003 and approximately $3.0 million of which is
payable on demand, but not later than October 21, 2003.
Joel Newman, the Company's Chairman, Chief Executive Officer and
President, has agreed with the Company to use a portion of the net proceeds
from his sale of Common Stock in the Offering to repay in full an approximately
$224,000 loan made by the Company to him and an approximately $330,000 loan
made by the Company to a corporation wholly-owned by Mr. Newman. The $224,000
loan bears interest at 7.0% per annum, is unsecured and is payable on demand.
The $330,000 loan does not bear interest and is unsecured and payable on
demand. Windmere has agreed with the Company to use a portion of the net
proceeds from its sale of Common Stock in the Offering to repay in full its
8.0% promissory note due April 15, 2001 in the principal amount of $2.0
million, payable to the Company. See "Capitalization." Windmere issued such
promissory note to the Company in consideration for its subscription for Common
Stock in April 1996. See "Certain Transactions" and "Principal and Selling
Shareholders."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company presently intends to retain all earnings, if any, for the
operation and development of its business and does not anticipate paying any
cash dividends on the Common Stock in the foreseeable future. Any future
determination as to the payment of cash dividends will be at the discretion of
the Board of Directors and will depend on a number of factors, including future
earnings, capital requirements, the financial condition and prospects of the
Company, any restrictions under credit agreements existing from time to time,
and such other factors as the Company's Board of Directors may deem relevant.
In addition, the Company's new credit facility will contain covenants that
restrict the Company from making certain capital and other distributions.
The Company has invested, and intends to continue to invest, the earnings
of its foreign subsidiaries in foreign operations indefinitely, rather than
distribute them to the Company. As a result, U.S. income taxes have not been
provided for on such undistributed earnings. At December 31, 1996 and 1997, the
cumulative amount of undistributed earnings on which the Company had not
recognized United States income taxes was approximately $2.2 million and $7.5
million, respectively.
18
<PAGE>
CAPITALIZATION
The following table sets forth the borrowings under lines of credit,
current portion of long-term debt and capitalization of the Company as of March
31, 1998 and as adjusted to reflect the net proceeds from the sale by the
Company of shares of Common Stock offered hereby (at an assumed
offering price of $ per share (the midpoint of the range of estimated
offering prices set forth on the cover page hereof) and after deducting
underwriting discounts and commissions and estimated offering expenses), and
the application of the estimated net proceeds therefrom as described under "Use
of Proceeds." This table should be read in conjunction with the Consolidated
Financial Statements and the notes thereto included elsewhere in this
Prospectus. See also "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
----------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Borrowing under line of credit ............................................... $ 18,576 $
Current portion of notes payable to affiliate ................................ 330
Notes payable to shareholders ................................................ 7,135
-------- ----
Total short-term debt ........................................................ $ 26,041 $
======== ====
Long-term debt:
Notes payable to affiliate, long-term portion ................................ $ 7,785 $
Shareholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none issued
and outstanding ............................................................ -- --
Common stock, $0.01 par value; 50,000,000 shares authorized, 10,000,000
shares outstanding; shares outstanding pro forma as adjusted(2) ............ 100
Additional paid-in capital ................................................... 9,900
Promissory notes due on purchase of Common Stock(3) .......................... (5,000) --
Retained earnings ............................................................. 6,791
-------- ----
Total shareholders' equity .................................................. 11,791
-------- ----
Total capitalization ........................................................ $ 19,576 $
======== =====
</TABLE>
- ----------------
(1) Pro forma adjustment reflects the payment of certain share subscription
receivables. See note (3) below.
(2) Does not include: (i) an aggregate of 649,000 shares of Common Stock
reserved for issuance upon exercise of outstanding options under the Plan
and (ii) an aggregate of 351,000 shares of Common Stock reserved for
issuance upon exercise of options available for grant under the Plan. See
"Management--Stock Option Plan" and "Description of Capital Stock--Options
to Purchase Common Stock."
(3) Represents certain share subscription receivables, consisting of promissory
notes in the aggregate principal amount of $5.0 million issued to the
Company by Windmere as consideration for the purchase of Common Stock. See
"Certain Transactions." One promissory note, in the principal amount of
$3.0 million, has been repaid in full, and Windmere has agreed to repay in
full the other promissory note, in the principal amount of $2.0 million,
with a portion of the net proceeds to Windmere from the sale of Common
Stock in the Offering. See "Use of Proceeds" and "Principal and Selling
Shareholders."
19
<PAGE>
DILUTION
Purchasers of Common Stock offered hereby will experience an immediate and
substantial dilution in the net tangible book value of the Common Stock from
the initial public offering price. At March 31, 1998, the net tangible book
value of the Company was $8.3 million, or $0.83 per share. Net tangible book
value per share is determined by dividing the Company's net tangible book value
(tangible assets less total liabilities), by the number of shares of Common
Stock outstanding. Without taking into account any changes in net tangible book
value after March 31, 1998, other than to give effect to (i) the issuance and
sale of the shares of Common Stock offered by the Company hereby (at an
assumed initial public offering price of $ per share, the midpoint of the
range of estimated offering prices set forth on the cover page hereof) after
deducting underwriting discounts and commissions and estimated offering
expenses to be paid by the Company and (ii) the application of the net proceeds
to repay indebtedness as set forth in "Use of Proceeds," the net tangible book
value of the Company (assuming payment in full of certain share subscription
receivables, see note (a) below and "Certain Transactions") would have been
$ or $ per share. This represents an immediate increase in net
tangible book value of $ per share to existing shareholders and an
immediate dilution in net tangible book value of $ per share to new
investors purchasing shares of Common Stock in the Offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ................................. $
Net tangible book value per share at March 31, 1998(1) ........................ $ 0.83
Increase in net tangible book value per share attributable to new investors ...
------
Pro forma net tangible book value per share after the Offering ..................
--------
Dilution per share to new investors ............................................. $
========
</TABLE>
- ----------------
(1) Does not include: (i) an aggregate of 649,000 shares of Common Stock
reserved for issuance upon exercise of outstanding options under the Plan
and (ii) an aggregate of 351,000 shares of Common Stock reserved for
issuance upon exercise of options available for grant under the Plan. To
the extent that such options are eventually exercised, there may be
further dilution to new investors. See "Management--Stock Option Plan,"
"Description of Capital Stock--Options to Purchase Common Stock" and
"Shares Eligible for Future Sale." Assuming the Underwriters'
over-allotment option is exercised in full, existing shareholders will
hold shares, or % of the total number of shares outstanding after the
Offering, and the number of shares held by new investors will increase by
shares to shares, or % of the total shares of Common Stock
outstanding after the Offering. See "Principal and Selling Shareholders."
The following table summarizes as of March 31, 1998, the difference
between the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share paid by existing
shareholders and new investors purchasing shares in this Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(a) ......... % $ % $
New investors ....................
----- ----- ------ -----
Total .......................... 100.0% 100.0%
===== ===== =====
</TABLE>
- ----------------
(a) Assuming payment in full of certain share subscription receivables,
consisting of promissory notes in the aggregate principal amount of $5.0
million issued to the Company by Windmere as consideration for the
purchase of Common Stock. See "Certain Transactions." One promissory note,
in the principal amount of $3.0 million due on April 15, 1998, has been
repaid in full, and Windmere has agreed to repay in full the other
promissory note, in the principal amount of $2.0 million, with a portion
of the net proceeds to Windmere from the sale of Common Stock in the
Offering. See "Use of Proceeds" and "Principal and Selling Shareholders."
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Selected Consolidated Financial Data for the years ended
December 31, 1995, 1996 and 1997 and as of December 31, 1995, 1996 and 1997 are
derived from the Consolidated Financial Statements of the Company, which have
been audited by Ernst & Young LLP, independent certified public accountants,
except for the financial statements of Durable Electronics Industries Limited,
a consolidated subsidiary of the Company, which were audited by Grant Thornton,
independent auditors. The following Selected Consolidated Financial Data for
the years ended December 31, 1993 and 1994 and as of December 31, 1993 and 1994
present the combination of the financial statements of the Company's
predecessors, which financial statements have been audited by a
nationally-recognized firm of independent certified public accountants. The
income statement data for the three months ended March 31, 1997 and 1998 and
the balance sheet data as of March 31, 1998 have been derived from unaudited
interim consolidated financial statements contained elsewhere herein, which in
the opinion of management, include all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the information set
forth therein. The Selected Consolidated Financial Data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales ............................... $ 9,228 $ 9,490 $ 13,353 $ 39,060 $ 208,417
Cost of products sold ................... 7,602 8,104 11,993 35,172 186,433
------------ ------------ ------------ ------------ ------------
Gross profit ............................ 1,626 1,386 1,360 3,888 21,984
Selling expenses(1) ..................... 476 618 846 1,285 10,533
General and administrative expenses ..... 690 791 1,155 1,842 4,598
Write-off of advances to affiliate ...... -- -- -- 980 --
------------ ------------ ------------ ------------ ------------
Total expenses .......................... 1,166 1,409 2,001 4,107 15,131
------------ ------------ ------------ ------------ ------------
Income (loss) from operations ........... 460 (23) (641) (219) 6,853
Other (income) expense:
Interest expense ....................... 33 88 307 201 1,763
Interest and other income .............. (207) (117) (197) (587) (581)
------------ ------------ ------------ ------------ ------------
Total other (income) expense ............ (174) (29) 110 (386) 1,182
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes ....... 634 6 (751) 167 5,671
Income tax benefit ...................... -- -- -- (135) (351)
------------ ------------ ------------ ------------ ------------
Net income (loss) ....................... $ 634 $ 6 $ (751) $ 302 $ 6,022
============ ============ ============ ============ ============
Net income (loss) per common share:
Basic and diluted ...................... $ 0.06 $ -- $ (0.08) $ 0.03 $ 0.60
Weighted average number of common
shares outstanding:
Basic .................................. 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
Diluted(2) ............................. 10,000,000 10,000,000 10,000,000 10,000,000 10,093,024
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1997 1998
-------------- --------------
<S> <C> <C>
STATEMENT OF OPERATIONS:
Net sales ............................... $ 8,420 $ 38,900
Cost of products sold ................... 7,210 35,358
------------ ------------
Gross profit ............................ 1,210 3,542
Selling expenses(1) ..................... 543 1,728
General and administrative expenses ..... 867 1,986
Write-off of advances to affiliate ...... -- --
------------ ------------
Total expenses .......................... 1,410 3,714
------------ ------------
Income (loss) from operations ........... (200) (172)
Other (income) expense:
Interest expense ....................... 53 735
Interest and other income .............. (122) (128)
------------ ------------
Total other (income) expense ............ (69) 607
------------ ------------
Income (loss) before income taxes ....... (131) (779)
Income tax benefit ...................... (201) (285)
------------ ------------
Net income (loss) ....................... $ 70 $ (494)
============ ============
Net income (loss) per common share:
Basic and diluted ...................... $ 0.01 $ (0.05)
Weighted average number of common
shares outstanding:
Basic .................................. 10,000,000 10,000,000
Diluted(2) ............................. 10,000,000 10,309,350
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
------------------------------------------------- ----------
1993 1994 1995 1996 1997 1998
--------- --------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ......... $1,432 $1,877 $ 434 $ 2,672 $ 2,031 $ 2,210
Current assets .................... 2,577 6,158 5,318 9,804 62,673 55,468
Total assets ...................... 2,800 6,321 5,492 10,372 68,593 62,056
Total debt ........................ 875 3,438 3,881 28 37,167 33,826
Total shareholders' equity ........ 1,706 1,712 960 6,263 12,285 11,791
</TABLE>
- ---------------
(1) Selling expenses in 1995, 1996, 1997 and the three months ended March 31,
1998 included freight costs of $49,000, $20,000, $4.5 million and
$124,000, respectively. Approximately $4.3 million of such freight costs
in 1997 were due primarily to the Company's decision to airfreight
products to customers during the 1997 holiday season. The additional
airfreight costs resulted mainly from delays in bringing the Company's PRC
manufacturing facility to required production levels.
(2) Includes the impact of 649,000 shares of Common Stock issuable upon the
exercise of outstanding stock options granted under the Company's 1997
Stock Option Plan. See Note 10 to the Company's Consolidated Financial
Statements included elsewhere in this Prospectus.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION ON THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW AND HIGHLIGHTS
The Company derives substantially all of its revenues from sales of
consumer electronic products, including audio, video and telecommunications
products, such as televisions, VCRs, home audio products and telephones, as
well as portable microwave ovens. The Company currently offers products under
licensed and owned brand names, including White-Westinghouse, Admiral, Philco,
Craig and Newtech, and also under private labels. The Company sells its
products to mass merchandisers, including Kmart and Wal-Mart, and to other
retailers, including Rite-Aid, Zellers and Ames.
Net sales represent gross sales after product returns and warranty claims.
For 1995, 1996, 1997 and the three months ended March 31, 1998, product returns
approximated 3.8%, 0.8%, 1.6% and 2.3%, respectively, of gross sales. In 1995,
1996, 1997 and the three months ended March 31, 1998, approximately 97.0%,
83.0%, 75.0% and 73.0%, respectively, of the Company's gross sales were made
under net sale arrangements, whereby the Company's customers are responsible
for product returns, which cannot be returned to the Company. The Company plans
to maintain or increase the percentage of sales that are on a net basis, but
there can be no assurance that the Company will be successful in maintaining or
increasing such percentage. Any increase in the rate of product returns and
warranty claims would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's revenues are generated principally from three sources:
(i) DOMESTIC SALES. Domestic sales are made to customers located in the
United States and Canada from the Company's inventories maintained at U.S.
warehouse facilities. The Company's strategy of selling out of U.S. warehouses
enables it to provide timely delivery. The Company purchases products overseas
for its own account and warehouses the products in public warehouses in Los
Angeles, California, Memphis, Tennessee, Little Rock, Arkansas, and Miami,
Florida, and in warehouse space at its main office in Miami, Florida. The
Company is responsible for costs of shipping, insurance, customs clearance and
duties, storage and distribution related to such warehouse products and,
therefore, domestic sales command higher sales prices than import sales.
Domestic sales comprised approximately 36% and 30% of the Company's total sales
in 1997 and the three months ended March 31, 1998, respectively.
(ii) IMPORT SALES. Import sales are made by delivering products FOB
shipping point. Import sales are made to customers located within or outside
the United States who pay pursuant to their own international, irrevocable,
transferable letters of credit or on open credit terms with the Company. The
Company has the right to draw against the customer's letter of credit, if any,
once the products are delivered to the port of embarkation and the appropriate
documentation has been presented to the issuing bank within the time periods
established by the letter of credit. Import sales comprised approximately 26%
and 32% of the Company's total sales in 1997 and the three months ended March
31, 1998, respectively.
(iii) THIRD-PARTY MANUFACTURER SALES. Third-party manufacturer sales are
made in certain circumstances under the Kmart Agreement pursuant to which the
Company appointed Kmart as the exclusive "discount department store" in the
United States to market and sell certain products under the White-Westinghouse
Trademark. See "Business--Brand Portfolio--White-Westinghouse" and "--Strategic
Alliances." Under the terms of the Kmart Agreement, the Company supplies Kmart,
either through the Company or through other manufacturers, with a broad range
of audio, video and
22
<PAGE>
telecommunications products. Kmart has the right to procure the manufacture of
products from other manufacturers under the White-Westinghouse Trademark on
behalf of the Company. In such cases, Kmart has the option of paying the
purchase price to third-party manufacturers directly or making such payment to
the Company, in which case the Company pays the third-party manufacturers. In
addition, Kmart pays the Company a percentage of such purchase price. In the
event that Kmart fails to pay a third-party manufacturer, the Company must make
such payment. Because the Company is responsible for payment to third-party
manufacturers under the Kmart Agreement, the Company records the price paid to
third-party manufacturers plus the percentage payable to the Company as revenue
and records the price paid to third-party manufacturers as cost of products
sold. Gross profit margins on these sales are typically lower than those
resulting from domestic or import sales. Third-party manufacturer sales
comprised approximately 38% of the Company's total sales in each of 1997 and
the three months ended March 31, 1998, respectively.
Cost of products sold includes both the cost of goods purchased from
suppliers and manufacturing costs associated with the Company's PRC
manufacturing facility. The Company's PRC manufacturing facility accounted for
approximately 7.1% of the Company's product supply in 1997 and 14.7% during the
three months ended March 31, 1998. The Company expects to source a higher
percentage of its products from this facility in 1998 than it did in 1997. Cost
of products sold also includes freight and duties for domestic sales. Included
in cost of products sold are product design and development costs. The
Company's product design and development activities generally involve the
modification and application of available technologies. Product design and
development costs are those costs typically associated with the Company's
cosmetic and feature design and testing of its products. The Company's product
design and development expenditures were approximately $220,000, $359,000,
$727,000 and $147,000 for the years ended December 31, 1995, 1996, 1997 and the
three months ended March 31, 1998, respectively.
The Company's selling expenses are composed of both variable expenses,
which generally correlate to sales levels, such as commissions, freight and
royalty expenses, and non-variable expenses, including customary selling
expenses and the cost of attendance at the annual Consumer Electronics Show and
other trade shows. Increases in royalty expenses accounted for the largest
portion of the increase in selling expenses in each of the last three years and
the three months ended March 31, 1998, except for the $4.3 million increase in
freight costs in 1997, which was primarily attributable to the Company's
decision to airfreight products to customers during the 1997 holiday season.
See "--1997 Compared to 1996."
General and administrative expenses include office and warehouse space and
administrative payroll, among other customary general and administrative
expenses. Increases in salary expenses due to an increase in the number of
employees as a result of the growth in operations accounted for the largest
portion of the increase in general and administrative expenses in each of the
last three years and the three months ended March 31, 1998.
The Company attempts to order products and maintain inventory controls to
minimize the costs and risks of inventory obsolescence and the retention of
significant inventories, both of which result in financing and other costs.
This inventory management strategy is frequently difficult to implement. Such
difficulty is increased by the relatively long product development and ordering
cycle, the unpredictability of consumer demand and the seasonal nature of the
Company's business. Most of the Company's sales take place in the third and
fourth quarters of the calendar year, and the Company must build its product
inventory well in advance of any sales of such inventory during the year-end
buying season. Maintaining inventory levels to meet normal demands throughout
the year is critical, given the Company's capital requirements and limitations.
Historically, the Company's Hong Kong operations have generated net income
while its U.S. operations have generated losses from operations because the low
volume of sales in the United States were insufficient to cover the selling
expenses and general and administrative expenses of the Company's U.S.
operations. See Note 13 to the Consolidated Financial Statements. In addition,
U.S.
23
<PAGE>
operations would have generated net income in 1997 had the Company not incurred
approximately $4.3 million in additional freight costs due primarily to its
decision to airfreight products to customers during the 1997 holiday season.
See "--1997 Compared to 1996."
The Company's earnings in 1997 were from foreign operations where
generally the Company is not required to pay income taxes. U.S. income taxes
have not been provided on the undistributed earnings of these foreign
operations because the Company intends to reinvest these earnings in foreign
operations indefinitely.
The Company effected a 10,000-for-one stock split as of April 3, 1998 in
connection with the merger with and into the Company of one of its affiliates,
resulting in 10,000,000 shares of Common Stock outstanding. The shareholders
and their percentage ownership of the Company and such affiliate at the time of
the merger were identical. As a result, this transaction constituted a merger
of entities under common control and will be accounted for using the
pooling-like method of accounting.
CERTAIN RELATIONSHIPS.
Windmere-Durable, through its wholly-owned subsidiary Windmere, owns 50%
of the issued and outstanding Common Stock of the Company and 50% of the issued
and outstanding common stock of Salton. David Friedson, the Chairman, Chief
Executive Officer and President of Windmere-Durable, and Arnold Thaler, a
director and senior vice president of Windmere-Durable, are each directors of
the Company. Mr. Friedson and Harry Schulman, a senior vice president of
Windmere-Durable, are each directors of Salton. Salton and Windmere-Durable
have entered into an agreement pursuant to which Salton has the right to
purchase all of the shares of its common stock held by Windmere. Windmere-
Durable has advised the Company that on June 26, 1998, it received written
notice from Salton that it intends to purchase all of the shares of its common
stock owned by Windmere; however, there can be no assurance that Salton will
acquire any of the shares of its common stock held by Windmere. Pursuant to
such agreement, if Salton fails to consummate the purchase of such shares on or
prior to October 30, 1998, then Windmere will have the right to acquire all of
the shares of Salton common stock that it does not own. There can be no
assurance that Windmere will acquire any of the shares that it does not own.
The Company licenses the White-Westinghouse Trademark from WCI for use in
the sale of various audio, video and telecommunications products, as well as
portable microwave ovens, in the United States and Canada and licenses the
Philco trademark from WCI for use in the sale of portable microwave ovens in
the United States and Canada. See "Business--Brand Portfolio." The Company and
Kmart have entered into the Kmart Agreement pursuant to which the Company has
appointed Kmart as the exclusive "discount department store" to market and sell
audio, video and telecommunications products in the United States under the
White-Westinghouse Trademark. See "Business--Strategic Alliances." Salton
licenses the White-Westinghouse Trademark from WCI for use in the sale of
kitchen housewares, personal care products, fans, heaters and electrical air
cleaners and humidifiers in the United States and Canada. Salton has entered
into the Salton Agreement with Kmart pursuant to which Salton has appointed
Kmart as the exclusive "discount department store" for the sale of such
products in the United States under the White-Westinghouse Trademark.
The Company has two wholly-owned subsidiaries, Newtech (Hong Kong)
Limited, a Hong company, and Newtech Electronics Industries Limited, a Hong
Kong company ("NEIL"). In November 1997, NEIL acquired all of the outstanding
capital stock of Durable Electronics Industries Limited, a Hong Kong company
("DEI"), from Durable Electrical Metal Factory Limited, a Hong Kong company
("DEM") which is wholly-owned by Windmere-Durable. DEI operates the Company's
PRC manufacturing facility. Windmere-Durable provides the Company with certain
administrative services with respect to the PRC manufacturing facility for a
monthly management fee of approximately $11,800. For example, pursuant to this
arrangement, Windemere-Durable or its affiliates purchase certain raw materials
and other goods and services and pay certain accounts payable and collect
certain accounts receivable on behalf of the Company and its subsidiaries,
including DEI. Amounts paid by Windmere-Durable or its affiliates on behalf of
the Company are reimbursed by the Company. See "Certain
Transactions--Windmere--Acquisition of PRC Manufacturing Facility from
Windmere."
24
<PAGE>
ROYALTY PAYMENTS UNDER LICENSE AGREEMENTS.
The Company licenses certain brand names under which it markets most of
its products. These licenses are granted pursuant to license agreements which
generally provide for royalty payments based on the value of the goods sold as
well as minimum royalty amounts and sales of trademarked products.
WHITE-WESTINGHOUSE. The Company has an exclusive license from WCI to sell
consumer audio, video and telecommunications products in the United States and
Canada under the White-Westinghouse Trademark. The initial term of the
agreement is through December 31, 1998 and may be extended at the Company's
option for up to 14 one-year renewal terms through December 31, 2012. The
Company makes royalty payments to WCI equal to a percentage of the net invoice
value of the products sold by the Company under the agreement. In addition, the
Company must make minimum annual royalty payments to WCI, payable in quarterly
installments. The royalty payments on the products sold by the Company during
the initial term have totaled approximately $3.3 million and have exceeded the
applicable minimums by more than 600%. See "Business--Brand Portfolio--White-
The Company also has an exclusive license from WCI to sell portable
microwave ovens in the United States and Canada under the White-Westinghouse
Trademark. The initial term of the agreement is through December 31, 2003 and
may be extended at the Company's option for up to six two-year renewal terms
through December 31, 2015. The Company makes royalty payments to WCI equal to a
percentage of the net invoice value of the products sold by the Company under
the agreement. In addition, the Company must make minimum annual royalty
payments to WCI, payable in quarterly installments commencing in the first
quarter of 1999. The royalty payments on the products sold by the Company
during the initial term have totaled approximately $17,000. See
"Business--Brand Portfolio--White-Westinghouse."
PHILCO. The Company has an exclusive license from WCI to sell portable
microwave ovens in the United States and Canada under the Philco brand name.
The initial term of the agreement is through December 31, 2003 and may be
extended at the Company's option for up to six two-year renewal terms through
December 31, 2015. The Company makes royalty payments to WCI equal to a
percentage of the net invoice value of the products sold by the Company under
the agreement. In addition, the Company must make minimum annual royalty
payments to WCI, payable in quarterly installments commencing in the first
quarter of 1999. The Company commenced sales under this agreement in May 1998.
See "Business--Brand Portfolio--Philco."
ADMIRAL. The Company has an exclusive license from Maytag Corporation to
sell audio and video products in most countries in the Caribbean, South and
Central America and Mexico under the Admiral brand name. The initial term of
the agreement is through December 31, 2003 and may be extended at the Company's
option for up to two five-year renewal terms through December 31, 2013,
provided certain performance goals have been achieved during the initial term
or the first renewal term, as the case may be. The Company makes annual royalty
payments to Maytag Corporation equal to a percentage of the adjusted gross
invoice price of the products sold by the Company under the agreement. In
addition, the Company must make minimum annual royalty payments to Maytag
Corporation. The Company has made such minimum royalty payments in each year of
the initial term, which payments have totaled approximately $449,000. See
"Business--Brand Portfolio--Admiral."
TRADEMARK LITIGATION.
Pursuant to the Trademark Litigation, CBS seeks an injunction prohibiting
the Company, Salton and WCI from using the White-Westinghouse Trademark on
certain products and unspecified damages and attorney's fees. An adverse
decision could result in the Company being limited in further use of the
White-Westinghouse Trademark and in termination or significant modification of
the Kmart Agreement, any of which would have a material adverse effect on the
Company's business, financial condition and results of operations. The legal
costs that may be incurred in defending against this action
25
<PAGE>
could be substantial; however, pursuant to an indemnification agreement among
WCI, Kmart and Windmere-Durable, WCI is defending and indemnifying Kmart and
Windmere-Durable for all costs and expenses for claims, damages and losses,
including the costs of litigation, and, pursuant to the license agreements with
WCI, WCI is defending and indemnifying Salton and the Company for all costs and
expenses for claims, damages and losses, including the costs of litigation. In
addition, the litigation could be protracted and result in diversion of
management and other resources of the Company. The Company believes that its
use of the White-Westinghouse Trademark does not infringe upon or otherwise
violate CBS's trademark rights. There can be no assurance that WCI will prevail
in its lawsuit or that WCI, the Company and their co-defendants will prevail in
their opposition to CBS's lawsuit. In the event that a favorable outcome for
the Company is not obtained, the Company intends to vigorously pursue its
rights under the license agreements described above, including the right to
indemnification, although there can be no assurance that the parties to the
license agreements will agree on the scope of the indemnity. See "Risk
Factors--Trademark Litigation" and "Business--Legal Proceedings."
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales ................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold ....................... 89.8 90.0 89.5 85.6 90.9
----- ----- ----- ----- -----
Gross profit ................................ 10.2 10.0 10.5 14.4 9.1
Selling expenses ............................ 6.4 3.3 5.1 6.5 4.4
General and administrative expenses ......... 8.6 4.7 2.2 10.3 5.1
Write-off of advances to affiliate .......... 0.0 2.5 0.0 0.0 0.0
----- ----- ----- ----- -----
Income (loss) from operations ............... (4.8) (0.5) 3.2 (2.4) (0.4)
Other (income) expense:
Interest expense ............................ 0.9 0.3 0.6 0.4 0.9
Interest expense--related party ............. 1.4 0.2 0.2 0.2 1.0
Interest and other income ................... (1.5) (0.8) (0.1) (0.2) (0.1)
Interest income--related party .............. 0.0 (0.7) (0.2) (1.2) (0.2)
----- ----- ----- ----- -----
Income (loss) before income taxes ........... (5.6) 0.5 2.7 (1.6) (2.0)
Income tax benefit .......................... 0.0 (0.3) (0.2) 2.4 0.7
----- ----- ----- ----- -----
Net income (loss) ........................... (5.6)% 0.8% 2.9% 0.8% (1.3)%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
NET SALES. Net sales increased $30.5 million, or 362.0%, from $8.4 million
for the three months ended March 31, 1997 to $39.0 million. For the three
months ended March 31, 1998, 78.5%, 2.3%, 18.2% and 1.0% of sales were
attributable to the White-Westinghouse, Admiral, Newtech and Craig brands,
respectively. The White-Westinghouse brand showed the largest increase from
$3.7 million for the three months ended March 31, 1997 to $30.3 million for the
three months ended March 31, 1998, primarily due to the increase in sales to
Kmart during such period as a result of the Kmart Agreement entered into in
January 1997. In September 1997, the Company obtained a license to sell
portable microwave ovens in the United States and Canada under the Philco brand
name, and in December 1997 the Company acquired the Craig trademark. The
Company commenced sales of various products under the Craig trademark in March
1998 and commenced sales of portable microwave ovens under the Philco brand
name in May 1998.
COST OF PRODUCTS SOLD AND GROSS PROFIT. Cost of products sold for the
three months ended March 31, 1998 increased $28.1 million, or 390.4%, from $7.2
million for the three months ended March 31, 1997 to $35.4 million for the
three months ended March 31, 1998, primarily due to the
26
<PAGE>
increase in the Company's net sales as a result of the agreement entered into
with Kmart in January 1997. Gross profit as a percentage of net sales decreased
from 14.4% for the three months ended March 31, 1997 to 9.1% for the three
months ended March 31, 1998. The decrease was a result of $14.7 million in
third-party sales under the Kmart Agreement during the three months ended March
31, 1998. Gross profit margins on such third-party sales are typically lower
than those resulting from domestic or import sales. See "--Overview and
Highlights." No third-party sales were made during the three months ended March
31, 1997.
SELLING EXPENSES. Selling expenses for the three months ended March 31,
1998 increased $1.2 million, or 218.4%, to $1.7 million, compared to $0.5
million for the three months ended March 31, 1997. Approximately $0.2 million
of such increase was due to a 200% increase in sales commissions from $0.1
million for the three months ended March 31, 1997 to $0.3 million for the three
months ended March 31, 1998. Royalty expenses for the three months ended March
31, 1998 increased by $0.4 million, or 400%, from $0.1 million for the three
months ended March 31, 1997 to $0.5 million for the three months ended March
31, 1998 due to an increase in sales of branded items on which royalties are
payable.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $1.1 million, or 129.0%, from $0.9 million for the three months ended
March 31, 1997 to $2.0 million for the three months ended March 31, 1998. This
increase was attributable in part to an increase in salary expense of $0.2
million, or 35.0%, from $0.6 million for the three months ended March 31, 1997
to $0.8 million for the three months ended March 31, 1998 due to an increase in
the number of employees as a result of the growth in operations. In addition,
depreciation and amortization increased by $0.2 million, or 573%, from $31,000
for the three months ended March 31, 1997 to $0.2 million for the three months
ended March 31, 1998. This increase was a result of the acquisition of property
and equipment mainly for tooling for new products.
Total selling, general and administrative expenses as percentage of net
sales decreased from 16.8% for the three months ended March 31, 1997 to 9.5%
for the three months ended March 31, 1998.
INTEREST EXPENSE. Interest expense for the three months ended March 31,
1998 increased to $0.7 million from $0.1 million for the three months ended
March 31, 1997. The increase for the three months ended March 31, 1998 was
primarily the result of increased borrowings to finance the Company's
expansion.
INCOME TAX BENEFIT. The benefit for income taxes remained substantially
unchanged for the three months ended March 31, 1998 as compared to the three
months ended March 31, 1997.
1997 COMPARED TO 1996
NET SALES. Net sales increased $169.4 million, or 433.6%, from $39.1
million in 1996 to $208.4 million in 1997. During 1997, 78.4%, 5.1% and 16.6%
of sales were attributable to the White-Westinghouse, Admiral and Newtech
brands, respectively. The White-Westinghouse brand showed the largest increase
from $13.6 million in 1996 to $163.5 million in 1997, primarily due to the
increase in sales to Kmart during 1997 as a result of the Kmart Agreement
entered into in January 1997. In September 1997, the Company obtained a license
to sell portable microwave ovens in the United States and Canada under the
Philco brand name, and in December 1997 the Company acquired the Craig
trademark.
COST OF PRODUCTS SOLD AND GROSS PROFIT. Cost of products sold for 1997
increased $151.3 million, or 430.1%, from $35.2 million in 1996 to $186.4
million in 1997, primarily due to the increase in the Company's net sales as a
result of the agreement entered into with Kmart in January 1997. Gross profit
as a percentage of net sales increased from 10.0% in 1996 to 10.5% in 1997. The
slight improvement was a result of higher audio sales in 1997 ($66.6 million)
compared to 1996 ($29.8 million) which on average command higher gross margins
than video and third-party sales. This increase was partially offset by
27
<PAGE>
third-party sales in 1997 ($79.1 million) which on average have lower gross
margins than audio and video sales. The Company had no third-party sales in
1996.
SELLING EXPENSES. Selling expenses for 1997 increased $9.2 million, or
719.7%, to $10.5 million, compared to $1.3 million in 1996. Approximately $4.5
million of such increase was due to freight costs. The Company incurred
approximately $4.3 million in additional freight costs due primarily to its
decision to airfreight products to customers during the 1997 holiday season.
The additional airfreight costs resulted mainly from delays in bringing
Company's PRC facility to required production levels. The Company does not
believe that its 1997 freight costs are indicative of future expenses, but
there can be no assurance that such delays will not occur in the future and
possibly result in increased airfreight costs. Royalty expenses for 1997
increased by $2.6 million, or 756.3%, from $0.3 million in 1996 to $2.9 million
in 1997 as a result of the increase in sales of branded items on which
royalties are payable.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $2.8 million, or 149.5%, from $1.8 million in 1996 to $4.6 million in
1997. This increase was primarily attributable to an increase in salary expense
of $1.1 million, or 132.0%, from $0.8 million in 1996 to $1.9 million in 1997
due to an increase in the number of employees as a result of the growth in
operations.
Total selling, general and administrative expenses as a percentage of net
sales decreased from 8.0% in 1996 to 7.3% in 1997 (5.1% in 1997 excluding the
additional freight costs discussed above).
WRITE-OFF OF ADVANCES TO AFFILIATE. In 1996, the Company wrote off $1.0
million due from Newtech do Brazil, an affiliate of the Company which closed
its operations.
INTEREST EXPENSE. Interest expense for 1997 increased $1.6 million, or
774.9%, to $1.8 million, compared to $0.2 million in 1996. The increase in 1997
was primarily the result of increased borrowings to finance the Company's
expansion in 1997.
INCOME TAX BENEFIT. The benefit for income taxes increased from a benefit
of $0.1 million in 1996 to a benefit of $0.4 million in 1997 as a result of
losses incurred during 1997 by the Company's U.S. subsidiary. The Company's
earnings in 1997 were from foreign operations where generally the Company is
not required to pay income taxes. U.S. income taxes have not been provided on
the undistributed earnings of these foreign operations because the Company
intends to reinvest these earnings in foreign operations indefinitely.
1996 COMPARED TO 1995
NET SALES. Net sales increased $25.7 million, or 192.5%, from $13.4
million in 1995 to $39.1 million in 1996. During 1996, 62.9%, 34.8% and 2.3% of
net sales were attributable to the Newtech, White-Westinghouse and Admiral
brands, respectively. The Newtech brand showed the largest increase from $9.7
million in 1995 to $24.6 million in 1996. This increase was mainly attributable
to sales to Wal-Mart.
COST OF PRODUCTS SOLD. Cost of products sold for 1996 increased $23.2
million, or 193.3%, from $12.0 million in 1995 to $35.2 million in 1996. The
increase in cost of products sold was due to increases in the Company's net
sales.
SELLING EXPENSES. Selling expenses increased approximately $0.5 million,
or 52.0%, from $0.8 million in 1995 to $1.3 million in 1996. This increase was
primarily attributable to an increase in royalties of $0.3 million as a result
of sales of White-Westinghouse branded products.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $0.6 million, or 59.5%, from $1.2 million in 1995 to $1.8 million in
1996. This increase was primarily attributable to an increase in salary expense
of $0.3 million, or 68.5%, from $0.5 million in 1995 to $0.8 million in 1996
due to an increase in the number of employees as a result of growth in
operations.
Total selling, general and administrative expenses as a percentage of net
sales decreased from 15.0% in 1995 to 8.0% in 1996.
28
<PAGE>
INTEREST EXPENSE. Interest expense decreased slightly from $0.3 million in
1995 to $0.2 million in 1996, primarily due to decreased borrowings.
INTEREST AND OTHER INCOME. Interest and other income increased $0.4
million from $0.2 million in 1995 to $0.6 million in 1996 as a result of
interest income earned by the Company on the promissory notes issued by
Windmere as part of its acquisition of 50% of the Company's stock.
QUARTERLY FINANCIAL DATA
The following table sets forth certain unaudited quarterly statement of
operations data for each quarter of 1997 and the first quarter of 1998. This
data has been prepared by the Company on a basis consistent with the Company's
audited financial statements and includes all adjustments (consisting of normal
and recurring adjustments) that management considers necessary for a fair
presentation of the data. These quarterly results are not necessarily
indicative of future results of operations. This data should be read in
conjunction with the Consolidated Financial Statements and the related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
1997 QUARTER ENDED 1998 QUARTER ENDED
------------------------------------------------------ -------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
---------- ----------- ---------- -------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales ................................. $ 8,420 $ 27,866 $ 84,628 $ 87,503 $38,900
Gross profit .............................. 1,210 3,372 7,822 9,580 3,542
Income (loss) from operations ............. (201) 1,877 4,172 1,005(1) (172)
Income (loss) before income taxes ......... (131) 1,919 3,761 123 (779)
Net income (loss) ......................... 70 1,480 3,043 1,429 (494)
</TABLE>
- ----------------
(1) Includes approximately $4.3 million of additional freight costs due
primarily to the Company's decision to airfreight products to customers
during 1997 holiday season. The additional freight costs resulted mainly
from delays in bringing the Company's PRC facility to required production
levels.
SEASONALITY
The Company's business is highly seasonal, with operating results varying
substantially from quarter to quarter. Approximately 82.5% of the Company's
sales in 1997 took place in the third and fourth quarters of the calendar year.
In order to facilitate sales during the year-end buying season, the Company
must make financial commitments and pay for product inventory and certain
expenses well in advance of any sales of such inventory. Typically, the Company
expects to experience lower profitability or losses in the first and second
quarters of each year for this reason. As a result, if the timing or amount of
customer orders fall below the Company's expectations, operating results and
cash flows would be materially adversely affected because expenses based on
these expectations will have already been incurred.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has met its operating cash needs by utilizing
borrowings from shareholders and credit arrangements.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash used by operating
activities was $27.9 million for the twelve months ended December 31, 1997.
During the twelve months ended December 31, 1996, operating activities provided
net cash of $1.5 million. Working capital changes utilized $34.5 million in
cash in 1997, primarily due to increases in accounts receivable and inventory,
partially offset by an increase in accounts payable and accrued expenses. Net
cash provided by operating activities was $4.6 million for the three months
ended March 31, 1998. During the three months ended March 31, 1997, operating
activities used $1.2 million in cash. Working capital changes provided $5.2
million in cash in the three months ended March 31, 1998, primarily due to
collections of accounts receivable partially offset by increases in inventory
and decreases in accounts payable. These changes resulted from a general
increase in the Company's business activity.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing
activities was $2.2 million and $0.4 million for the twelve months ended
December 31, 1997 and 1996, respectively. Substantially all of
29
<PAGE>
the $2.2 million in 1997 was attributable to the purchase of property and
equipment for the Company's PRC manufacturing facility and the acquisition of
the Craig trademark. Net cash used in investing activities was approximately
$563,000 and $22,000 for the three months ended March 31, 1998 and 1997,
respectively. Substantially all of the $563,000 in the three months ended March
31, 1998 was attributable to purchases of property and equipment mainly for
tooling for new products.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing
activities was $29.5 million and $1.1 million for the twelve months ended
December 31, 1997 and 1996, respectively. Net cash used in financing activities
for the three months ended March 31, 1998 was $3.9 million. During the three
months ended March 31, 1997 financing activities provided $48,000 in cash. Cash
used in financing activities during the three months ended March 31, 1998 was
primarily used to reduce borrowings under the Company's former credit facility.
The Company has a $105.0 million revolving credit facility with The
National Bank of Canada to finance working capital requirements, including
trade finance activities. The facility includes a $2.0 million sub-facility for
the issuance of standby letters of credit and a $10.0 million sub-facility for
the creation of bankers' acceptances. The facility terminates June 8, 2001 and
is secured by substantially all of the Company's assets. As of June 26, 1998,
approximately $29.8 million was outstanding under the facility. Under the
facility the Company is required to comply with certain financial covenants,
including a debt to tangible net worth ratio (the "Leverage Ratio"), a current
ratio, an interest coverage ratio and a minimum tangible net worth and is
subject to limitations on capital expenditures and capital and other
distributions. Availability under the credit facility is based on a formula of
eligible receivables, inventories and letters of credit issued by the Company.
Availability based on accounts receivable ranges from 40% for unsecured foreign
accounts receivable to 90% for accounts receivable from certain customers that
are secured by a standby letter of credit. As of June 26, 1998, the Company had
an additional $6.4 million available under the credit facility. Interest on
advances under the revolving credit is based on the Company's Leverage Ratio.
If the Leverage Ratio is less than 2.0 to 1.0, then the Company may select The
National Bank of Canada's prime rate or LIBOR plus 2.15%. If the Leverage Ratio
is equal to or greater than 2.0 to 1.0, then the Company may select such prime
rate or LIBOR plus 2.4%. The Company's obligations under the credit facility
are not guaranteed by any shareholder, affiliate or other party.
On June 8, 1998, the Company used a portion of the funds available under
its credit facility to repay in full (i) all outstanding amounts under, and
terminate, its previous credit facility, (ii) a $2.0 million working capital
loan from Joel Newman, plus accrued and unpaid interest thereon, and (iii) an
aggregate of approximately $5.0 million in working capital loans from Windmere,
plus accrued and unpaid interest thereon. See "Certain Transactions."
The Company anticipates that the net proceeds from the Offering, cash
provided by operations and borrowings under credit facilities will be
sufficient to meet its liquidity requirements for the next 18 to 24 months. In
the event that the Company consummates an acquisition, its capital requirements
could increase; however, there are no present understandings, commitments or
agreements with respect to any future acquisition.
YEAR 2000 ISSUES. The Company has implemented a Year 2000 program to
ensure that its computer systems and applications will function properly beyond
1999. The Company believes that it has allocated adequate resources for this
purpose and expects its Year 2000 date conversion program to be completed
successfully on a timely basis. Although the ability of third parties with whom
the Company transacts business to address their Year 2000 issues is outside the
Company's control, the Company is discussing with its vendors and customers the
possibility of any interface difficulties which may affect the Company. The
Company currently does not expect the costs necessary to address this matter to
be material to its financial condition, results of operations or cash flows.
INFLATION
Inflation has not had a significant impact on the Company in the past
three years nor does the Company expect inflation to have a significant impact
in the foreseeable future.
30
<PAGE>
BUSINESS
GENERAL
Newtech Electronics Industries, Inc., established in 1990, designs,
sources, manufactures, and markets high-quality, value-priced brand-name
consumer electronic products. The Company offers a broad line of audio, video
and telecommunications products and selected home appliances, including
televisions, VCRs, home audio systems, CD players, cassette players, telephones
and portable microwave ovens. The Company's strategy has been to build a
portfolio of licensed and owned brand names, including White-Westinghouse,
Admiral, Philco, Craig, and Newtech. By having a portfolio of brand names, the
Company is able to offer retailers proprietary and flexible merchandising
programs. The Company currently sells its products to 15 retailers which
operate over 14,000 retail outlets in the United States and Canada, including
mass merchandisers such as Kmart and Wal-Mart, and other retailers, including
Family Dollar Stores, Ames, Rite-Aid and Zellers. In addition, the Company
sells its products to customers in Mexico, the Caribbean and Central and South
America. In January 1997, the Company entered into a long-term strategic
alliance with Kmart, pursuant to which the Company appointed Kmart as the
exclusive "discount department store" to market and sell a broad range of
audio, video and telecommunications products in the United States under the
White-Westinghouse Trademark. The agreement provides for minimum purchases by
Kmart of a total of $1.1 billion of White-Westinghouse brand consumer
electronic products in specified yearly increments over a seven-and-a-half-year
period. The Company believes that this strategic alliance provides a platform
for significant growth. See "-- Strategic Alliances." In large part due to this
alliance, from 1996 to 1997, net sales increased 433.6% to $208.4 million from
$39.1 million. The Company currently sells products to all other U.S. customers
through open purchase orders. The Company plans to grow its business by
expanding its customer base, acquiring and licensing additional brand names,
expanding the territories and product lines available under its existing
licenses, and increasing penetration of existing distribution channels.
THE CONSUMER ELECTRONICS INDUSTRY
The consumer electronics industry is large and diverse, encompassing a
wide variety of technologies and products, including televisions, VCRs, audio
systems, CD players, cassette players and telephones. CEMA estimates that total
factory sales to the U.S. market in 1997 included approximately $8.4 billion of
televisions (including TV/VCR combinations), $2.7 billion of VCRs, $1.7 billion
of audio systems, $4.3 billion of CD players (including portable and home CD
players), $0.3 billion of cassette players and $5.9 billion of telephones and
telephone answering devices. Industry participants have traditionally offered
such merchandise using three principal branding strategies and corresponding
price points: (i) premium brands, such as Sony and Panasonic; (ii) mass-market
brands, such as GE and Magnavox; and (iii) value-priced brands, such as
White-Westinghouse and GPX.
STRATEGY
The Company plans to establish itself as the leading supplier of high
quality, value-priced consumer electronic products and selected household
appliances. The Company believes that its portfolio of well-recognized brand
names, superior design capabilities, flexible and low-cost sourcing and
manufacturing and responsive after-sales service provide it with competitive
advantages in achieving this goal.
OPERATING STRATEGY. The Company's operating strategy is based on the
following key elements:
/bullet/ OFFER A PORTFOLIO OF WELL-RECOGNIZED BRAND NAMES. The Company
believes that its strategy of offering a portfolio of well-recognized
brand names enables retailers to differentiate themselves in the
marketplace through proprietary and flexible merchandising programs. For
example, the Company's recent strategic alliance with Kmart designates
Kmart as the exclusive "discount department store" to market and sell a
range of audio, video and telecommunications products in the United States
under the White-Westinghouse Trademark.
31
<PAGE>
/bullet/ OFFER HIGH-QUALITY PRODUCTS OF SUPERIOR DESIGN. The Company has
assembled an in-house design and engineering team with significant
industry experience and expertise. The Company believes that the superior
design and style of its products distinguish them from those of its
competitors in the value-priced category and help drive consumer
purchasing decisions. In addition, the Company highlights the design and
style features of its products with detailed descriptions and
illustrations on packaging, which the Company believes further
distinguishes its products from those of its competitors.
/bullet/ MAINTAIN LOW-COST, FLEXIBLE SOURCING AND MANUFACTURING
CAPABILITIES. The Company's products are manufactured both at the
Company's facility in the PRC and at various third-party facilities
throughout the world. The Company believes that its manufacturing facility
allows flexibility in sourcing products and a better understanding of
manufacturing cost and time parameters, which provide the Company with
leverage in negotiating with outside manufacturers.
/bullet/ PROVIDE RESPONSIVE AFTER-SALES SERVICE. The Company believes that
after-sales service is an important competitive factor in the consumer
electronics industry and that its model of responsive after-sales service
is superior to others in the value-priced segment. This model is based on
a toll-free interactive phone system that directs callers to independent
local service centers staffed by in-house and outsourced personnel who
provide basic troubleshooting and advanced technical support, thus
enabling the Company to provide responsive service at a reasonable cost to
the Company.
GROWTH STRATEGY. The Company plans to continue to grow its business using
a strategy comprised of the following principal elements:
/bullet/ EXPAND ITS CUSTOMER BASE. The Company believes that it has
significant opportunities to increase the number of outlets at which its
products are sold. For example, in the second half of 1997, the Company
began selling products to Ames, Bradlees, Musicland and Heilig Meyers.
Also, the Company has recently received its first purchase order from
Zellers, a division of Hudson Bay Company, one of the largest retailers in
Canada. The Company plans to pursue additional proprietary strategic
alliances similar to its arrangement with Kmart, as well as other
merchandising programs.
/bullet/ ACQUIRE AND LICENSE ADDITIONAL BRAND NAMES. The Company plans to
continue to acquire and license additional brand names in order to
maximize its ability to provide retailers with proprietary and flexible
merchandising programs. Towards this end, in September 1997, the Company
obtained a license to sell portable microwave ovens in the United States
and Canada under the Philco brand name, the Company's first product
offering outside of the consumer electronics industry. In addition, in
December 1997, the Company acquired the Craig trademark, a well-recognized
brand name in the consumer electronics industry, under which the Company
sells a broad range of its audio, video and telecommunications products,
as well as portable microwave ovens. Although the acquisition of
additional brand names may require the expenditure of funds, the Company
believes that entering into new or modified license and distribution
agreements will not involve significant costs.
/bullet/ EXPAND THE SCOPE OF EXISTING BRANDS. The Company plans to continue
to negotiate for the expansion of the territories and product lines under
its existing brand-name licenses. In September 1997, the Company secured
the right to add portable microwave ovens to the consumer electronic
products it sells under the White-Westinghouse Trademark in the United
States and Canada. In addition, in December 1997, the Company expanded its
marketing territory for the Admiral brand name to include Mexico.
/bullet/ INCREASE PENETRATION OF EXISTING DISTRIBUTION CHANNELS. The
Company plans to leverage its customer relationships and success in
broadening product lines and acquiring and licensing additional brand
names to increase product sales to existing customers. The Company
believes that this strategy is responsive to the desire of major retailers
to source products through fewer vendors.
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<PAGE>
PRODUCT LINES
The Company's business consists primarily of the design, sourcing,
manufacturing and marketing of high quality televisions, VCRs, audio equipment,
mobile audio products, auto sound equipment and radios in the value-priced
segment of the consumer electronics industry, as well as high quality, value-
priced portable microwave ovens. The Company also manufactures and sells a
variety of small consumer electronic products in the value-priced segment, such
as telephones, answering machines and clock radios. In 1996 and 1997, the
Company introduced approximately 40 and 128 new models, respectively. The
Company currently offers over 200 models of consumer electronic products and
portable microwave ovens. The Company typically offers the same product,
frequently with variations in design and features, under several brand names
and treats the same or similar products offered under different brand names as
separate models. The Company's products include the following:
PRODUCTS (NUMBER OF MODELS)
<TABLE>
<CAPTION>
HOME AND PORTABLE
TVS AND VCRS (46) AUTOMOTIVE AUDIO PRODUCTS (30) AUDIO PRODUCTS (120)
- -------------------------------- -------------------------------- --------------------------------------
<S> <C> <C>
/bullet/ Portable black and /bullet/ CD player radios with /bullet/ Home audio systems with
white TVs detachable face-plates single CD player
/bullet/ Portable color TVs /bullet/ Trunk mounted /bullet/ Home audio systems with
/bullet/ Color TVs with CD changers CD changer systems
remote control /bullet/ AM/FM cassette players, /bullet/ Portable AM/FM
/bullet/ TV/VCR combinations including those with cassette systems
/bullet/ VCRs detachable face-plates /bullet/ Portable CD systems with
/bullet/ Amplifiers detachable speakers
/bullet/ Speakers /bullet/ Portable CD stereo systems
/bullet/ Portable CD changer
stereo systems
/bullet/ Personal CD players
/bullet/ Personal cassette players
TELEPHONE PRODUCTS (37) MICROWAVE OVENS: (12) /bullet/ Personal sports electronics
----------------------- --------------------- products designed for use
/bullet/ Corded and cordless /bullet/ Microwave ovens with when exercising or traveling
telephones rotary controls /bullet/ Portable radios
/bullet/ "Feature" telephones /bullet/ Microwave ovens with /bullet/ Electronic clock radios
/bullet/ Answering machines electronic touchpad controls /bullet/ Electronic clock radios
/bullet/ Combination telephone/ with CD players
answering machines /bullet/ Electronic clock radios with
/bullet/ Telephone clock radios cassette players
/bullet/ Hand-held microcassette
recorders
</TABLE>
33
<PAGE>
BRAND PORTFOLIO
The Company owns or licenses certain well-recognized brand names under
which it markets most of its products. These licenses are granted pursuant to
license agreements which generally provide for royalty payments based on the
value of the goods sold, minimum royalty amounts and sales of trademarked
products and generally prohibit the Company from entering into license
agreements for competing products. The key provisions of the Company's
principal license agreements are described below.
WHITE-WESTINGHOUSE
In May 1996, the Company entered into a trademark license agreement with
WCI which grants the Company the exclusive license to design, manufacture,
advertise, sell and promote consumer audio, video and telecommunications
products in the United States and Canada under the White-Westinghouse
Trademark. The initial term of the agreement is through December 31, 1998, and
may be extended at the Company's option for up to 14 one-year renewal terms
through December 31, 2012. WCI may, at its option, terminate the agreement
during a renewal term if certain minimum sales targets are not met. The
Company's sales under the agreement have exceeded the applicable targets by
more than 600% during the initial term. The Company makes royalty payments to
WCI equal to a percentage of the net invoice value of the products sold by the
Company under the agreement. In addition, the Company must make minimum annual
royalty payments to WCI, payable in quarterly installments. The royalty
payments on the products sold by the Company during the initial term have
totaled approximately $3.3 million and have exceeded the applicable minimums by
more than 600%.
Pursuant to a separate agreement entered into in September 1997, WCI
granted the Company an exclusive license to design, manufacture, advertise,
sell and promote portable microwave ovens in the United States and Canada under
the White-Westinghouse Trademark. The initial term of this agreement is through
December 31, 2003 and may be extended at the Company's option for up to six
two-year renewal terms through December 31, 2015. WCI may, at its option,
terminate the agreement during a renewal term if certain minimum sales targets
are not met. The Company makes royalty payments to WCI equal to a percentage of
the net invoice value of the products sold by the Company under the agreement.
In addition, the Company must make minimum annual royalty payments to WCI,
payable in quarterly installments commencing in the first quarter of 1999. See
"--Strategic Alliances."
ADMIRAL
In October 1993, the Company entered into a trademark user agreement with
Maytag Corporation ("Maytag") and its wholly-owned subsidiary, Maytag
International, Inc., which grants the Company the exclusive license to
manufacture and sell audio and video products in most countries in the
Caribbean and South and Central America under the Admiral brand name. In
January 1997, the Company obtained the right to sell such products in Mexico
under the Admiral brand name. The initial term of the agreement is through
December 31, 2003, and may be extended at the Company's option for up to two
five-year renewal terms through December 31, 2013, provided certain performance
goals have been achieved during the initial term or the first renewal term, as
the case may be. The agreement may be extended for the first renewal term
provided that the Company's average royalty payments in 2001 and 2002 exceed
certain minimum levels. The Company makes annual royalty payments to Maytag
equal to a percentage of the adjusted gross invoice price of the products sold
by the Company under the agreement. In addition, the Company must make minimum
annual royalty payments to Maytag. The Company has made such minimum royalty
payments in each year of the initial term, which payments have totaled
approximately $449,000.
PHILCO
In September 1997, the Company entered into a trademark license agreement
with WCI which grants the Company the exclusive license to design, manufacture,
advertise, sell and promote portable
34
<PAGE>
microwave ovens in the United States and Canada under the Philco brand name.
The initial term of the agreement is through December 31, 2003, and may be
extended at the Company's option for up to six two-year renewal terms through
December 31, 2015. WCI may, at its option, terminate the agreement during a
renewal term if certain minimum sales targets are not met. The Company makes
royalty payments to WCI equal to a percentage of the net invoice value of the
products sold by the Company under the agreement. In addition, the Company must
make minimum annual royalty payments to WCI, payable in quarterly installments
commencing the first quarter of 1999. The Company commenced sales under this
agreement in May 1998.
CRAIG
In December 1997, the Company purchased certain assets of Craig Consumer
Electronics, Inc. ("Craig"), consisting of the Craig trademark and a consumer
trade show booth. The Company now owns the registered trademark "Craig" and the
associated script logo. The Company sells a broad range of its audio, video and
telecommunications products, as well as portable microwave ovens, under the
Craig brand name.
NEWTECH
The Company has sold its products under the Newtech brand name since its
inception in 1990. The Company owns the registered trademark "Newtech" and the
associated script logo. See "Trademarks." The Company currently offers a broad
range of audio and video products, telephones and related products and portable
microwave ovens under the Newtech brand name.
STRATEGIC ALLIANCES
On January 27, 1997, the Company entered into the Kmart Agreement,
pursuant to which the Company appointed Kmart as the exclusive "discount
department store" to market and sell a broad range of audio, video and
telephone products in the United States under the White-Westinghouse Trademark.
The agreement prohibits the Company from granting the right to sell such
products under the White-Westinghouse Trademark to certain other "discount
department stores," mass merchandisers and specified retailers. The term
"discount department store" is defined in the Kmart Agreement as any of a
number of specified stores, including Best Buy, Circuit City, Dayton
Hudson/Target, Good Guys, Fred Meyer, Office Depot, Office Max, Sears, Service
Merchandise, Staples and Wal-Mart.The agreement does not prohibit the Company
from granting the right to sell such products outside the U.S., although the
Company only has a license to market and sell such products under the White-
Westinghouse Trademark in the U.S. and Canada. See "--Brand
Portfolio--White-Westinghouse."
The Kmart Agreement provides for minimum purchases by Kmart which increase
throughout its term from $135.0 million for the 18-month period ending June 30,
1998 to $171.0 million for the 12-month period ending June 30, 2004. During
1997 and the three months ended March 31, 1998, Kmart purchased approximately
$158.7 million and $28.9 million, respectively, of merchandise from the Company
pursuant to the Kmart Agreement, which accounted for approximately 76.0% and
74.0%, respectively, of the Company's net sales. Specified minimums apply to
each of the audio, video and telephone categories. The failure of Kmart to
purchase the minimum quantities requires the payment of 4.0% of the shortfall
with respect to video products and 5.0% for all other products. In the event
that aggregate U.S. retail sales in the consumer electronics industry for any
particular category decrease by more than 10% in any year from that sold in the
prior year, Kmart has the right to reduce the minimum purchase requirements to
an amount not less than 80% of the minimum for such period.
Kmart further has the right to procure the manufacture of products from
other manufacturers under the White-Westinghouse Trademark on behalf of the
Company, which procurements count toward its minimum purchase requirements. In
such cases, Kmart has the option of paying the purchase price to third-party
manufacturers directly or making such payment to the Company, in which case the
Company pays the third-party manufacturer. In addition, Kmart pays the Company
a percentage of
35
<PAGE>
such purchase price. The Kmart Agreement provides that in the event Kmart fails
to pay a third-party manufacturer, the Company must make the payment. During
1997 and the three months ended March 31, 1998, Kmart purchased approximately
$79.1 million and $14.7 million, respectively, of merchandise from third
parties under the Kmart Agreement. Because the Company is responsible for
payment to the third-party manufacturer, the Company records the price paid to
the third-party manufacturer plus the percentage payable to the Company as
revenue and records the price paid to the third-party manufacturer as the cost
of products sold. Gross profit margins on these sales are typically lower than
those resulting from sales of the Company's own products. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The initial term of the Kmart Agreement is through June 30, 2004;
provided, however, that each of Kmart and the Company have the right, by
written notice given prior to June 30, 2000, to terminate the agreement without
cause any time after June 30, 2002. Should either party exercise such right,
the Company will, after July 31, 2001, have the right to sell the products
subject to the Kmart Agreement to any purchaser, including the "discount
department stores" prohibited under the agreement. Each of Kmart and the
Company further have the right to terminate the agreement without cause on June
30, 2003 and on each June 30 thereafter; in the case of the Company, such
termination requires 12 months' notice.
Kmart also has the right to terminate the agreement upon the termination
of the Salton Agreement with Kmart for the sale of kitchen housewares, personal
care products, fans, heaters and electrical air cleaners and humidifiers under
the White-Westinghouse Trademark. The termination provisions of the Salton
Agreement are substantially the same as the those of the Kmart Agreement. In
addition, Salton's license agreement with WCI for the sale of kitchen
housewares under the White-Westinghouse Trademark expires June 30, 1998, and
Salton's license agreement with WCI for the sale of personal care products,
fans, heaters and electrical air cleaners and humidifiers under the
White-Westinghouse Trademark expires December 31, 1998. Each such license
agreement may be extended for 13 one-year periods at the option of Salton,
provided that Salton meets certain minimum sales levels. In addition, either
party may terminate such license agreements without cause on 12 months' notice
beginning in 2001. The Company has no control over the performance or
termination of the Salton Agreement with Kmart or Salton's license agreements
with WCI. Furthermore, an adverse decision in the Trademark Litigation could
result in Salton being limited in further use of the White-Westinghouse
Trademark and in termination or significant modification of the Salton
Agreement. Windmere-Durable has guaranteed the performance of both the Company
and Salton under their respective agreements with Kmart. Kmart also has the
right to terminate the Kmart Agreement on the basis of any claim which Kmart
reasonably believes impairs or would impair Kmart's ability to receive the
benefits of the Kmart Agreement, whether relating to any or all products. In
the Trademark Litigation, CBS seeks, among other things, a preliminary
injunction enjoining the Company, Salton, Windmere-Durable and WCI from using
the White-Westinghouse Trademark in connection with the sale of certain
products, including products in categories representing 42.0% of the products
sold by the Company to Kmart under the Kmart Agreement in 1997. Although the
Trademark Litigation was pending prior to the execution of the Kmart Agreement,
it is possible that the Trademark Litigation may be viewed by Kmart as a claim
which Kmart reasonably believes impairs or would impair its ability to receive
the benefits of the Kmart Agreement. See "--Legal Proceedings" and "Risk
Factors--Dependence on Kmart Agreement."
In addition to its strategic alliance with Kmart, the Company has entered
into alliances with other customers for multi-year purchases of merchandise in
exchange for exclusivity in certain territories in Mexico, the Caribbean and
Central and South America. The Company plans to enter into other similar
merchandising programs. The Company believes that such strategic alliances are
responsive to the trend for major retailers to market and sell products under
proprietary brands.
PRODUCT DESIGN AND DEVELOPMENT
Value-priced consumer electronic products typically do not have unique or
innovative technical features. Competition in this segment is therefore more
dependent on product design, visual appeal and
36
<PAGE>
price. As such, the Company recognizes that superior product design provides an
important competitive advantage. The Company has assembled an in-house design
and engineering team with significant industry experience and expertise for
this purpose. The Company believes that the superior design and style of its
products distinguish them from those of its competitors in the value-priced
category and help drive consumer purchasing decisions. The Company's in-house
design and engineering team conducts research activities relating to the
improvement of existing products and the development of new products. The
design and engineering team presently consists of approximately 10 employees,
including engineers, product designers, draftsmen and product managers, whose
operations are supported by approximately six outsourced engineers, designers
and draftsmen, among others.
Management believes that the enhancement and extension of the Company's
existing products and the development of new product categories have
contributed significantly to the Company's growth to date and are necessary for
the Company's continued success and growth. The Company's product design and
engineering team evaluates new ideas and seeks to develop new products and
improvements to existing products to satisfy industry requirements and changing
consumer preferences. The Company selects design and manufacturing
specifications that adapt and implement available technology and features to
satisfy its customers' requirements for quality, product mix and pricing.
Company employees work closely with both retailers and suppliers to identify
trends in consumer preferences and to generate new product ideas. During 1996
and 1997, the Company introduced approximately 40 and 128 new product models,
respectively. The Company also regularly enhances existing products by adding
new features and modernizing their design in order to maintain their visual
appeal and competitiveness.
In addition, the Company highlights the design and style features of its
products with detailed descriptions and illustrations on packaging, which the
Company believes further distinguishes its products from those of its
competitors. The Company believes that this packaging strategy makes its
products more attractive to consumers as it facilitates an understanding of the
product features in retail locations where salespersons may not be available to
provide detailed explanations and demonstrations.
The product design and development process for products sold under
licensed brand names also involves product review by the relevant licensor for
purposes of quality control. Pursuant to the license agreements with WCI, prior
to any use of the White-Westinghouse or Philco brand names, the Company must
submit to WCI for its approval specimens of each of the Company's products
(including products supplied by third-party manufacturers under the Kmart
Agreement, see "--Strategic Alliances") and the related artwork, packaging,
advertising and promotional literature that the Company plans to use.
Thereafter, the Company must submit to WCI, at four-month intervals, production
run samples of each product. Pursuant to the license agreement with Maytag for
the Admiral brand name, the Company must submit to Maytag, upon request,
performance and failure data, as well as product samples for inspection and
testing. In addition, Maytag may from time to time inspect and test the
Company's facilities for compliance with quality standards.
SOURCING AND MANUFACTURING
The Company is responsible for the final design and manufacturing
specifications of all of its products. Actual assembly, utilizing components
specified by the Company, is either performed at the Company's PRC
manufacturing facility or is outsourced to one of approximately 30 independent
manufacturers in accordance with specifications mandated by the Company. The
Company believes that its manufacturing facility allows flexibility in sourcing
products and a better understanding of the manufacturing cost and time
parameters, providing it with leverage in negotiating with such independent
manufacturers.
The Company purchased the Hong Kong corporation that owns its PRC
manufacturing facility from a subsidiary of Windmere-Durable in November 1997.
The facility is leased from the PRC government pursuant to a lease that expires
December 31, 2001. The Company currently utilizes the facility for the assembly
of audio products. The facility is approximately 182,700 square feet and
contains 18 assembly lines and is currently operated by approximately 1,300 of
the Company's
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<PAGE>
employees. The facility typically employs up to 300 additional workers during
the third and fourth quarters of the calendar year when the substantial
majority of the Company's sales typically take place and production is highest
in order to fill customer orders. In 1997, this facility accounted for
approximately 7.1% of the Company's total product supply and 14.7% during the
three months ended March 31, 1998. The Company expects to source a higher
percentage of its products from this facility in 1998 than it did in 1997.
Windmere-Durable provides certain administrative services for the factory from
offices in Hong Kong for a monthly management fee of approximately $11,800. See
"Certain Transactions--Windmere."
During 1997, the Company's three largest independent manufacturers, which
are located in the PRC, Indonesia and Malaysia, respectively, supplied
approximately 36.0% of the Company's total products. The Company utilizes
additional manufacturers located in Indonesia, Malaysia, Mexico, Thailand, the
United States and the Philippines. The Company changes suppliers from time to
time as market conditions require. Substantially all of these suppliers
assemble products with components manufactured by third parties. The Company
believes that this is the standard method of operating and contracting for the
manufacture of products in the consumer electronics industry. During
production, the Company sends employees to the independent manufacturers'
facilities to monitor and facilitate timely manufacture and delivery of
products produced to the Company's specifications.
The Company considers its relationships with its independent manufacturers
and component suppliers to be good and believes that, absent extreme
circumstances affecting the supply of materials or the demand on manufacturing
time, the supply of products will be available when needed. The Company does
not maintain long-term purchase contracts with manufacturers and operates
principally on a purchase order basis. The Company believes that it is not
currently dependent on any single manufacturer for any of its products, and
that the loss of any one manufacturer would not have a long-term material
adverse effect on the Company because other independent manufacturers with
which the Company does business, as well as its own facility, would be able to
increase production to fulfill the Company's requirements. However, the loss of
a supplier or the Company's PRC facility could, in the short-term, materially
and adversely affect the Company's business until alternative supply
arrangements could be secured.
SALES, DISTRIBUTION AND MARKETING
The Company sells its products in the United States and Canada to mass
merchandisers such as Kmart and Wal-Mart, and to other retailers, including
Rite-Aid, Zellers and Ames. In addition, the Company markets and sells its
products in Mexico, the Caribbean and South and Central America, primarily
through independent distributors.
The Company has two marketing directors, one executive director of sales
and three vice presidents of sales. Two vice presidents of sales are
responsible for sales in various regions of North America, and the third is
responsible for all sales outside North America, principally South and Central
America and the Caribbean. The Company sells its products directly to certain
customers and indirectly through independent sales organizations that are paid
commissions based on the amount of their net sales.
The Company does not undertake any direct advertising. However, the
Company's retail customers place advertisements that generally promote the
Company's brand names in newspapers and other publications, catalogs, flyers,
and by display point-of-purchase advertising. The Company markets its products
at trade shows, including the Consumer Electronics Show held in Las Vegas,
Nevada in January of each year.
GEOGRAPHIC INFORMATION
The Company operates predominantly in a single industry: the design,
sourcing, manufacturing, and marketing of high-quality, value-priced brand-name
consumer electronic products. While the
38
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Company offers a wide range of items for sale, many of them are manufactured at
common production facilities and marketed by a common sales force.
In addition to its U.S. operations, the Company has subsidiaries in Hong
Kong. All significant intercompany revenues and expenses are eliminated in
computing revenues and operating income.
Segment information by geographic area is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- ------------------------------
1995 1996 1997 1997 1998
-------------- -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
UNITED STATES
Net sales ............ $ 2,254,301 $14,852,520 $129,530,298 $3,814,777 $24,952,395
Loss from operations (1,447,307) (378,375) (714,324) (785,449) (509,519)
HONG KONG
Net sales ............ 11,098,710 24,207,616 78,886,314 4,605,164 13,947,787
Income from
operations ......... 806,739 159,565 7,567,344 585,034 337,199
</TABLE>
Identifiable assets by geographic area are as follows:
DECEMBER 31,
------------------------------ MARCH 31,
1996 1997 1998
------------- ------------- -----------
United States ......... $7,086,477 $51,667,843 $46,005,496
Hong Kong ............. 3,285,823 16,925,577 16,050,784
CUSTOMERS
There is a limited number of potential customers that can achieve a broad
distribution of the Company's products. Moreover, the Company has been and is
highly dependent upon its largest customers and has derived and is expected to
derive a substantial percentage of its revenues from such customers. In
particular, the Company's largest customer, Kmart, accounted for approximately
76.0% and 74.0% of the Company's net sales during 1997 and three months ended
March 31, 1998, respectively. No other customer accounted for more than 10% of
the Company's net sales during 1997. In 1996, net sales to each of the
following customers represented more than 10% of the Company's net sales: (i)
Kmart represented 37%, (ii) Wal-Mart represented 34%, (iii) Sanyo do Brasil
represented 12%, and (iv) Family Dollar Stores represented 11%. The Company's
top five customers accounted for approximately 95%, 90% and 86% of net sales
during 1996, 1997 and the three months ended March 31, 1998, respectively. The
inclusion of even a single product in sales to a particular customer can
substantially increase the percentage of the Company's sales accounted for by
that customer. The Company believes that it has developed strong relationships
with its significant customers.
PRODUCT RETURNS AND WARRANTY CLAIMS
The Company's net sales represent gross sales after product returns and
warranty claims. Product returns and warranty claims result from defective
goods, inadequate performance relative to customer expectations, improper
packaging, liberal retailer return policies and other causes which are outside
the Company's control. For 1995, 1996, 1997 and the three months ended March
31, 1998, product returns and warranty claims approximated 3.8%, 0.8%, 1.6% and
2.3%, respectively, of gross sales. In 1995, 1996, 1997 and the three months
ended March 31, 1998, approximately 97.0%, 83.0%, 75.0% and 73.0%,
respectively, of the Company's gross sales were made under net sale
arrangements, whereby the Company's customers are responsible for product
returns, which cannot be returned to the Company. While the Company plans to
maintain or increase the percentage of sales that are on a net basis, there can
be no assurance that the Company will be successful in maintaining or
increasing such percentage.
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AFTER-SALES SERVICE
After-sales service is an important competitive factor in the consumer
electronics industry. The Company believes that its combination of dedicated
in-house personnel and flexible outsourcing arrangements enables it to provide
responsive after-sales service at a reasonable cost to the Company. The Company
has contracted with a third party to administer its after-sales service,
including operating the toll-free phone system and providing the technical
support staff. The Company's after-sales service is made available to
customers, retailers and service centers through a toll-free, computerized
interactive phone system that (i) directs callers to independent local service
centers within their community, (ii) provides basic troubleshooting and general
product information and assistance for customers and retailers by trained
technical support staff, (iii) provides advanced technical support to customer
service centers in order to expedite customer repairs, (iv) takes orders for
parts 365 days a year, 24 hours a day, utilizing a world-wide network of
purchasing affiliates to offer competitive prices and (v) provides service
literature and handles consumer affairs calls and complaints. The Company pays
the service administrator a fee for each call handled. The Company's
after-sales service is available for both warranty product claims and
out-of-warranty product claims. Repairs covered by the Company's 90-day
warranty are billed to the Company, and out-of-warranty claims are paid by the
customer. In order to ensure the quality of after-sales service, the Company
regularly audits the service centers and phone system.
TRADEMARKS
The Company owns the United States registered trademark "Craig" and the
associated script logo. See "--Brand Portfolio--Craig." The Craig trademark has
also been registered, or a trademark application is pending, in more than 50
other countries. The Company believes that it has proprietary protection for
the Craig trademark in most foreign countries in which the Company currently
sells Craig products or plans to do so in the future. The Company owns the
United States registered trademark "Newtech" and plans to register the Newtech
trademark in the foreign countries in which the Company currently sells Newtech
products or plans to do so in the future.
REGULATION
Most of the Company's customers (as well as several state and local
authorities) require that the Company's products meet the safety standards of
the Underwriters Laboratories, Inc. The Company's telephones and clock radios
sold for use in the United States must be registered with and approved by the
FCC, and its portable microwave ovens must be registered with and approved by
the FDA. Products sold in Canada must comply with the standards of the Canadian
Standards Association. In addition, the Company's products must meet the
applicable safety standards imposed by the other countries in which they are
sold. The Company has not experienced difficulty in satisfying such standards.
The Company is also subject to numerous tariffs, duties, charges and
assessments on the import of its various products. The Company retains import
agencies and expediters to facilitate the import of its products and the
payment of these charges and duties. Although these duties and charges have not
substantially affected the Company's ability to market its products for
delivery in the United States and elsewhere, regulations affecting these
charges and duties are subject to change, which could have the effect of
increasing the cost of goods imported and sold by the Company. Currently,
because certain of the Company's products are manufactured in the PRC, the
continual designation of MFN Status for the PRC pursuant to treaties with the
United States and stable diplomatic relations with the PRC are critical to the
ongoing and continuous supply of products. Additional regulation implemented in
the United States or elsewhere could also limit the ability to manufacture,
transport, or import goods.
COMPETITION
The consumer electronics industry is extremely competitive and is
dominated by large and well-capitalized companies. The Company competes with
the entire consumer electronics industry for
40
<PAGE>
consumer dollars, shelf space for products and sales support. The Company's
competitors may not rely on external financing or relationships with
independent manufacturers to the same extent as the Company. Furthermore, the
Company's competitors may have cost advantages depending on labor costs,
currency exchange rates and other factors in the countries where their
manufacturing operations take place, relative to the countries where the
Company's products are manufactured. The Company has adopted a marketing
strategy that targets the value-priced segment of the consumer electronics
market, which is particularly price sensitive. There is competition among a
number of brands in this market segment, including Emerson and GPX. In
addition, although Magnavox, GE, Sony and Panasonic brand products are not
currently emphasized in the value-priced segment of the market, they do compete
with the Company's products for consumer dollars, shelf space and sales
support. To the extent that these brands compete directly with the Company's
brands on the basis of price, or their product prices were otherwise reduced,
the Company's ability to market and sell competitive products could be severely
affected, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
EMPLOYEES
As of May 30, 1998, the Company had a total of approximately 1,400
full-time employees. Among these employees, approximately 50 were located in
the United States, including approximately 45 at the Company's Miami, Florida
headquarters, approximately 25 were located in Hong Kong, and approximately
1,325 were located in the PRC, including approximately 1,300 employees who work
at the Company's manufacturing facility in Shenzhen in the Province of
Goangzau. The facility typically employs up to 300 additional employees during
the third and fourth quarters of the calendar year when the substantial
majority of the Company's sales typically take place and production is highest
in order to fill customer orders. The Company believes that its relationships
with its employees are good. The Company is not party to any collective
bargaining agreement, nor is the Company aware of any effort to organize
employees of the Company into any union or similar labor organization.
LEGAL PROCEEDINGS
In November 1996, WCI filed suit for injunctive relief and damages against
Westinghouse Electric Corporation (now known as CBS Corporation) in the United
States District Court for the Northern District of Ohio alleging that CBS's
grant of licenses to the Westinghouse trademark for use on lighting products,
fans and electrical accessories for use in the home violates WCI's rights to
the Westinghouse trademark and constitutes a breach of the agreements under
which CBS's predecessor sold WCI its appliance business and certain trademark
rights in 1975. In response to that suit, CBS filed a related action in
December 1996 in the United States District Court for the Western District of
Pennsylvania, naming WCI, the Company, Windmere-Durable, Salton and certain
other parties as defendants. The two actions have now been consolidated in the
Pennsylvania court. CBS's complaint alleges among other things that WCI's
license to the Company to use the White-Westinghouse Trademark on CD players,
audio systems that include CD players, VCRs, TV-VCR combinations, headphones,
and telephones, telephone answering machines and telephone accessories
infringes its right to the Westinghouse trademark. CBS does not appear to be
challenging the validity of the Company's license to use the mark on TVs
without VCRs, on radios, on audio systems or cassette tape players that do not
include CD players, on stereo speakers or on microwave ovens. CBS seeks an
injunction prohibiting the Company, Salton and WCI from using the
White-Westinghouse Trademark on products not specifically enumerated in the
transaction documents, and unspecified damages and attorneys' fees. An adverse
decision in the Trademark Litigation could result in the Company being limited
in further use of the White-Westinghouse Trademark and in termination or
significant modification of the Kmart Agreement, any of which would have a
material adverse effect on the Company's business, financial condition and
results of operations. The legal costs that may be incurred in defending
against this action could be substantial; however, pursuant to an
indemnification agreement dated January 23, 1997 by and among WCI, Kmart and
Windmere-Durable, WCI is defending and indemnifying Kmart and Windmere-Durable
for all costs and expenses for claims, damages and losses, including the costs
of litigation, and, pursuant to the license agreements with WCI, WCI is
defending and indemnifying Salton
41
<PAGE>
and the Company for all costs and expenses for claims, damages and losses,
including the costs of litigation. In addition, the litigation could be
protracted and result in diversion of management and other resources of the
Company. The Company believes that its use of the White-Westinghouse Trademark
does not infringe upon or otherwise violate CBS's trademark rights. There can
be no assurance that WCI will prevail in its lawsuit or that WCI, the Company
and their co-defendants will prevail in their opposition to CBS's lawsuit. In
the event that a favorable outcome for the Company is not obtained, the Company
intends to vigorously pursue its rights under the license agreements described
above, including the right to indemnification, although there can be no
assurance that the parties to the license agreements will agree on the scope of
the indemnity.
Related proceedings have also been commenced before the Trademark Board of
the United States Patent and Trademark Office in opposition to WCI's and CBS's
efforts to register certain uses of the Westinghouse and White-Westinghouse
trademarks. Although the Company is not a party to those proceedings, some of
them relate to the Company's uses of the White-Westinghouse Trademark. Those
proceedings have been stayed pending resolution of the Trademark Litigation in
the Pennsylvania court. Even if the Trademark Litigation is resolved, it is
possible that these proceedings before the Trademark Board will continue and
will have a material adverse effect upon the Company's business, financial
condition and results of operations.
The Company is not currently a party to any other pending legal
proceedings, the adverse outcome of which, individually or in the aggregate,
would have a material adverse effect on the business, financial condition or
results of operations of the Company. The Company is from time to time involved
in various legal proceedings, including collection matters and disputes over
product defects, individual employment disputes, and similar matters. The
Company maintains insurance to attempt to insure against liability associated
with a product defect. However, to the extent that any such defect were
pervasive in any particular product or line of products, the Company could be
required to undertake to recall those products or could be subject to
significant exposure with respect to the institution of legal proceedings.
FACILITIES
The Company's main office and administrative facilities (as well as
additional warehouse space) are located in approximately 13,700 square feet of
space in Miami, Florida. The Company's lease for this space expires on December
31, 1999 and may be extended at the option of the Company for two one-year
renewal terms. Rent under the lease is $8,000 per month. The Company also
leases approximately 6,730 square feet of office space in Hong Kong, which
contains a showroom and product development facilities. The Company's lease for
this space expires on October 12, 1999. Rent under the lease is approximately
$5,700 per month. The Company leases an approximately 182,700 square foot
manufacturing facility located in Shenzhen in the Province of Goangzau in the
PRC. The facility is leased from the PRC government pursuant to a lease that
expires December 31, 2001. Rent under the lease is approximately $278,000 per
year. The PRC facility currently manufacturers audio products and contains 18
assembly lines.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL
The executive officers, directors and other key personnel affecting the
Company's operations are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- ----- ----------------------------------------------------------
<S> <C> <C>
Joel Newman ................. 48 Chairman of the Board, President, Chief Executive Officer
and Director
Hatch Masuda ................ 58 Senior Vice President, Design and Product Development
Ichiro Okamoto .............. 51 Vice President, Overseas Operations and
Managing Director--Hong Kong
Leonor Schuck ............... 38 Vice President, Finance and Chief Financial Officer
Stuart Slugh ................ 43 Vice President, Engineering and After-Sales Service
Vivian Hernandez ............ 48 Vice President, Administration
Barry Light ................. 39 Director of Marketing
Alejandro Ricardes .......... 40 Vice President, Sales--Caribbean, Europe and
Latin America
Terry Arf ................... 49 Vice President, Sales--West Coast
David M. Friedson ........... 41 Director
Arnold Thaler ............... 59 Director
Noel Shapiro ................ 70 Director
</TABLE>
The Company's Board of Directors intends to appoint at least two
additional directors who are not affiliated with the Company within 90 days of
the consummation of the Offering.
JOEL NEWMAN has been the Chairman of the Board, President and Chief
Executive Officer of the Company since its inception in 1990. In 1978, Mr.
Newman formed Cosmo Communications Corp. ("Cosmo"), a distributor and
manufacturer of clocks and consumer electronic products, where he served as
Chairman and Chief Executive Officer until he sold his interest in Cosmo in
1986. Mr. Shapiro, a Director of the Company, is Mr. Newman's father-in-law.
HATCH MASUDA has been Senior Vice President, Design and Product
Development of the Company since 1996. Prior to that, since 1995 Mr. Masuda
served as the Company's Vice President, Design and Product Development. From
1979 through 1995, Mr. Masuda worked as Vice President, Design and Product
Development at Emerson Radio Corp.
ICHIRO OKAMOTO has been Vice President, Overseas Operations of the Company
since 1996 and Managing Director--Hong Kong since 1995. Prior to joining the
Company, Mr. Okamoto served as Director of Engineering at Emerson Radio Corp.
in Hong Kong from 1994 to 1995, as Managing Director of Yorx Corp. in Hong Kong
from 1993 to 1994 and as General Manager of Emerson's Tokyo Office from 1986 to
1993.
LEONOR SCHUCK has been Vice President, Finance and Chief Financial Officer
of the Company since 1995. From 1991 to 1995, Ms. Schuck served as the Chief
Financial Officer of Bijoux Terner, L.P., a costume jewelry wholesaler. Prior
to that, Ms. Schuck worked at Ernst & Young LLP for nine years, the last two
years as Senior Manager. Ms. Schuck is a certified public accountant.
STUART SLUGH has been Vice President, Engineering and After-Sales Service
of the Company since 1996, after working in the same capacity at Emerson Radio
Corp. since 1983.
VIVIAN HERNANDEZ has been Vice President, Administration of the Company
since 1997. Prior to that, from 1991 to 1997, Ms. Hernandez served as Sales
Administrator of the Company.
BARRY LIGHT has been Director of Marketing of the Company since 1997.
Prior to joining the Company, Mr. Light held the same position at Emerson Radio
Corp. since 1993. Prior to that, Mr. Light worked at Sharp Electronics
Corporation as Product Marketing Manager for Audio from 1989 to 1993.
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<PAGE>
ALEJANDRO RICARDES has been Vice President, Sales--Caribbean, Europe and
Latin America since 1995. Prior to joining the Company, Mr. Ricardes held
several managerial positions in sales at Philco Argentina, Panasonic Chile, and
Kelvinator Argentina.
TERRY ARF has been Vice President, Sales--West Coast of the Company since
1997. Prior to joining the Company, Mr. Arf held several sales and management
positions over the past 20 years in the consumer electronics industry with
various companies, including Craig Consumer Electronics, Inc., Ryka Inc. and
Musicland.
DAVID M. FRIEDSON has served as a Director of the Company since 1996. Mr.
Friedson has served as Chairman of the Board of Windmere-Durable since April
1996, Chief Executive Officer of Windmere-Durable since January 1987 and as
President of Windmere-Durable since January 1985.
ARNOLD THALER has served as a Director of the Company since 1996. Mr.
Thaler has served as a Senior Vice President of Windmere-Durable since February
1996 and has served as an Executive Vice President--Product Development,
Engineering and Manufacturing of Windmere-Durable since December 1988.
NOEL SHAPIRO has served as a Director of the Company since its inception
in 1990. Mr. Shapiro has served as president of Star Ranch Enterprises Inc., an
agricultural and investment company, since 1972 and has served as president of
Arrow Construction Corporation, a construction and real estate development
company, since 1965. Mr. Shapiro is the father-in-law of Mr. Newman.
CONSULTANTS
Pursuant to a consulting agreement with Venture Marketing, Inc., the
Company is provided with the full time services of two sales consultants.
Robert Winer is the sole shareholder of Venture Marketing, Inc. and serves in a
capacity equivalent to the Company's Executive Vice President, Sales--North
America. Mr. Winer has provided these services since 1996. Prior thereto, Mr.
Winer served as Executive Vice President of Sound Design Corp.--GDI
Technologies for 18 years. Stewart Katz serves in a capacity equivalent to the
Company's Vice President, Sales--East Coast. Mr. Katz has provided these
services since 1996. For the prior 20 years, Mr. Katz held several sales and
management positions in the consumer electronics industry with various
companies, including Emerson Radio Corp. and Yorx Corp. The Company pays
Venture Marketing, Inc. for the services of Messrs. Winer and Katz based on a
commission structure with respect to net sales. In 1997, the Company paid
Venture Marketing, Inc. a total of $120,000 in commissions.
DIRECTORS COMPENSATION
The Company does not currently pay any fees to directors. The Company
intends to pay each director who is not an employee of the Company, Windmere or
Windmere-Durable an annual director's retainer of $6,000 and $500 for each
meeting of the Board, including committee meetings, attended by the director
after the consummation of the Offering. The Company also reimburses, and
intends to continue to reimburse, all directors for all travel-related expenses
incurred in connection with their activities as directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors intends to establish, within 90 days
after the consummation of the Offering, an Audit Committee and a Compensation
Committee, each of which will be composed of the two unaffiliated directors
that the Board intends to appoint during such period. The Audit Committee will
be responsible for reviewing audit functions, including accounting and
financial reporting practices of the Company, the adequacy of the Company's
system of internal accounting control, the quality and integrity of the
Company's financial statements and relations with independent auditors. The
Compensation Committee will be responsible for establishing the compensation of
the Company's directors, officers and employees, including salaries, bonuses,
commission, and benefit plans, administering the Company's stock option plans
and other matters relating to compensation.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company during
1997 to the Chief Executive Officer and the other four most highly paid
executive officers who were serving as executive officers at the end of 1997
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------ -------------
NUMBER OF
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS
- ------------------------------------------------------- ----------- ---------- -------------
<S> <C> <C> <C>
Joel Newman, Chairman, President and
Chief Executive Officer ............................. $400,000 $236,147 175,000
Hatch Masuda, Senior Vice President, Design and
Product Development ................................. 193,236 63,294 125,000
Ichiro Okamoto, Vice President, Overseas Operations and
Managing Director--Hong Kong ........................ 105,384 30,000 60,000
Stuart Slugh, Vice President, Engineering and
After-Sales Service ................................. 110,000 4,135 45,000
Leonor Schuck, Vice President, Finance and
Chief Financial Officer ............................. 88,462 10,828 60,000
</TABLE>
- ----------------
(1) The columns for "Other Annual Compensation" and "All Other Compensation"
have been omitted because there is no compensation required to be reported
in such columns. The aggregate amount of perquisites and other personal
benefits provided to each Named Executive Officer is less than 10% of the
total annual salary and bonus of such officer.
OPTION GRANTS, EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to grants of
options to purchase shares of Common Stock during the fiscal year ended
December 31, 1997 to the Named Executive Officers. The amounts shown as
potential realizable values on the options are based on assumed annualized
rates of appreciation in the price of the Common Stock of 5% and 10% over the
term of the options, as set forth in rules of the Securities and Exchange
Commission. Actual gains, if any, on stock option exercises are dependent on
future performance of the Common Stock. There can be no assurance that the
potential realizable values reflected in this table will be achieved.
STOCK OPTION GRANTS IN THE FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK PRICE
NUMBER OF TOTAL OPTIONS APPRECIATION FOR OPTION
SECURITIES GRANTED TO EXERCISE OF TERM(1)
UNDERLYING EMPLOYEES IN BASE PRICE ----------------------------
NAME OPTIONS GRANTED FISCAL YEAR ($/SHARE) EXPIRATION DATE 5%($) 10%($)
- ------------------------ ----------------- -------------- ------------ ------------------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Joel Newman ............ 175,000 27.0% $ 2.00 February 28, 2007 $285,058 453,898
Hatch Masuda ........... 125,000 19.3 2.00 February 28, 2007 157,225 398,425
Ichiro Okamoto ......... 60,000 9.2 2.00 February 28, 2007 75,468 191,244
Stuart Slugh ........... 45,000 6.9 2.00 February 28, 2007 56,601 143,433
Leonor Schuck .......... 60,000 9.2 2.00 February 28, 2007 75,468 191,244
</TABLE>
- ----------------
(1) The Company determined that the Common Stock had a fair market value of
$2.00 on the date of grant.
The following table sets forth data concerning the value of unexercised
options as of December 31, 1997 held by the Company's Named Executive Officers.
No options were exercised during fiscal 1997.
45
<PAGE>
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END
------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
- ------------------------ ------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C>
Joel Newman ............ -- 175,000 -- 350,000
Hatch Masuda ........... -- 125,000 -- 250,000
Ichiro Okamoto ......... -- 60,000 -- 120,000
Stuart Slugh ........... -- 45,000 -- 90,000
Leonor Schuck .......... -- 60,000 -- 120,000
</TABLE>
- ----------------
(1) The Company determined that the Common Stock had a fair market value of
$4.00 per share on December 31, 1997.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company has entered into employment agreements with each of Joel
Newman, Hatch Masuda and Leonor Schuck. The employment agreement with Mr.
Newman provides for his employment as the Chairman, Chief Executive Officer and
President of the Company with a base salary of $475,000 per year, to be
increased annually by a percentage equal to the increase in the consumer price
index. The employment agreement with Mr. Masuda provides for his employment as
the Company's Senior Vice President, Design and Product Development with a base
salary of $192,000 per year, to be increased annually by a percentage equal to
the increase in the consumer price index. The employment agreement with Ms.
Schuck provides for her employment as the Company's Vice President, Finance and
Chief Financial Officer with a base salary of $110,000 per year, to be
increased annually by a percentage equal to the increase in the consumer price
index.
The term of each employment agreement commences on the date of the
consummation of the Offering (the "Commencement Date") and continues until the
second anniversary thereof, provided that on the first and each subsequent
anniversary of the Commencement Date, such term will automatically be extended
for one additional year. Except for termination for cause, each agreement may
only be terminated by the giving of notice on an anniversary of the
Commencement Date by either party of its intention not to extend the agreement
beyond the remaining two years of the term. Each agreement provides that upon
the employee's death, the Company will pay to his or her estate a sum
equivalent to one year's base salary. The Company may terminate each employee's
employment in the event of his or her disability for a period of 360
consecutive days or more, which termination is effective one year from the date
of notice of such termination by the Company. Upon a change in control of the
Company (as defined in each agreement), each employee has the option of
terminating his or her employment agreement immediately upon notice to the
Company, in which event (i) all of the stock options held by such employee will
be immediately exercisable and the stock of the Company acquired pursuant to
such exercise may be sold subject to no restrictions by the Company (other than
those imposed by federal and state securities laws), and (ii) the Company will
pay to the employee at the time of such termination a lump sum equal to three
times such employee's base salary for the fiscal year in which such termination
occurs.
STOCK OPTION PLAN
Under the Company's 1997 Stock Option Plan (the "Plan"), which became
effective as of February 28, 1997, 1,000,000 shares of Common Stock are
reserved for issuance upon exercise of stock options granted under the Plan.
The Plan is designed as a means to attract and retain qualified and competent
persons who provide services to the Company and its subsidiaries. The Board of
Directors, or a committee (the "Committee") of two or more non-employee
directors appointed by the Board of Directors, will administer and interpret
the Plan. The Board of Directors and the Committee each shall be authorized to
grant options thereunder to all eligible employees, directors (whether or not
also employees of the Company or any of its subsidiaries), consultants and
independent contractors of the Company or its subsidiaries. In the event of a
change in the Common Stock due to a stock dividend or recapitalization, the
Plan provides for appropriate adjustment in the number of shares available for
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<PAGE>
grant under the Plan and the number of shares and the exercise price per share
under any option then outstanding under the Plan, so that the same percentage
of the Company's issued and outstanding shares shall remain subject to being
optioned under the Plan or subject to purchase at the same aggregate exercise
price under any such outstanding option, as applicable. Unless otherwise
provided in any option, the Committee or the Board of Directors may change the
option price and/or number of shares under any outstanding option when, in
their discretion, such adjustment becomes appropriate so as to preserve but not
increase benefits under the Plan. The aggregate number of shares subject to
options granted to any one optionee under the Plan may not exceed 400,000
subject to adjustment as described above. However, no incentive stock options
(as defined in Section 422 of the Internal Revenue Code) may be granted to a
person who is not also an employee of the Company or a subsidiary.
The Plan provides for the granting of both incentive stock options and
nonqualified stock options. Options may generally be granted under the Plan on
such terms and at such prices as determined by the Committee or the Board of
Directors, except that the per share exercise price of any incentive stock
options cannot be less than the fair market value of a share of the Common
Stock on the date of grant. Each option is exercisable after the period or
periods specified in the option agreement, but no option may become exercisable
after the expiration of ten years from the date of grant. The Board of
Directors or Committee may in its sole discretion accelerate the exercisability
or vesting of any option or shares previously acquired by the exercise of any
options (including, without limitation, in the event of a change in control, as
defined in the Plan). Incentive stock options granted to an individual who owns
(or is deemed to own) at least 10% of the total combined voting power of all
classes of stock of the Company or any of its subsidiaries must have an
exercise price of at least 110% of the fair market value of the Common Stock
subject to such option on the date of grant and a term of no more than five
years. Incentive stock options granted under the Plan are not transferable
other than by will or by the laws of descent and distribution. Nonqualified
stock options are also not transferable unless the prior written consent of the
Committee or the Board of Directors is obtained and such transfer does not
violate Rule 16b-3 under the Securities Exchange Act of 1934. Unless otherwise
provided in any option, and subject to such guidelines as the Committee or the
Board of Directors may establish, the option price may be paid by cash,
certified or official bank check, personal check if accepted by the Committee
or the Board of Directors, money order, shares of Common Stock, withholding of
shares of Common Stock, any cashless exercise procedure approved by the
Committee or the Board of Directors, other consideration deemed appropriate by
the Committee or the Board of Directors, or a combination of the above. The
Plan also authorizes the Company to make or guarantee loans to optionees to
enable them to exercise their options. Such loans must (i) provide for recourse
to the optionee, (ii) bear interest at the prime rate of the Company's
principal lender, (iii) be secured by the shares of Common Stock purchased, and
(iv) contain such other terms as the Committee or the Board of Directors in its
sole discretion shall reasonably require. The Board of Directors or the
Committee has the authority to amend or terminate the Plan or any options,
provided that no such action may substantially impair the rights or benefits of
the holder of any outstanding option without the consent of such holder, and
provided further that certain amendments to the Plan are subject to shareholder
approval. Unless terminated sooner, the Plan will continue in effect until all
options granted thereunder have expired or been exercised, provided that no
options may be granted after February 28, 2007.
Options granted under the Plan will be exercisable in accordance with the
option agreement executed in connection with such grant. The Company has
granted options under the Plan to purchase an aggregate of 649,000 shares of
Common Stock to 34 employees. Options to purchase 618,700 shares of Common
Stock were granted to 21 employees on February 28, 1997 and remain outstanding
on the date hereof. Options to purchase 29,900 shares of Common Stock were
granted to 12 employees on October 27, 1997 and remain outstanding on the date
hereof. Options to purchase 400 shares of Common Stock were granted to two
employees on November 30, 1997, and remain outstanding on the date hereof. One
fifth of the options held by each employee vest on each anniversary of the
grant thereof. Notwithstanding the foregoing schedule, the option agreements
prohibit the exercise of any of the options or the sale or other disposition of
any shares of Common Stock acquired pursuant to the
47
<PAGE>
exercise of such options for a period of 180 days after the date of this
Prospectus without the prior written consent of the Underwriters.
CERTAIN TRANSACTIONS
WINDMERE
INITIAL WINDMERE INVESTMENT. In April 1996, the Company issued 5,000,000
shares of Common Stock to Windmere in exchange for (i) $3.0 million in cash,
(ii) an 8% unsecured subordinated promissory note of Windmere due April 15,
1998 in the aggregate principal amount of $3.0 million, (iii) an 8% unsecured
subordinated promissory note of Windmere due April 15, 2001 in the aggregate
principal amount of $2.0 million (together with the 8% subordinated promissory
note in (i) above, the "Windmere Notes") and (iv) an 8% unsecured convertible
subordinated promissory note of Windmere due April 15, 2001 in the aggregate
principal amount of $2.0 million (the "Windmere Convertible Note"). The Company
assigned the Windmere Convertible Note to certain holders of its debt in
exchange for the repayment in full of such indebtedness. Windmere-Durable and
Mr. Newman have agreed that upon the consummation of the Offering, Windmere
will transfer 250,000 shares of Common Stock to Mr. Newman. The $3.0 million
Windmere Note has been repaid in full. The other Windmere Note has been pledged
to the lenders under the Company's credit facility. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources." Windmere has agreed with the
Company to use a portion of the net proceeds from its sale of Common Stock in
the Offering to repay the $2.0 million Windmere Note in full. See "Use of
Proceeds," "Capitalization" and "Principal and Selling Shareholders." Since
April 1996, Windmere has paid the Company approximately $685,000 in interest on
the Windmere Notes. Upon the consummation of the Offering, the Company will
have no loans outstanding to Windmere.
WINDMERE WORKING CAPITAL LOANS TO THE COMPANY. In June 1997, Windmere
loaned to the Company $2.0 million for working capital purposes, in return for
which the Company issued to Windmere a $2.0 million unsecured demand
subordinated promissory note bearing interest at the rate of 2.0% above the
prime rate of NationsBank, National Association (South). In August 1997,
Windmere opened four letters of credit on behalf of the Company, for working
capital purposes, in return for which the Company issued to Windmere in
September 1997 an unsecured demand subordinated revolving promissory note in
the principal amount of up to approximately $3.0 million bearing interest at
the rate of 2.0% above the prime rate of NationsBank, National Association
(South) (the "Revolving Note"). In addition, the Revolving Note provided that
Windmere may offset any amounts not paid by the Company thereunder by a
reduction in outstanding principal under the remaining Windmere Note. On June
8, 1998, the Company used a portion of the funds available under its credit
facility to repay in full the Revolving Note and the $2.0 million note, plus
accrued and unpaid interest thereon. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources." Since June 1997, the Company has paid Windmere approximately
$218,000 in interest on these notes. Upon the consummation of the Offering,
Windmere will have no loans outstanding to the Company. See "--Acquisition of
PRC Manufacturing Facility from Windmere".
WINDMERE GUARANTY UNDER FORMER CREDIT FACILITY. By an Amendment to
Guaranty Agreement dated as of September 15, 1997 between Windmere-Durable and
the Company's former lenders, Windmere-Durable increased the limit of its
guaranty of the Company's obligations to the lenders under its former credit
facility from $3.0 million to $9.0 million. In connection with this increase,
the Company, on September 18, 1997, entered into an Indemnification and
Security Agreement (the "Indemnification and Security Agreement") with
Windmere-Durable pursuant to which the Company granted to Windmere-Durable a
security interest in substantially all of the Company's assets, subordinate
only to the interest of such lenders. The security interest granted pursuant to
the Indemnification and Security Agreement also secured the Company's
obligations to Windmere under the Revolving Note.
The Company and Windmere-Durable agreed that the security interest in the
Company's assets granted by the Indemnification and Security Agreement would
terminate upon an increase by
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<PAGE>
Mr. Newman of the limitation of his guaranty of the Company's obligations to
the Banks from $3.0 million to $6.0 million. See "--Joel Newman--Newman
Collateral and Guaranty under Credit Facility." Such increase in the guaranty
would not, however, terminate Windmere's right to offset any amounts due and
owing to it by the Company under the Revolving Note against Windmere's payment
obligations under the Windmere Notes.
The parties further agreed that upon any default by the Company under the
Revolving Note, the payment by Mr. Newman of one-half of the amount due would
also result in the termination of Windmere-Durable's security interest under
the Indemnification and Security Agreement, provided, that (i) Mr. Newman had
increased the amount of his guaranty as set forth above, (ii) the loan from the
Banks had been reduced to $3.0 million or (iii) the guarantees of
Windmere-Durable and Mr. Newman to the Banks had been terminated as a result of
the repayment and termination of the Company's current credit facility.
Both the guaranty provided by Windmere-Durable and the guaranty provided
by Joel Newman were terminated on June 8, 1998 upon the refinancing of the
Company's former credit facility with funds available under the credit facility
with The National Bank of Canada. The Company's current credit facility does
not include a guaranty by either Windmere-Durable or Mr. Newman.
ACQUISITION OF PRC MANUFACTURING FACILITY FROM WINDMERE. In the fall of
1997, the Company acquired DEI, from DEM, a wholly-owned subsidiary of
Windmere-Durable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview and Highlights--Certain
Relationships.". DEI owns the Company's PRC manufacturing facility. The
acquisition was effected through the purchase by NEIL, of (i) certain
technology and know-how from DEI on October 1, 1997 for approximately $2.0
million and (ii) of all of the capital stock of DEI from DEM on November 1,
1997 for approximately $1,300 in cash. At the time of the acquisition, DEI was
indebted to DEM in the amount of approximately $6.2 million for loans to
finance the acquisition of certain fixed assets, capital expenditures and raw
materials.
In connection with the acquisition, (i) DEI granted to DEM a security
interest in its fixed assets and inventory to secure its obligation to repay
such indebtedness, (ii) DEI assigned NEIL's indebtedness for the $2.0 million
purchase price of the technology and know-how to DEM, (iii) DEM made available
to DEI a loan for equipment acquisitions and working capital in the amount of
up to $500,000 on a demand basis (and due no later than October 31, 2003),
which amount may be increased at DEM's discretion, (iv) DEM agreed not to
compete in the design, research, development or manufacture of music centers
and video compact disc players in the PRC prior to September 30, 2003, (v) DEM
agreed to make available to NEIL, without charge, its general manufacturing
software program until October 31, 2003, (vi) the Company agreed to guarantee
all of NEIL's and DEI's indebtedness to DEM, (vii) NEIL and DEI became obligors
under the Company's former credit facility, and (viii) all of the obligations
of the Company, NEIL and DEI to DEM were subordinated to their obligations to
the lenders under such facility. NEIL and DEI are also obligors under the
Company's credit facility with The National Bank of Canada. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DEI's approximately $6.2 million indebtedness to DEM matures on October
31, 2003. NEIL's $2.0 million indebtedness to DEM is payable in 24 equal
quarterly installments from 1998 through 2003, and the outstanding principal
amount of such indebtedness is approximately $1.8 million. In addition, the
outstanding principal amount of the working capital loan described in clause
(iii) of the preceding paragraph has been increased to approximately $3.0
million. All the indebtedness of NEIL and DEI to DEM described in the foregoing
paragraph bears interest at a rate equal to 1.0% percent above the prime rate
of NationsBank, National Association (South), and the aggregate outstanding
principal amount of such indebtedness is approximately $11.0 million. Since the
date of the DEI acquisition, DEI and NEIL have paid DEM approximately $354,000
in principal and interest pursuant to such indebtedness. The Company will use a
portion of the proceeds from the sale of Common Stock in the Offering to repay
such indebtedness in full. See "Use of Proceeds."
Windmere-Durable provides the Company with certain administrative services
with respect to the PRC manufacturing facility for a monthly management fee of
approximately $11,800. For example,
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pursuant to this arrangement, Windmere-Durable or its affiliates purchase
certain raw materials and other goods and services and pay certain accounts
payable and collect certain accounts receivable on behalf of the Company and
its subsidiaries, including DEI. Amounts paid by Windmere-Durable or its
affiliates on behalf of the Company are reimbursed by the Company. Since the
date of the DEI acquisition, the Company has paid Windmere-Durable a total of
approximately $129,000 under this arrangement.
JOEL NEWMAN
NEWMAN WORKING CAPITAL LOAN TO THE COMPANY. In July 1997, Mr. Newman
loaned the Company $2.0 million for working capital purposes, in return for
which the Company issued to Mr. Newman a $2.0 million unsecured demand
promissory note. The note bore interest at the rate of 2.0% above the prime
rate of NationsBank, National Association (South). On June 8, 1998, the Company
used a portion of the funds available under its credit facility to repay the
note in full. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources." Since June 1997,
the Company has paid Mr. Newman approximately $106,000 in interest on the note.
Upon the consummation of the Offering, Mr. Newman will have no loans
outstanding to the Company.
NEWMAN COLLATERAL AND GUARANTY UNDER CREDIT FACILITY. In 1996 and 1997,
the Company paid Mr. Newman approximately $72,000 and $42,000, respectively, in
consideration for the pledge by Mr. Newman of certain securities as collateral
for the Company's obligations under its then existing credit facility. Such
pledge was terminated in July 1997 . In addition, the guaranty provided by Joel
Newman under the Company's former credit facility was terminated upon the
refinancing and termination of such facility with funds available under the
current credit facility with The National Bank of Canada. The current credit
facility does not include a guaranty by Mr. Newman.
COMPANY LOANS TO NEWMAN. During 1995, 1996 and 1997, the Company loaned
Mr. Newman an aggregate of approximately $224,000. This loan bears interest at
7.0% per annum, is unsecured and is payable on demand. Mr. Newman has agreed
with the Company to use a portion of the net proceeds from his sale of Common
Stock in the Offering to repay this loan in full. See "Use of Proceeds" and
"Principal and Selling Shareholders." Since 1995, Mr. Newman has paid the
Company approximately $52,000 in interest on this loan. Upon the consummation
of the Offering, the Company will have no loans outstanding to Mr. Newman.
AIRCRAFT LEASE. The Company leases a jet aircraft from F Fifty Holdings,
Inc., a company owned by Joel Newman ("F Fifty"). Mr. Newman owns 45.0% of the
Common Stock on the date of this Prospectus and is the Company's Chairman of
the Board, President and Chief Executive Officer. The Company pays an annual
fee of $150,000, and when the aircraft is being utilized, the Company pays an
additional hourly fee at the current market rate. The Company is not
responsible for insurance, fuel costs, crew costs, maintenance costs, landing
fees, parking fees, overflight charges or any other such expenses. The term of
the lease is from June 1, 1997 through June 30, 2007. Since June 1997, the
Company has paid F Fifty a total of approximately $369,000 for the lease of the
aircraft. In June 1997, the Company loaned F Fifty approximately $330,000 to
purchase the aircraft. This loan does not bear interest and is unsecured and
payable on demand. Mr. Newman has agreed with the Company to use a portion of
the net proceeds from his sale of Common Stock in the Offering to cause F Fifty
to repay this loan in full. See "Use of Proceeds." In 1997, Windmere used the
aircraft from time to time and paid the Company approximately $90,000 for such
use. Since January 1998, Windmere has leased the aircraft from F Fifty.
Windmere pays F Fifty an annual fee of $180,000 and pays no hourly fee,
provided it does not use the aircraft for more than 100 hours per year.
Upon the consummation of the Offering, the Company will have no loans
outstanding to or from Mr. Newman, Windmere or any other affililate. The
Company does not intend to lend to or borrow from Windmere or Mr. Newman in the
future. The Company intends to have its audit committee (composed of two
unaffiliated directors) evaluate all existing or proposed transactions with
related parties. See "Management--Committees of the Board of Directors."
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information concerning the beneficial
ownership of the Common Stock immediately prior to the Offering and as adjusted
to reflect the sale of the shares offered by this Prospectus by (i) each of the
Company's Named Executive Officers and directors, (ii) each person who is the
beneficial owner of 5% or more of the Common Stock and (iii) all executive
officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED NUMBER OF SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING(2) SHARES TO BE AFTER THE OFFERING(2)
-------------------------- SOLD IN THE ------------------------
NAME AND ADDRESS(1) NUMBER PERCENTAGE OFFERING NUMBER PERCENTAGE
- -------------------------------------- ----------- ------------ ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Joel Newman(3)(4) .................... 4,500,000 45.0% %
Windmere(4) .......................... 5,000,000 50.0
Hatch Masuda(5) ...................... -- -- -- -- --
Ichiro Okamoto(6) .................... -- -- -- -- --
Stuart Slugh(7) ...................... -- -- -- -- --
Leonor Schuck(8) ..................... -- -- -- -- --
David Friedson(9) .................... 5,000,000 50.0
Arnold Thaler(10) .................... -- -- -- -- --
Cesar Alvarez(11) .................... 500,000 5.0 -- 500,000
All directors and Named Executive
Officers of the Company
as a group (7 persons)(12) ......... 9,500,000 95.0% %
<FN>
- ----------------
* Less than 1%
(1) Unless otherwise indicated, the address of each party is c/o the Company,
16550 N.W. 10th Avenue, Miami, Florida 33169.
(2) Based on 10,000,000 shares outstanding at April 15, 1998 and as
adjusted after the Offering. Pursuant to the rules of the Commission,
certain shares which a person has the right to acquire within 60 days of
the date hereof pursuant to the exercise of stock options and warrants are
deemed to be outstanding for the purpose of computing the percentage
ownership of such person but are not deemed outstanding for the purpose of
computing the percentage ownership of any other person.
(3) Includes 4,500,000 shares directly owned. Excludes 175,000 shares subject
to unexercisable stock options.
(4) Does not reflect the possible sales of shares upon exercise of the
Underwriters' over-allotment option. Joel Newman and Windmere have granted
an option to the Underwriters, exercisable for 30 days after the date of
this Prospectus, to purchase up to an aggregate of additional shares
of Common Stock at the initial public offering price set forth on the
cover page of this Prospectus, less the underwriting discounts and
commissions. If the Underwriters exercise the option in full, Mr. Newman
and Windmere will sell and shares, respectively, resulting
in Mr. Newman and Windmere owning shares ( %) and
shares ( %), respectively, after the closing of the Offering. See
"Underwriting." Windmere-Durable and Mr. Newman have agreed that upon the
consummation of the Offering, Windmere will transfer 250,000 shares of
Common Stock to Mr. Newman. Mr. Friedson is a control person of Windmere.
See footnote (9).The address of Windmere is c/o Windmere-Durable Holdings,
Inc., 5980 Miami Lakes Drive, Miami Lakes, Florida 33014-9897.
(5) Excludes 125,000 shares subject to unexercisable stock options.
(6) Excludes 60,000 shares subject to unexercisable stock options.
(7) Excludes 45,000 shares subject to unexercisable stock options.
(8) Excludes 60,000 shares subject to unexercisable stock options.
(9) Includes 5,000,000 shares (50.0%) held of record by Windmere prior to the
Offering. Windmere is a wholly-owned subsidiary of Windmere-Durable. Mr.
Friedson is the Chairman of the Board of Directors, Chief Executive
Officer, President and a shareholder of Windmere-Durable. Mr. Friedson
may, by virtue of his relationship with Windmere-Durable, be deemed to
beneficially own the shares of Common Stock held of record by Windmere.
Mr. Friedson disclaims beneficial ownership of the shares, except to the
extent of his respective investment interests in Windmere and
Windmere-Durable. The address of Mr. Friedson is c/o Windmere-Durable
Holdings, Inc., 5980 Miami Lakes Drive, Miami Lakes, Florida 33014-9897.
(10) The address of Mr. Thaler is c/o Windmere-Durable Holdings, Inc. 5980
Miami Lakes Drive, Miami Lakes, Florida 33014-9897.
(11) The address of Mr. Alvarez is c/o Greenberg Traurig Hoffman Lipoff Rosen &
Quentel, P.A., 1221 Brickell Avenue, 22nd Floor, Miami, Florida 33131.
(12) Includes 4,500,000 shares directly owned by Mr. Newman and 5,000,000
shares directly owned by Windmere. Excludes an aggregate of 465,000 shares
subject to unexercisable stock options held by Messrs. Newman, Masuda,
Okamoto and Slugh and by Ms. Schuck.
</FN>
</TABLE>
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 50,000,000
shares of Common Stock, par value $0.01 per share, of which will be
outstanding upon the consummation of the Offering, and (ii) 1,000,000 shares of
preferred stock, par value $0.01 per share (the "Preferred Stock"), none of
which will be outstanding. The following description of the Company's capital
stock does not purport to be complete and is qualified in its entirety by
reference to the Florida Business Corporation Act (the "FBCA"), as amended from
time to time, and the Articles and Bylaws, which are filed as exhibits to the
Registration Statement of which this Prospectus forms a part. See "Additional
Information."
COMMON STOCK
The holders of the Common Stock are entitled to one vote per share of
record on all matters to be voted upon by shareholders and to vote together as
a single class for the election of directors and in respect of other corporate
matters. At a meeting of shareholders at which a quorum is present, for all
matters other than the election of directors, a majority of the votes cast
decides all questions, unless the matter is one upon which a different vote is
required by express provision of law or the Articles or Bylaws. Directors will
be elected by a plurality of the votes of the shares present at a meeting.
There is no cumulative voting with respect to the election of directors (or any
other matter).
The holders of Common Stock have no preemptive rights and have no rights
to convert their Common Stock into any other securities. Subject to the rights
of holders of Preferred Stock, if any, in the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to participate equally and ratably in all assets remaining after payment of
liabilities and distribution of any preferential amount.
The holders of Common Stock are entitled to receive ratably such dividends
as the Board of Directors may declare out of funds legally available therefor,
when and if so declared, subject to any preference in favor of outstanding
shares of Preferred Stock, if any. The payment by the Company of dividends, if
any, rests within the discretion of its Board of Directors and will depend upon
the Company's results of operations, financial condition and capital
expenditure plans, as well as other factors considered relevant by the Board of
Directors.
PREFERRED STOCK
Upon completion of the Offering, no shares of Preferred Stock will be
outstanding, and the Company has no present intention to issue any shares of
Preferred Stock. The Board of Directors of the Company, without further action
by the shareholders, will be authorized to issue from time to time up to
1,000,000 shares of Preferred Stock in one or more series and to fix and
determine as to any series all the relative rights and preferences of shares in
such series, including, without limitation, relative voting, dividend,
redemption, liquidation, conversion and other powers, preferences, rights,
qualifications and limitations. The issuance of shares of Preferred Stock, or
the issuance of rights to purchase such shares, could be used to discourage an
unsolicited acquisition proposal that some, or a majority, of the shareholders
might believe to be in the best interests of the Company or in which
shareholders might receive a premium for their stock over the then market price
of such stock. In addition, under certain circumstances, the issuance of
Preferred Stock could adversely affect the voting power of the holders of the
Common Stock.
OPTIONS TO PURCHASE COMMON STOCK
Options to purchase 618,700 shares of Common Stock at an exercise price of
$2.00 per share were granted to 21 employees on February 28, 1997 and remain
outstanding on the date hereof. Options to
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purchase 29,900 shares of Common Stock at an exercise price of $4.00 per share
were granted to 12 employees on October 27, 1997, and options to purchase 400
shares of Common Stock at an exercise price of $4.00 per share were granted to
two employees on November 30, 1997 and remain outstanding on the date hereof.
One fifth of the options held by each employee vest on each anniversary of the
grant thereof. The option agreements executed by the employees in connection
therewith prohibit the exercise of any of the options or the sale or other
disposition of any shares of Common Stock acquired pursuant to the exercise of
such options for a period of 180 days after the date of this Prospectus without
the prior written consent of the Underwriters. See "Management--Stock Option
Plan."
LIMITED LIABILITY AND INDEMNIFICATION
Under the FBCA, a director is not personally liable for monetary damages
to the corporation or any other person for any statement, vote, decision, or
failure to act unless (i) the director breached or failed to perform his duties
as a director and (ii) a director's breach of, or failure to perform, those
duties constitutes (1) a violation of the criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no reasonable cause
to believe his conduct was unlawful, (2) a transaction from which the director
derived an improper personal benefit, either directly or indirectly, (3) a
circumstance under which an unlawful distribution is made, (4) in a proceeding
by or in the right of the corporation or procure a judgment in its favor or by
or in the right of a shareholder, conscious disregard for the best interest of
the corporation or willful misconduct, or (5) in a proceeding by or in the
right of someone other than the corporation or a shareholder, recklessness or
an act or omission which was committed in bad faith or with malicious purpose
or in a manner exhibiting wanton and willful disregard of human rights, safety,
or property. A corporation may purchase and maintain insurance on behalf of any
director or officer against any liability asserted against him and incurred by
him in his capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the FBCA.
The Articles and Bylaws provide that the Company shall, to the fullest
extent permitted by applicable law, as amended from time to time, indemnify and
may advance expenses to all directors of the Company, as well as any officers
or employees of the Company to whom the Company has agreed to grant
indemnification.
PROVISIONS WITH POSSIBLE ANTI-TAKEOVER EFFECT
Certain provisions of the FBCA and of the Articles and the Bylaws,
summarized in the following paragraphs, may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a shareholder might consider to be in
such shareholder's best interest, including such an attempt as might result in
payment of a premium over the market price for shares held by shareholders.
These provisions may also have the effect of rendering changes in the Board of
Directors and management of the Company more difficult. Any discouraging effect
upon takeover attempts could potentially depress the market price of the Common
Stock or inhibit temporary fluctuations in the market price of the Common Stock
that otherwise could result from actual or rumored takeover attempts.
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW. Florida has enacted legislation
that may deter or frustrate takeovers of Florida corporations. The "Control
Share Acquisitions" section of the FBCA generally provides that shares acquired
in excess of certain specified thresholds, beginning at 20% of a corporation's
outstanding voting shares, will not possess any voting rights unless such
voting rights are approved by a majority vote of a corporation's disinterested
shareholders. The "Affiliated Transactions" section of the FBCA generally
requires majority approval by disinterested directors or supermajority approval
of disinterested shareholders of certain specified transactions (such as a
merger, consolidation, sale of assets, issuance or transfer of shares or
reclassifications of securities) between a corporation and a holder of more
than 10% of the outstanding shares of the corporation, or any affiliate of such
shareholder.
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The directors of the Company are subject to the "general standards for
directors" provisions set forth in the FBCA. These provisions provide that in
discharging his or her duties and determining what is in the best interests of
the Company, a director may consider such factors as the director deems
relevant, including the long-term prospects and interests of the Company and
its shareholders and the social, economic, legal or other effects of any
proposed action on the employees, suppliers or customers of the Company, the
community in which the Company operates and the economy in general.
Consequently, in connection with any proposed action, the Board of Directors is
empowered to consider interests of other constituencies in addition to the
Company's shareholders, and directors who take into account these other factors
may make decisions which are less beneficial to some, or a majority, of the
shareholders than if the law did not permit consideration of such other
factors.
AUTHORIZED BUT UNISSUED SHARES. Subject to the applicable requirements of
the Nasdaq National Market, the authorized but unissued shares of Common Stock
and Preferred Stock are available for future issuance without shareholder
approval. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued and unreserved Common Stock and Preferred Stock may enable the
Board of Directors to issue shares to persons friendly to current management
which would render more difficult or discourage an attempt to obtain control of
the Company by means of a proxy contest, tender offer, merger or otherwise, and
thereby protect the continuity of the Company's management.
SPECIAL MEETING OF SHAREHOLDERS. The Articles provide that special
meetings of shareholders of the Company may be called only by the Board of
Directors, the Company's Chief Executive Officer or the holders of not less
than 50% of all votes entitled to be cast on any issue proposed to be
considered at such special meeting. This provision will make it more difficult
for shareholders to take actions opposed by the Board of Directors.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Articles provide that shareholders seeking to bring business
before an annual meeting of shareholders, or to nominate candidates for
election as directors at an annual or special meeting of shareholders, must
provide timely notice thereof in writing. To be timely, a shareholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Company not less than 120 days nor more than 180 days prior to the first
anniversary of the date of the Company's notice of annual meeting provided with
respect to the previous year's annual meeting; provided, however, that in the
event of a special meeting or if no annual meeting was held in the previous
year or the date of the annual meeting has been changed by more than 30
calendar days from the date contemplated by the previous year's notice of
annual meeting, such notice by the shareholder to be timely must be delivered
to or mailed and received at the principal executive offices of the Company not
later than the close of business on the seventh day following the date on which
notice of the date of the meeting is mailed to shareholders or made public,
whichever occurs first. The Articles also specify certain requirements for a
shareholder's notice to be in proper written form. These provisions may
preclude some shareholders from bringing matters before the shareholders at an
annual or special meeting or from making nominations for directors at an annual
or special meeting.
VACANCIES. The Articles provide that a vacancy on the Board of Directors
occurring from an increase in the number of directors or otherwise may be
filled by the vote of a majority of directors then in office, though less than
a quorum, or by a sole remaining director.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering, the Company will have shares of
Common Stock outstanding, assuming no outstanding stock options are exercised.
Of these shares, the shares of Common Stock sold in the Offering (
shares if the Underwriters' over-allotment option is exercised in full) will be
freely tradeable by persons other than affiliates of the Company, without
restriction under the Securities Act. The remaining shares of Common
Stock will be "restricted securities" within the meaning of Rule 144 under the
Securities Act, and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including
the exemptions contained in Rule 144 and Rule 701. Commencing 90 days after the
date hereof, of these shares of Common Stock will become eligible for
sale in the open market, subject to volume and other limitations imposed by
Rule 144. In addition, the Company has granted certain registration rights with
respect to holders of shares of Common Stock ( shares if the
Underwriters' over-allotment option is exercised in full), as well as options
to acquire 175,000 shares. Sales of all or a portion of such shares could have
a material adverse effect upon the price of the Common Stock. However, the
directors, executive officers and Selling Shareholders of the Company have
agreed not to sell, contract to sell or otherwise dispose of any of these
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Warburg Dillon Read LLC, as
discussed below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of the Company, who has
beneficially owned his or her shares for at least one year (including the prior
holding period of any prior owner other than an affiliate) is entitled to sell
within any three-month period that number of shares which does not exceed the
greater of 1% of the outstanding shares of the Common Stock, or the average
weekly trading volume during the four calendar weeks preceding each such sale.
Sales under Rule 144 also are subject to certain manner of sale provisions,
notice requirements, and the availability of current public information about
the Company. A person (or persons whose shares are aggregated) who is not or
has not been deemed an "affiliate" of the Company for at least three months,
and who has beneficially owned shares for at least two years (including the
holding period of any prior owner other than an affiliate) would be entitled to
sell such shares under Rule 144 without regard to the limitations discussed
above.
In general, under Rule 701, beginning 90 days after the closing of the
Offering, certain shares issued upon the exercise of options granted by the
Company prior to the date of this Prospectus will also be available for sale in
the public market. Any employee, officer or director of or consultant to the
Company who purchased his or her shares pursuant to a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701. Rule
701 permits affiliates and non-affiliates to sell their Rule 701 shares under
Rule 144 without complying with the one-year holding period requirements of
Rule 144. Rule 701 further provides that non-affiliates may sell such shares in
the public market in reliance on Rule 144 without having to comply with the
public information, volume limitation or notice provisions of Rule 144. In both
cases, a holder of Rule 701 shares is required to wait until 90 days after the
date of this Prospectus before selling such shares in the public market.
An aggregate of 1,000,000 shares of Common Stock are reserved for issuance
to employees and directors of the Company pursuant to the Plan. Currently,
649,000 shares of Common Stock are issuable under outstanding options granted
to employees pursuant to the Plan. With respect to 618,700 such options, which
were granted on February 28, 1997, (i) as of the date of this Prospectus,
123,740 will be vested and (ii) 123,740 will vest on each February 28,
commencing February 28, 1999. With respect to 29,900 such options, 5,980 will
vest on each anniversary of October 27, 1997, the date they were granted. With
respect to 400 such options, 80 will vest on each anniversary of November 30,
1997, the date they were granted. Once vested, the shares issuable upon the
exercise of all of the foregoing options would be eligible subject to
compliance with Rule 701, the stock option agreements and the Lock-up
Agreements with Warburg Dillon Read LLC described below. Under the stock option
agreements pursuant to which the options were granted, one fifth of the options
granted to each employee vest on each anniversary of the date of grant;
provided, however, that the exercise of any of the options or the
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<PAGE>
sale or other disposition of any shares of Common Stock acquired pursuant to
the exercise of such options for a period of 180 days after the date of this
Prospectus without the prior written consent of the Underwriters is prohibited.
After consummation of the Offering, the Company intends to file one or
more registration statements on Form S-8 with respect to shares of Common Stock
issuable under the Plan. See "Management--Stock Option Plan." Shares covered by
any such registration statement will be eligible for sale in the public market
upon the effectiveness of such registration statement (which occurs immediately
upon filing), subject to the limitations of Rule 144 that are applicable to
affiliates the Lock-up Agreements described below and the stock option
agreements.
The Company and its executive officers, directors, and Selling
Shareholders have agreed with Warburg Dillon Read LLC pursuant to the Lock-up
Agreements that they will not sell, contract to sell, pledge, grant any option
to purchase, transfer or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into, or exchangeable for,
Common Stock or warrants or other rights to purchase or acquire shares of
Common Stock or permit the registration of shares of Common Stock, for a period
of 180 days after the date of this Prospectus, without the prior written
consent of Warburg Dillon Read LLC, except, without such consent, the Company
may issue and register, and the Company and the Selling Shareholders may sell,
the shares of Common Stock offered in the Offering (including the
over-allotment). Warburg Dillon Read LLC, in its sole discretion, without
notice, may release some or all of the shares subject to Lock-up Agreements
from time to time.
Prior to this Offering there will be no market for the Common Stock, and
no accurate prediction can be made of the effect, if any, that market sales of
restricted securities or of shares subject to stock options or the availability
of these shares for sale will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of any of these
shares in the public market could adversely affect prevailing market prices for
the Common Stock. See "Risk Factors--Shares Eligible for Future Sale."
REGISTRATION RIGHTS
Upon the expiration of 180 days after the date of this Prospectus, each of
Joel Newman and Windmere has the right to (i) request that the Company
register, as expeditiously as possible, any or all of the Common Stock then
owned by such shareholder, including all shares of Common Stock issuable
pursuant to any derivative securities of the Company then held by such
shareholder and (ii) include such shares of Common Stock in registrations
proposed to be effected by the Company. In addition, upon receipt of any such
request from Mr. Newman or Windmere, the Company must notify the other of such
request and offer to include the shares held by such non-requesting shareholder
in the registration statement to be filed pursuant to the request. The Company
has agreed to indemnify such shareholders against liabilities under the
Securities Act in certain circumstances in connection with any such
registration statement.
56
<PAGE>
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the acquisition, ownership and disposition of Common
Stock by a "Non-U.S. Holder." For this purpose, a "Non-U.S. Holder" is any
person who is, for U.S. federal income tax purposes, a non-resident alien
individual, a foreign corporation, a foreign partnership or a foreign estate or
trust, as those terms are defined in section 7701(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The rules classifying trusts as foreign
for U.S. federal income tax purposes have changed recently, and a prospective
purchaser of Common Stock that is a trust is urged to consult its tax adviser
regarding its classification. This discussion does not address tax consequences
to U.S. citizens or residents or domestic corporations, partnerships, estates
or trusts. This discussion does not address all aspects of U.S. federal income
and estate taxation and does not deal with state, local or foreign tax
consequences that may be relevant to a Non-U.S. Holder in light of his
particular circumstances. This discussion is based on provisions of the Code,
existing and proposed regulations promulgated thereunder and administrative and
judicial interpretations thereof as of the date hereof, all of which are
subject to change, possibly retroactively. Each prospective purchaser of Common
Stock is advised to consult his tax adviser with respect to current and
possible future U.S. federal income and estate tax consequences of acquiring,
owning and disposing of Common Stock as well as any tax consequences that may
arise under the laws of any state, local, foreign or other taxing jurisdiction.
DIVIDENDS
A dividend paid to a Non-U.S. Holder of Common Stock generally will be
subject to withholding of U.S. federal income tax at a 30 percent rate or at a
lower rate that any be specified by an applicable income tax treaty. However, a
dividend that is effectively connected with the conduct of a trade or business
by the Non-U.S. Holder within the United States (or, if a tax treaty applies,
is attributable to a U.S. permanent establishment of the Non-U.S. Holder) is
not subject to U.S. withholding tax (provided certain certification and
disclosure requirements are satisfied) but instead is subject to U.S. federal
income tax on a net income basis at regular graduated U.S. federal income tax
rates. Any effectively connected dividend realized by a foreign corporation
will be subject, under certain circumstances, to an additional "branch profits
tax" at a 30 percent rate or at a lower rate that may be specified by an
applicable income tax treaty. A Non-U.S. Holder of Common Stock who is eligible
for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may
obtain a refund of any excess tax withheld by filing an appropriate claim for
refund with the U.S. Internal Revenue Service ("IRS").
Under U.S. Treasury regulations in effect for payments made before January
1, 2000, dividends paid to an address outside the United States are presumed to
be paid to a resident of that country (unless the payer has knowledge to the
contrary) for purposes of the withholding tax discussed above and, under the
current interpretation of U.S. Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under U.S. Treasury
regulations that apply to payments made after December 31, 1999, a Non-U.S.
Holder of Common Stock who wishes to claim the benefit of an applicable treaty
rate (and avoid backup withholding of tax, as discussed below) would be
required to satisfy certain certification and other requirements.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain recognized on a sale or other disposition of Common Stock
unless (i) the gain is effectively connected with a trade or business of the
Non-U.S. Holder in the United States, (ii) in the case of a Non-U.S. Holder who
is an individual and holds the Common Stock as a capital asset, the holder is
present in the United States for 183 or more days in the taxable year of the
sale or other disposition and certain other conditions are met, (iii) the
Non-U.S. Holder is subject to U.S. federal income tax pursuant to rules
applicable to certain U.S. expatriates and prior lawful permanent residents of
the United States or (iv) the Company is or, in certain circumstances, has been
a "United States real property holding
57
<PAGE>
corporation" for U.S. federal income tax purposes. The Company is not currently
and does not anticipate becoming a "United States real property holding
corporation" for U.S. federal income tax purposes.
An individual Non-U.S. Holder described in clause (i) above generally will
be subject to tax on its net effectively connected gains at regular graduated
U.S. federal income tax rates. Gain recognized by a Non-U.S. Holder described
in clause (i) above that is a foreign corporation will be subject to tax at
regular graduated U.S. federal income tax rates and, in addition, under certain
circumstances, will be subject to an additional "branch profits tax" at a 30
percent rate or at a lower rate that may be specified by an applicable income
tax treaty. Gain recognized by an individual Non-U.S. Holder described in
clause (ii) above, which may be offset by U.S. source capital losses (even
though the individual is not considered a resident of the United States), will
be subject to a 30 percent tax.
FEDERAL ESTATE TAX
Common Stock owned or treated as owned by an individual Non-U.S. Holder at
the time of death will be included in the Non-U.S. Holder's gross estate for
U.S. federal estate tax purposes unless an applicable estate tax treaty
provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The company must report annually to the IRS and to each Non-U.S. Holder
the amount of dividends paid to that Non-U.S. Holder and the tax withheld with
respect to those dividends, regardless of whether withholding was required.
Copies of the information returns reporting the dividends and the tax withheld
also may be made available to the tax authorities in the country in which the
Non-U.S. Holder resides under the provisions of an applicable income tax treaty
or other agreement.
Under U.S. Treasury regulations in effect for payments made before January
1, 2000, backup withholding of tax generally will not apply to dividends paid
to a Non-U.S. Holder at an address outside the United States (unless the payer
has knowledge that the payee is a United States person). Under Treasury
regulations that apply to payments made after December 31, 1999, however, a
Non-U.S. Holder will be subject to backup withholding of tax, at the rate of 31
percent, unless applicable certification and other requirements are met.
Payment of the proceeds of a sale of Common Stock by or through a U.S.
office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner certifies under penalties of perjury that
it is a Non-U.S. Holder or otherwise establishes an exemption. In general,
backup withholding and information reporting will not apply to a payment made
outside the United States of the proceeds of a sale of Common Stock by or
through a foreign office of a broker. However, U.S. information reporting
requirements (but not backup withholding) will apply to a payment of
disposition proceeds outside the United States if: (i) the payment is made
through an office outside the United States of a broker that, for U.S. federal
income tax purposes, is a United States person, a controlled foreign
corporation, or a foreign person that derives 50 percent or more of its gross
income for a specified period from the conduct of a trade or business in the
United States, and (ii) the broker fails to maintain documentary evidence in
its records that (a) the beneficial owner is a Non-U.S. Holder and certain
other conditions are met or (b) the beneficial owner otherwise is entitled to
an exemption.
Any amounts withheld under the backup withholding rules may be allowed as
a refund or as a credit against the holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
58
<PAGE>
UNDERWRITING
The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares of Common Stock which each has severally
agreed to purchase from the Company, subject to the terms and conditions
specified in the Underwriting Agreement, are as follows:
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------- -----------
Warburg Dillon Read LLC ...........
Jefferies & Company, Inc. .........
-------
Total .............................
=======
The Managing Underwriters are Warburg Dillon Read LLC and Jefferies &
Company, Inc.
If any shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed ten percent of the shares offered
hereby, the remaining Underwriters, or some of them, must assume such
obligations.
The Underwriters propose to offer the shares of Common Stock to the public
initially at the offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not to exceed $
per share. The Underwriters may allow, and such dealers may re-allow, a
concession not to exceed $ per share on sales to certain other dealers.
The offering of the shares of Common Stock is made for delivery when, as and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares. After the
shares are released for sale to the public, the public offering price, the
concession and the reallowance may be changed by the Managing Underwriters.
The Selling Shareholders have granted to the Underwriters an option for 30
days from the date of the Underwriting Agreement to purchase up to an
additional shares of Common Stock from them at the offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriters may exercise such option only to cover over-allotments made of the
shares in connection with this Offering. To the extent the Underwriters
exercise this option, each of the Underwriters will be obligated, subject to
certain conditions, to purchase the number of additional shares proportionate
to such Underwriter's initial commitment.
The Company, each of its directors and executive officers and the Selling
Shareholders have agreed that they will not sell, contract to sell, pledge,
grant any option to purchase, transfer or otherwise dispose of, directly or
indirectly, any shares of the Common Stock or any securities convertible into
or exchangeable for Common Stock or warrants or other rights to purchase or
acquire shares of Common Stock or permit the registration of shares of Common
Stock for a period of 180 days after the date of this Prospectus, without the
prior written consent of Warburg Dillon Read LLC, except, without such consent,
the Company may issue and register, and the Company and the Selling
Shareholders may sell, the shares of Common Stock offered in the Offering
(including the Underwriters' over-allotment option).
The Managing Underwriters, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate cover transactions and
penalty bids in accordance with Regulation M
59
<PAGE>
under the Exchange Act. Over-allotment involves syndicate sales in excess of
the Offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Managing Underwriters to reclaim a selling concession
from a syndicate member when the Common Stock originally sold by such syndicate
member is purchased in a syndicate covering transaction to cover syndicate
short positions. Such stabilizing transactions, syndicate covering transactions
and penalty bids may cause the price of the Common Stock to be higher than it
would otherwise be in the absence of such transactions. These transactions may
be effected on the Nasdaq National Market or otherwise and, if commenced, may
be discontinued at any time.
Prior to the Offering, there will be no public market for the Common
Stock. Consequently, the initial public offering price for the shares of Common
Stock included in the Offering will be determined by negotiation among the
Company, the Selling Shareholders and the Managing Underwriters. Among the
principal factors to be considered in determining such price are prevailing
market and general economic conditions, the revenues and earnings of the
Company in recent periods, the current financial position of the Company,
estimates of the business potential of the Company and its industry, the
present state of the Company's development, an assessment of the Company's
management, market valuations of securities of companies engaged in activities
deemed by the Managing Underwriters to be similar to those of the Company, and
other factors deemed relevant. Consideration will also be given to the general
state of the securities market, the market conditions for new issues of
securities and the demand for similar securities of comparable companies. The
Company has applied for listing of the Common Stock on the Nasdaq National
Market under the symbol "NTCH."
The Company and the Selling Shareholders have agreed in the Underwriting
Agreement to indemnify the Underwriters against certain liabilities, including
any liabilities under the Securities Act, or to contribute to payments, the
Underwriters may be required to make in respect thereof.
The Underwriters do not intend to confirm sales to accounts over which
they exercise discretionary authority.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for the Company and for the Selling Shareholders by Greenberg
Traurig Hoffman Lipoff Rosen & Quentel, P.A., Miami, Florida, and for the
Underwriters by Cahill Gordon & Reindel, a partnership including a professional
corporation, New York, New York. Cesar L. Alvarez, a shareholder of Greenberg
Traurig Hoffman Lipoff Rosen & Quentel, P.A., owns 500,000 shares of the
Company's Common Stock. As to certain matters of Florida Law, Cahill Gordon &
Reindel will rely on the opinion of Greenberg Traurig Hoffman Lipoff Rosen &
Quentel, P.A.
EXPERTS
The Consolidated Financial Statements of the Company at December 31, 1996
and 1997 and for each of the three years in the period ended December 31, 1997,
appearing in this Prospectus and Registration Statement, have been audited by
Ernst & Young LLP, independent certified public accountants, as set forth in
their reports thereon appearing elsewhere herein, which, as to the year 1997,
is based in part on the report of Grant Thornton, independent auditors. The
financial statements referred to above are included in reliance upon reports
given upon the authority of such firms as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-1 (the
"Registration Statement") with the Commission under the Securities Act in
respect of the Common Stock offered hereby. For purposes
60
<PAGE>
of this Prospectus, the term "Registration Statement" means the initial
Registration Statement and any and all amendments thereto. This Prospectus
omits certain information contained in the Registration Statement as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made
to the Registration Statement, including the exhibits thereto. Statements
herein concerning the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to such contract
or other document filed with the Commission as an exhibit to the Registration
Statement, or otherwise, each such statement, being qualified by and subject to
such reference in all respects.
As a result of the Offering, the Company will become subject to the
informational requirements of the Exchange Act, and in accordance therewith
will file reports, proxy and information statements, and other information with
the Commission. Reports, registration statements, proxy and information
statements, and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at its regional offices located at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and Seven World Trade Center, Suite 1300,
New York, New York 10048. Copies of these material may be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The Commission maintains
a site on the World Wide Web (http://www.sec.gov) that contains reports,
registration statements, proxy and information statements, and other
information filed electronically with the Commission. Information concerning
the Company will also be available for inspection at the offices of the Nasdaq
National Market, Reports Section, 1735 K Street, N.W., Washington, D.C. 2006.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements which have been certified by its
independent auditors, and quarterly reports containing unaudited summary
financial information for each of the first three quarters of each fiscal year.
61
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 AND 1997
PAGE
-----
Report of Independent Certified Public Accountants .......... F-2
Report of Independent Certified Public Accountants .......... F-3
Audited Consolidated Financial Statements
Consolidated Balance Sheets ................................. F-4
Consolidated Statements of Operations ....................... F-5
Consolidated Statements of Shareholders' Equity ............. F-6
Consolidated Statements of Cash Flows ....................... F-7
Notes to Consolidated Financial Statements .................. F-9
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Newtech Electronics Industries, Inc.
We have audited the accompanying consolidated balance sheets of Newtech
Electronics Industries, Inc. (formerly New M-Tech Corporation) and subsidiaries
as of December 31, 1996 and 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. 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 did not audit the
financial statements of Durable Electronics Industries Limited, a wholly-owned
subsidiary acquired in 1997, which statement reflects total assets of
$6,799,000 at December 31, 1997. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for Durable Electronics Industries Limited, is based
solely on the report of the other auditors.
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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Newtech Electronics
Industries, Inc. and subsidiaries at December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Miami, Florida
April 3, 1998, except for
the last paragraph of Note 1,
as to which the date is April 10, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Durable Electronics Industries Limited
(Formerly known as Durable Electronics Factory Limited)
We have audited the balance sheet of Durable Electronics Industries
Limited (incorporated in Hong Kong with limited liability) as of December 31,
1997, and the related statements of operations and retained earnings and cash
flows for the period from November 1, 1997 to December 31, 1997 (not presented
separately herein). 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Durable Electronics
Industries Limited as of December 31, 1997, and the results of its operations
and retained earnings and its cash flows for the period from November 1, 1997
to December 31, 1997, in conformity with generally accepted accounting
principles in the United States of America.
/s/ GRANT THORNTON
Hong Kong
April 2, 1998
F-3
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- MARCH 31,
1996 1997 1998
-------------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 2,671,973 $ 2,030,726 $ 2,209,845
Short-term investments .................................... 1,297,480 1,400,082 1,402,164
Accounts receivable, net of allowance for doubtful
accounts of $73,000 in 1996, $150,000 in 1997,
and $185,718 at March 31, 1998 .......................... 1,590,019 30,686,010 20,782,058
Due from affiliates ....................................... 100,822 1,349,732 684,728
Account receivable from officer ........................... 229,551 270,980 224,217
Inventory ................................................. 3,445,807 25,187,800 27,616,486
Prepaid expenses and other current assets ................. 332,859 1,261,348 1,768,260
Deferred tax asset ........................................ 135,474 486,236 780,606
------------ ------------ ------------
Total current assets ....................................... 9,803,985 62,672,914 55,468,364
Property and equipment, net ................................ 379,940 2,177,754 2,589,332
Other assets, net .......................................... 141,775 71,787 469,363
Intangible assets, net ..................................... 46,600 3,670,965 3,529,221
------------ ------------ ------------
Total assets ............................................... $ 10,372,300 $ 68,593,420 $ 62,056,280
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit ............................................ $ 27,701 $ 21,796,446 $ 18,575,943
Accounts payable and bank overdraft ....................... 3,802,564 16,395,436 14,084,429
Due to affiliates ......................................... -- -- 309,275
Notes payable to affiliate, current portion ............... -- 412,005 329,604
Notes payable to shareholders ............................. -- 7,173,564 7,135,390
Accrued expenses .......................................... 279,234 2,745,649 2,045,003
------------ ------------ ------------
Total current liabilities .................................. 4,109,499 48,523,100 42,479,644
Notes payable to affiliate, long-term portion .............. -- 7,785,120 7,785,120
Shareholders' equity:
Preferred stock, $.01 per value; 1,000,000 shares
authorized, none issued .................................
Common stock, $.01 par value; 50,000,000 shares
authorized, 10,000,000 shares issued .................... 100,000 100,000 100,000
Additional paid-in capital ................................ 9,900,152 9,900,152 9,900,152
Promissory notes due for purchase of common stock ......... (5,000,000) (5,000,000) (5,000,000)
Retained earnings ......................................... 1,262,649 7,285,048 6,791,364
------------ ------------ ------------
Total shareholders' equity ................................. 6,262,801 12,285,200 11,791,516
------------ ------------ ------------
Total liabilities and shareholders' equity ................. $ 10,372,300 $ 68,593,420 $ 62,056,280
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- ----------------------------
1995 1996 1997 1997 1998
-------------- -------------- --------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales .............................. $13,353,011 $39,060,136 $208,416,612 $ 8,419,941 $38,900,182
Cost of products sold .................. 11,993,097 35,171,566 186,433,089 7,209,874 35,357,690
----------- ----------- ------------ ----------- -----------
Gross profit ........................... 1,359,914 3,888,570 21,983,523 1,210,067 3,542,492
Selling expenses ....................... 845,541 1,284,872 10,532,664 542,778 1,728,160
General and administrative
expenses .............................. 1,154,941 1,842,490 4,597,839 867,704 1,986,652
Write-off of advances to affiliate ..... -- 980,018 -- -- --
----------- ----------- ------------ ----------- -----------
Total expenses ......................... 2,000,482 4,107,380 15,130,503 1,410,482 3,714,812
----------- ----------- ------------ ----------- -----------
Income (loss) from operations .......... (640,568) (218,810) 6,853,020 (200,415) (172,320)
Other (income) expense:
Interest expense ...................... 116,788 109,249 1,224,023 34,304 366,394
Interest expense--
related party ....................... 190,517 92,257 538,885 18,654 369,044
Interest and other income ............. (196,728) (302,223) (165,694) (19,897) (25,356)
Interest income--related party ........ -- (284,931) (415,831) (102,593) (103,038)
----------- ----------- ------------ ----------- -----------
Total other (income) expense ........... 110,577 (385,648) 1,181,383 (69,532) 607,044
----------- ----------- ------------ ----------- -----------
Income (loss) before
income taxes .......................... (751,145) 166,838 5,671,637 (130,883) (779,364)
Income tax benefit ..................... -- (135,474) (350,762) (200,735) (285,680)
----------- ----------- ------------ ----------- -----------
Net income (loss) ...................... $ (751,145) $ 302,312 $ 6,022,399 $ 69,852 $ (493,684)
=========== =========== ============ =========== ===========
Net income (loss) per
common share:
Basic and diluted ..................... $ (.08) $ .03 $ .60 $ .01 $ (.05)
=========== =========== ============ =========== ===========
Weighted average number of
common shares outstanding:
Basic ................................. 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
=========== =========== ============ =========== ===========
Diluted ............................... 10,000,000 10,000,000 10,093,024 10,000,000 10,309,350
=========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PROMISSORY
ADDITIONAL NOTES DUE FOR
PAID-IN PURCHASE OF TOTAL
COMMON CAPITAL COMMON RETAINED SHAREHOLDERS'
STOCK (DEFICIENCY) STOCK EARNINGS EQUITY
----------- -------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 ............. $ 50,000 $ (49,848) $ -- $1,711,482 $ 1,711,634
Net loss ................................ -- -- -- (751,145) (751,145)
-------- ---------- ------------ ---------- -----------
Balance at December 31, 1995 ............. 50,000 (49,848) -- 960,337 960,489
Issuance of 5,000,000 shares
of common stock for cash
of $3,000,000 and
promissory notes (see Note 8) ......... 50,000 9,950,000 (5,000,000) -- 5,000,000
Net income .............................. -- -- -- 302,312 302,312
-------- ---------- ------------ ---------- -----------
Balance at December 31, 1996 ............. 100,000 9,900,152 (5,000,000) 1,262,649 6,262,801
Net income .............................. -- -- -- 6,022,399 6,022,399
-------- ---------- ------------ ---------- -----------
Balance at December 31, 1997 ............. 100,000 9,900,152 (5,000,000) 7,285,048 12,285,200
Net loss ................................ -- -- -- (493,684) (493,684)
-------- ---------- ------------ ---------- -----------
Balance at March 31, 1998
(Unaudited) ............................ $100,000 $9,900,152 $ (5,000,000) $6,791,364 $11,791,516
======== ========== ============ ========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ............................... $ (751,145) $ 302,312 $ 6,022,399
Adjustments to reconcile net income (loss)
to net cash (used) provided by operating
activities:
Depreciation and amortization of property
and equipment ................................. 27,846 68,034 222,151
Amortization of intangible assets .............. 5,000 5,000 108,730
Provision for warranties and
product returns ............................... -- -- 465,790
Deferred income taxes .......................... -- (135,474) (350,762)
Provision for bad debts ........................ 54,119 85,348 160,102
Changes in operating assets and liabilities:
Accounts receivable ........................... 802,544 (785,693) (29,256,093)
Inventory ..................................... (186,788) (1,960,918) (16,905,441)
Prepaid expenses and other
current assets .............................. (352,096) 19,237 115,956
Other assets .................................. (2,217) (94,422) 69,988
Due from affiliates ........................... (664,738) 600,855 (1,845,425)
Account receivable from officer ............... (64,738) 2,955 (41,429)
Accounts payable .............................. 143,477 3,339,391 11,644,498
Accrued expenses .............................. (665,317) 91,988 1,703,873
-------------- -------------- --------------
Net cash (used) provided by
operating activities ........................... (1,654,053) 1,538,613 (27,885,663)
INVESTING ACTIVITIES
Purchases of short-term investments ............. (3,405,673) (3,653,038) (2,783,602)
Proceeds from redemptions of
short-term investments ......................... 3,215,058 3,578,637 2,681,000
Acquisition of Durable Electronics
Industries Limited ............................. -- -- (1,292)
Purchase of trademark ........................... -- -- (1,125,000)
Purchases of property and equipment ............. (41,384) (372,798) (984,319)
Proceeds from disposal of property
and equipment .................................. -- -- --
-------------- -------------- --------------
Net cash used in investing activities ........... (231,999) (447,199) (2,213,213)
FINANCING ACTIVITIES
Bank overdraft .................................. -- -- 515,320
Borrowings under line of credit ................. 10,828,382 21,907,626 98,383,924
Repayments on the line of credit ................ (10,385,059) (23,760,843) (76,615,179)
Decrease in notes payable to shareholders ....... -- -- 7,173,564
Decrease in notes payable to affiliates ......... -- -- --
Sale of common stock ............................ -- 3,000,000 --
-------------- -------------- --------------
Net cash provided (used) by financing
activities ..................................... 443,323 1,146,783 29,457,629
-------------- -------------- --------------
Net (decrease) increase in cash and
cash equivalents ............................... (1,442,729) 2,238,197 (641,247)
Cash and cash equivalents, beginning
of period ...................................... 1,876,505 433,776 2,671,973
-------------- -------------- --------------
Cash and cash equivalents, end of period ........ $ 433,776 $ 2,671,973 $ 2,030,726
============== ============== ==============
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1997 1998
--------------- ----------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ............................... $ 69,852 $ (493,684)
Adjustments to reconcile net income (loss)
to net cash (used) provided by operating
activities:
Depreciation and amortization of property
and equipment ................................. 29,992 149,144
Amortization of intangible assets .............. 1,328 143,378
Provision for warranties and
product returns ............................... 27,000 (170,790)
Deferred income taxes .......................... (200,741) (285,680)
Provision for bad debts ........................ 8,500 35,718
Changes in operating assets and liabilities:
Accounts receivable ........................... (339,957) 9,868,234
Inventory ..................................... 1,510,618 (2,428,686)
Prepaid expenses and other
current assets .............................. (131,177) (506,912)
Other assets .................................. (58,762) (399,210)
Due from affiliates ........................... (98,630) 974,278
Account receivable from officer ............... (603) 46,763
Accounts payable .............................. (1,901,330) (1,795,687)
Accrued expenses .............................. (94,027) (538,545)
------------- --------------
Net cash (used) provided by
operating activities ........................... (1,177,937) 4,598,321
INVESTING ACTIVITIES
Purchases of short-term investments ............. (454,139) (129,179)
Proceeds from redemptions of
short-term investments ......................... 455,811 127,097
Acquisition of Durable Electronics
Industries Limited ............................. -- --
Purchase of trademark ........................... -- --
Purchases of property and equipment ............. (24,085) (575,222)
Proceeds from disposal of property
and equipment .................................. -- 14,500
------------- --------------
Net cash used in investing activities ........... (22,413) (562,804)
FINANCING ACTIVITIES
Bank overdraft .................................. -- (515,320)
Borrowings under line of credit ................. 5,584,792 22,290,020
Repayments on the line of credit ................ (5,536,329) (25,510,523)
Decrease in notes payable to shareholders ....... -- (38,174)
Decrease in notes payable to affiliates ......... -- (82,401)
Sale of common stock ............................ -- --
------------- --------------
Net cash provided (used) by financing
activities ..................................... 48,463 (3,856,398)
------------- --------------
Net (decrease) increase in cash and
cash equivalents ............................... (1,151,887) 179,119
Cash and cash equivalents, beginning
of period ...................................... 2,671,973 2,030,726
------------- --------------
Cash and cash equivalents, end of period ........ $ 1,520,086 $ 2,209,845
============= ==============
</TABLE>
(CONTINUED)
F-7
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ------------- ------------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid during the period ....................... $302,495 $ 214,343 $1,334,914 $683,621 $51,029
======== ========== ========== ======== =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Purchase of know-how technology ....................... $ -- $ -- $1,977,613 $ -- $ --
======== ========== ========== ======== =======
Payment of notes payable to investors by
assignment of convertible promissory note
issued by Windmere Corporation ....................... $ -- $2,000,000 $ -- $ -- $ --
======== ========== ========== ======== =======
Sale of common stock paid by promissory notes ......... $ -- $7,000,000 $ -- $ -- $ --
======== ========== ========== ======== =======
</TABLE>
The consolidated statements of cash flows for the year ended December 31, 1997
excludes the effects of certain noncash activities in connection with the
acquisition of Durable Electronics Industries, Limited. The following is a
summary of the noncash effects of this transaction:
<TABLE>
<S> <C>
Allocation of purchase price:
Inventory ............................................................ $ 4,836,552
Prepaid expenses and other assets .................................... 1,044,445
Account receivable from Newtech Electronics Industries, Inc. ......... 5,457,478
Property and equipment ............................................... 1,035,646
Goodwill ............................................................. 630,482
Note payable ......................................................... (6,219,512)
Accounts payable ..................................................... (5,890,532)
Accrued expenses ..................................................... (296,752)
Due to affiliate ..................................................... (596,515)
------------
$ 1,292
============
</TABLE>
See accompanying notes.
F-8
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. NATURE OF BUSINESS
Newtech Electronics Industries, Inc. (formerly New M-Tech Corporation) and
its wholly-owned subsidiaries (together the Company) design, source,
manufacture, and market high-quality, value-priced brand-name consumer
electronic products. The Company offers a broad line of audio, video and
telecommunications products and selected home appliances, including
televisions, video cassette players and recorders, home audio systems, compact
disc players, cassette players, telephones, and portable microwave ovens. The
Company offers its products under licensed and owned brand names including
White-Westinghouse, Admiral, Philco, Craig and Newtech and also under private
labels. The trademark licenses allow the Company to use the brand name in
specific parts of the world and distribute specific products under these
brands. The Company distributes its products under its own brands on a
worldwide basis.
The Company's business has historically experienced, and the Company
expects to continue to experience, seasonal fluctuations in revenue with a
larger percentage of revenues typically being realized in the third and fourth
fiscal quarters.
Windmere Corporation (Windmere) owns 50% of the Company's outstanding
common stock.
On April 10, 1998, New M-Tech Corporation changed its name to Newtech
Electronics Industries, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Newtech
Electronics Industries, Inc. and its wholly-owned subsidiaries, Newtech (Hong
Kong), Ltd. (NTHK), Durable Electronics Industries Limited (DEI), and Newtech
Electronics Industries, Limited (NEI) (formerly known as Pomillio, Ltd.). NTHK,
DEI and NEI are foreign corporations organized under the laws of Hong Kong. All
significant intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
The Company defines as cash equivalents all highly liquid investments with
a maturity of three months or less at the time of purchase.
SHORT-TERM INVESTMENTS
Short-term investments are composed primarily of U.S. government
securities with maturity dates throughout 1998. The Company's short-term
investments are recorded at cost, which approximates market value, and are
being held to maturity. The short-term investments are pledged as collateral
under the Company's credit facility.
F-9
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INVENTORY
Inventory, consisting primarily of consumer electronic products, is stated
at the lower of cost or market, with cost determined on a first-in, first-out
basis. Inventory cost includes product cost, freight-in, import duties, and
other purchasing costs. Inventories consist of the following:
DECEMBER 31,
---------------------------- MARCH 31,
1996 1997 1998
------------ ------------- -------------
Raw materials ........... $ -- $ 2,209,760 $ 4,096,313
Work in process ......... -- -- 58,561
Finished goods .......... 3,445,807 22,978,040 23,461,612
---------- ----------- -----------
$3,445,807 $25,187,800 $27,616,486
========== =========== ===========
ACCOUNTS RECEIVABLE
The Company's accounts receivable are primarily due from mass
merchandisers and other retailers. Approximately 39%, 72% and 52% of the
accounts receivable balance at December 31, 1996 and 1997 and March 31, 1998,
respectively, is due from the Company's largest customer, Kmart Corporation
(Kmart).
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is recorded on the straight-line method over the estimated useful
lives of the related assets, which range from two to seven years.
INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
AMORTIZATION DECEMBER 31,
PERIOD ---------------------------- MARCH 31,
YEARS 1996 1997 1998
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Trademarks ............................ 10 $ 62,541 $1,187,541 $1,189,175
Purchased know-how technology ......... 6 -- 1,977,613 1,977,613
Goodwill .............................. 5 -- 630,482 630,482
--------- ---------- ----------
62,541 3,795,636 3,797,270
Accumulated amortization .............. (15,941) (124,671) (268,049)
--------- ---------- ----------
$ 46,600 $3,670,965 $3,529,221
========= ========== ==========
</TABLE>
Trademarks consist of amounts paid for licensing agreements and purchased
trademarks which are stated at cost. In December 1997, the Company purchased
certain assets of Craig, including the Craig trademark, for approximately
$1,125,000. Trademark costs also include registration fees incurred to register
the trademarks in various countries.
The know-how technology purchased from DEI on October 1, 1997 includes
rights to certain technology consisting of the know-how, use of certain
computer software, drawings and other technical information regarding the
production of audio products.
F-10
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Goodwill represents the excess of cost over fair value of net assets
acquired. The Company reviews the carrying value of intangible assets on an
ongoing basis. When factors indicate that an intangible asset may be impaired,
the Company uses an estimate of the undiscounted future cash flows over the
remaining life of the asset in measuring whether the intangible asset is
recoverable. If such an analysis indicates that impairment has in fact
occurred, the unamortized cost of the intangible asset is written down to its
estimated fair value. No such write down has occurred for the years ended
December 31, 1995, 1996 and 1997 and the three months ended March 31, 1998.
REVENUE RECOGNITION
The Company recognizes revenues when title to the goods is passed to the
customer. Generally, this occurs when the products are shipped to its
customers.
Third party manufacturer sales are made in certain circumstances under the
Company's agreement with Kmart (see Note 12). Kmart has the right to procure
the manufacture of products from other manufacturers on behalf of the Company.
In such cases, Kmart pays to the Company the amount payable to the third party
manufacturers plus a percentage of such price. Kmart has the option of paying
third party manufacturers directly or making payment to the Company, in which
case the Company pays the third party manufacturers. In the event that Kmart
fails to make payment to a third party manufacturers, the Company remains
responsible for the payment to the third party manufacturers.
The Company records the selling price to Kmart as revenue and records the
amount payable to the third party manufacturers as cost of products sold. Sales
by third party manufacturers under the Kmart agreement amounted to
approximately $79,100,000 and $14,700,000 for the year ended December 31, 1997
and the three months ended March 31, 1998, respectively. There were no such
sales for the years ended December 31, 1995, 1996, and the three months ended
March 31, 1997.
ALLOWANCE FOR WARRANTIES AND PRODUCT RETURNS
The Company's products are generally sold with a warranty. In the case of
defects in material or workmanship, the Company agrees to replace or repair the
defective product without charge during the warranty period, generally ninety
days from the date of sale.
The effect of warranty and product returns is estimated based on
historical experience and sales are recorded net of a provision for estimated
returns. At December 31, 1996 and 1997 and at March 31, 1998, the Company's
allowance for warranties and product returns is reflective of the historical
claims and returns experience. In 1995, 1996 and 1997, approximately 97%, 83%
and 75%, respectively and for the three months ended March 31, 1997 and 1998
approximately 57% and 73%, respectively, of the Company's gross sales were
under net sales arrangements whereby the Company's customers are responsible
for product defects. The allowance for warranties and product returns was
determined by management to be zero at December 31, 1995 and 1996, $465,790 at
December 31, 1997 and $295,000 at March 31, 1998.
FOREIGN CURRENCY TRANSACTIONS
Substantially all purchases and sales of the Company's inventory are
denominated in U.S. dollars.
F-11
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES. Deferred
income tax assets and liabilities are determined based upon differences between
the financial statement and income tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion of the
tax assets will not be realized.
NET INCOME (LOSS) PER COMMON SHARE
In 1997, the Company retroactively adopted SFAS No. 128, EARNINGS PER
SHARE. SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share (EPS) with basic and diluted EPS. The 1996 diluted EPS
calculation includes 2.5 million weighted-average shares of stock subscriptions
not fully paid. The 1997 diluted EPS calculation includes 2.5 million
weighted-average shares of stock subscriptions not fully paid and 309,350 of
dilutive stock options. For the years ended December 31, 1995 and 1996 there is
no difference between the basic and diluted EPS calculations.
Net income per common share is calculated using the weighted average
number of common shares for the basic EPS presentation, and the weighted
average number of common and common equivalent shares for the diluted EPS
presentation, outstanding during the respective periods.
ACCOUNTING FOR STOCK-BASED COMPENSATION
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, became effective
January 1, 1996. This accounting standard defines a fair value method of
accounting for issuance of stock options and other equity instruments. Under
the fair value method, compensation cost is measured at the grant date based on
the fair value of the award and is recognized over the service period, which is
usually the vesting period. Pursuant to SFAS No. 123, companies are encouraged,
but are not required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue to account
for such transactions under Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB Opinion No. 25), but are required
to disclose pro forma net income (loss) and per share amounts as if the Company
had applied the new method of accounting.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its employee stock-based transactions and Note 10 shows the pro
forma effects required by SFAS No. 123.
CONCENTRATION OF CREDIT AND OTHER RISKS
Many of the Company's sales involve customers' use of irrevocable letters
of credit. In those instances where credit is extended, it is based on the
evaluation of the customer's financial condition. Collateral is generally not
required. Credit losses are provided for in the financial statements and have
been within management's expectations.
The Company's products are principally manufactured in the People's
Republic of China (PRC), both at the Company's manufacturing facility and by
independent manufacturers. The Company has
F-12
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
also engaged independent manufacturers in Indonesia, Malaysia, Mexico,
Thailand, the United States of America (U.S.) and the Philippines.
Manufacturing in the PRC and in other foreign countries subjects the Company to
the risk that political or economic upheaval in these countries could cause
production disruptions and/or increases to its costs, although no such events
have occurred in the past several years. Presently, products imported into the
U.S. from the PRC are subject to favorable duty rates based on the "Most
Favored Nation" status of the PRC (MFN Status). MFN Status is reviewed on an
annual basis by the President and Congress of the U.S. If political or economic
instability in the PRC develops or if higher duties were applied to imports
into the U.S., the Company could experience an adverse impact on its cost of
sales and earnings.
INTERIM FINANCIAL DATA
In the opinion of the management of the Company, the accompanying
unaudited financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial
position of the Company as of March 31, 1998, the results of operations and
cash flows for the three months ended March 31, 1997 and 1998 and the changes
in shareholders' equity for the three months ended March 31, 1998.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Accordingly, actual results could differ from those
reported.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform to the 1997 financial statement presentation.
NEW ACCOUNTING PRONOUNCEMENTS
REPORTING COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in financial
statements. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification will be required of financial statements for earlier
periods. The Company is in the process of evaluating the disclosure
requirements of SFAS No. 130. The adoption of SFAS No. 130 is not expected to
have a material impact on the Company's consolidated operations, financial
condition or cash flows.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those
F-13
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
enterprises report selected information about operating segments in annual
financial statements and in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No. 131 is effective for
financial statements for fiscal years beginning after December 15, 1997.
Financial statement disclosures for prior periods are required to be restated.
The Company is in the process of evaluating the disclosure requirements of SFAS
No. 131. The adoption of SFAS No. 131 will have no impact on the Company's
consolidated operations, financial condition or cash flows.
3. ACQUISITION
On October 1, 1997, the Company purchased DEI's rights to certain
technology consisting of the know-how, use of certain computer software,
drawings and other technical information (know-how technology). At the time,
DEI was a wholly-owned subsidiary of Durable Metal Factory Limited (DEM), a
subsidiary of Windmere-Durable Holdings, Inc. DEI, which was incorporated on
December 11, 1996, operates a manufacturing facility located in the PRC which
the Company utilizes for the production of audio products. The purchase price
for the know-how technology was determined by management to be $1,977,613 and
was paid for by the Company in the form of a note payable to DEI. The terms of
the note payable require an $82,403 payment on March 3, 1998 and 23 equal
quarterly installments of $82,400 beginning on March 31, 1998. The unpaid
balance bears interest at one percent above the prime rate, as defined (9.5% at
December 31, 1997). Interest is payable quarterly. DEI assigned the note
payable to DEM on November 1, 1997. This note payable to affiliate has been
guaranteed by the Company.
On November 1, 1997, NEI purchased all the outstanding shares of common
stock of DEI, in exchange for $1,292 in cash. The acquisition was accounted for
as a purchase and accordingly, operations of DEI have been reflected in the
consolidated statement of operations from November 1, 1997. The purchase price
exceeded the fair value of the net assets acquired by approximately $630,000.
This amount was classified as goodwill and is being amortized over five years.
Included in the net assets acquired is the assumption of a note payable to DEM
of $6,219,512, which is to be repaid on October 31, 2003 and bears interest at
one percent above the prime rate, as defined (9.5% at December 31, 1997). This
note payable to affiliate has been guaranteed by the Company.
DEM has also agreed to loan up to $500,000 on a demand basis to DEI, the
amount of which loan may be increased at the sole discretion of DEM. The
proceeds of the loan may be used for equipment acquisitions and working capital
needs. Unless demand is made prior to such time, the loan will be payable on
October 31, 2003 and will bear interest at one percent above the prime rate, as
defined (9.5% at December 31, 1997). Amounts advanced under this loan were $0
and $329,000 at December 31, 1997 and March 31, 1998, respectively. These
advances to DEI are guaranteed by the Company.
DEM has also agreed to loan up to $500,000 on a demand basis to DEI, the
amount of which loan may be increased at the sole discretion of DEM. The
proceeds of the loan may be used for equipment acquisitions and working capital
needs. Unless demand is made prior to such time, the loan will be payable on
October 31, 2003 and will bear interest at one percent above the prime rate, as
defined (9.5% at December 31, 1997). At December 31, 1997, DEM had not made any
loan advances to DEI. Any advances to DEI will be guaranteed by the Company.
F-14
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITION--(CONTINUED)
The following table summarizes, on an unaudited pro forma basis, the
result of operations for the year ended December 31, 1997, as though the
acquisition of DEI had occurred as of the beginning of the year (IN THOUSANDS,
EXCEPT PER SHARE DATA):
Net sales .......................... $ 208,417
Income before income taxes ......... 3,714
Net income ......................... 4,065
Earnings per share:
Basic ............................. 0.41
Diluted ........................... 0.40
4. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ----------------------------- MARCH 31,
(IN YEARS) 1996 1997 1998
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Machinery and equipment .......... 5 $ 147,638 $ 949,240 $1,188,836
Furniture and fixtures ........... 7 122,485 443,124 325,321
Automobiles ...................... 5 10,925 16,408 16,408
Molds and tools .................. 3 164,700 759,361 1,188,999
Leasehold improvements ........... 2-4 61,050 358,631 367,918
---------- ---------- ----------
506,798 2,526,764 3,087,482
Accumulated depreciation ......... (126,858) (349,010) (498,150)
---------- ---------- ----------
$ 379,940 $2,177,754 $2,589,332
========== ========== ==========
</TABLE>
At December 31, 1997 and March 31, 1998, DEI had entered into commitments
to purchase certain molds amounting to $333,850 and $239,209, respectively.
5. LINE OF CREDIT
On July 31, 1995, the Company entered into a $14 million credit facility
with a bank which provided up to $5 million in direct borrowings, with the
balance available for letters of credit. On July 23, 1997, the Company replaced
the $14 million credit facility with a new credit facility with the existing
lender and two additional banks. Direct borrowings under the credit facility
are subject to an availability calculation based on the eligible borrowing
base. The credit facility provides for aggregate borrowings and issuances of
letters of credit of up to $37 million, of which $32 million may be used for
direct borrowings. Direct borrowings under the credit facilities were $27,701,
$21,796,446 and $18,575,943 at December 31, 1996 and 1997 and March 31, 1998,
respectively, and outstanding letters of credit for the purpose of purchasing
inventory totaled $4,651,000, $6,209,021 and $8,846,752, at December 31, 1996
and 1997 and March 31, 1998, respectively. The outstanding balance under the
credit facility accrues interest at the prime rate, as defined (8.5% at
December 31, 1997 and March 31, 1998) for direct borrowings under $10 million
and at the prime rate plus 1% (9.5% at December 31, 1997 and March 31, 1998)
for borrowings over $10 million. The credit facility expires June 30, 1998 and
is secured by all assets of the Company and certain guarantees of the
shareholders.
Based on the availability calculation, approximately $9.3 million, $7.5
million and $3.2 million of additional borrowings were available under this
credit facility at December 31, 1996 and 1997 and
F-15
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LINE OF CREDIT--(CONTINUED)
March 31, 1998, respectively. The weighted average interest rate was 7.9%,
11.4% and 8.7% at December 31, 1996 and 1997 and March 31, 1998, respectively.
The credit facility contains certain covenants that, among other things,
restrict the payment of dividends and restrict additional indebtedness and
obligations, and require maintenance of certain financial ratios.
6. NOTES PAYABLE TO AFFILIATE AND SHAREHOLDERS
DECEMBER 31, MARCH 31,
1997 1998
-------------- -------------
Notes payable to affiliate ............ $ 8,197,125 $8,114,724
Notes payable to shareholders ......... 7,173,564 7,135,390
----------- ----------
15,370,689 15,250,114
Less current portion .................. 7,585,569 7,464,994
----------- ----------
Long-term portion ..................... $ 7,785,120 $7,785,120
=========== ==========
In June 1997, Windmere, a shareholder, provided the Company with a $2
million loan for working capital purposes. The loan bears interest at the rate
of two percent above the prime rate, as defined (10.5% at December 31, 1997),
is unsecured and payable on demand.
In September 1997, Windmere provided the Company with a revolving loan
which was evidenced by a note in the principal amount of $3,091,352, to be used
for working capital purposes. The revolving note is payable on demand at any
time on or after December 31, 1997 and pays interest at two percent above the
prime rate, as defined (10.5% at December 31, 1997). In the event that the
Company fails to pay any amounts due under the revolving note, Windmere will be
entitled to offset any such amounts by a reduction of the $5 million promissory
notes payable to the Company by Windmere (see Note 8).
The outstanding balance on these two loans from Windmere was $5,067,701
and $5,135,389 at December 31, 1997 and March 31, 1998, respectively. Interest
paid to Windmere on these loans amounted to approximately $172,000 and $92,000
for the year ended December 31, 1997 and the three months ended March 31, 1998,
respectively.
In July 1997, a shareholder provided the Company with a $2 million loan
for working capital purposes. The loan bears interest at the rate of two
percent above the prime rate, as defined (10.5% at December 31, 1997), is
unsecured and payable on demand. The outstanding balance on this loan was
$2,105,863 and $2,000,000, at December 31, 1997 and March 31, 1998,
respectively. The outstanding balance includes accrued interest of $105,863 at
December 31, 1997. Interest on this loan was paid as of March 31, 1998.
In connection with the October 1, 1997 purchase of DEI's rights to certain
know-how technology, NEI entered into a $1,977,613 note payable to DEI. DEI
assigned the note payable to DEM on November 1, 1997. The terms of the note
require an $82,403 payment on March 3, 1998 and 23 equal quarterly installments
of $82,400 beginning on March 31, 1998. The unpaid balance bears interest at
one percent above the prime rate, as defined (9.5% at December 31, 1997).
Interest is payable quarterly.
F-16
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. NOTES PAYABLE TO AFFILIATE AND SHAREHOLDERS--(CONTINUED)
DEI has a note payable to DEM of $6,219,512 which is to be repaid on
October 31, 2003 and bears interest at one percent above the prime rate, as
defined (9.5% at December 31, 1997). Interest is payable quarterly.
Maturities of the notes payable to affiliate as of December 31, 1997, are
as follows:
1998 ............... $ 412,005
1999 ............... 329,604
2000 ............... 329,604
2001 ............... 329,604
2002 ............... 329,604
2003 ............... 6,466,704
----------
Total .............. $8,197,125
==========
7. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, short-term investments,
accounts receivable, amounts due under the line of credit, accounts payable and
accrued expenses approximate fair value because of their short duration to
maturity. The carrying amounts of the notes payable to affiliate and notes
payable to shareholders approximates fair value because their interest rates
are tied to a quoted variable index.
8. EQUITY TRANSACTIONS
On April 15, 1996, the Company effected a reverse one-for-two stock split
and issued five million shares of common stock to Windmere pursuant to a stock
purchase agreement between the Company and Windmere (the Stock Purchase
Agreement). As part of this transaction, the Company's then sole shareholder
contributed all of his shares in NTHK to the Company in a transaction that was
accounted for using the pooling of interests method of accounting and,
accordingly, the Company's consolidated financial statements were restated to
include the accounts and operations of NTHK for the periods prior to the
transaction.
Combined and separate results of the merged entities are presented in the
following table:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1996
DECEMBER 31, THROUGH APRIL 15,
1995 1996
-------------- ------------------
(UNAUDITED)
<S> <C> <C>
Net sales
Newtech Electronics Industries ......... $ 2,254,301 $ 429,294
NTHK ................................... 11,098,710 1,163,510
----------- ------------
Combined ............................... $13,353,011 $ 1,592,804
=========== ============
Net income (loss)
Newtech Electronics Industries ......... $ (966,981) $ (377,416)
NTHK ................................... 215,836 (1,166,858)
----------- ------------
Combined ............................... $ (751,145) $ (1,544,274)
=========== ============
</TABLE>
F-17
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. EQUITY TRANSACTIONS--(CONTINUED)
The Stock Purchase Agreement called for Windmere to pay $10 million in
exchange for 5,000,000 shares of the Company's common stock, issued by the
Company payable as follows: $3 million in cash and the issuance, by Windmere,
of three notes: a $3 million, 8% promissory note due April 15, 1998; a $2
million, 8% promissory note due April 15, 2001; and a $2 million convertible
promissory note due April 15, 2001. The $2 million convertible promissory note
was simultaneously assigned to the holders of $2 million in notes payable by
the Company in exchange for the notes payable.
9. INCOME TAXES
The components of the benefit for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------- -----------------------------
1995 1996 1997 1997 1998
------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Current ................ $-- $ -- $ -- $ -- $ --
Deferred--U.S. ......... -- (135,474) (350,762) (200,735) (285,680)
--- ---------- ---------- ---------- ----------
Total ................. $-- $ (135,474) $ (350,762) $ (200,735) $ (285,680)
=== ========== ========== ========== ==========
</TABLE>
The differences between the reported benefit from income taxes and income
taxes computed at the U.S. statutory federal income tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------ ------------------------------
1995 1996 1997 1997 1998
-------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Income tax expense
(benefit) computed at the
U.S. statutory rate of
34% .......................... $ (255,389) $ 56,725 $ 1,928,357 $ (44,500) $ (264,984)
Change in deferred tax
valuation allowance .......... 381,598 (452,571) -- -- --
Effect of non-U.S.
operations and tax rates ..... (73,384) (85,600) (2,264,472) (150,499) (1,721)
Remitted earnings of
foreign subsidiary ........... -- 286,421 -- -- --
Other, net .................... (52,825) 59,551 (14,647) (5,736) (18,975)
---------- ---------- ------------ ---------- ----------
Total ...................... $ -- $ (135,474) $ (350,762) $ (200,735) $ (285,680)
========== ========== ============ ========== ==========
</TABLE>
F-18
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES--(CONTINUED)
Significant components of the Company's net deferred income taxes are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward ......... $135,887 $261,168 $597,623
Allowance for bad debts ................. -- 56,445 69,886
Warranties .............................. -- 175,277 111,009
Other deferred tax assets ............... -- 1,285 2,088
-------- -------- --------
Total current deferred tax asset ......... 135,887 494,175 780,606
Deferred tax liability:
Miscellaneous accruals .................. (413) (7,939) --
-------- -------- --------
Net deferred tax asset ................... $135,474 $486,236 $780,606
======== ======== ========
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards for
income tax purposes of approximately $695,000, which expire in various amounts
in the year from 2010 to 2012. No valuation allowance has been established for
the net deferred tax asset, because, in the opinion of management, the deferred
tax asset will be realized.
The income (loss) before provision for income taxes consisted of the
following for the year ended December 31:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------ -------------------------------
1995 1996 1997 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
United States ......... $ (966,980) $ (84,929) $ (988,573) $ (573,528) $ (774,301)
Non--U.S. ............. 215,835 251,767 6,660,210 442,645 (5,063)
---------- ---------- ---------- ---------- ----------
Total ............... $ (751,145) $ 166,838 $5,671,637 $ (130,883) $ (779,364)
========== ========== ========== ========== ==========
</TABLE>
U.S. income taxes have not been provided on the undistributed earnings of
the Company's foreign subsidiaries because the Company intends to reinvest
these earnings indefinitely. Cumulative undistributed earnings of the Company's
foreign subsidiaries amounted to approximately $2,694,800, $2,154,200 and
$7,486,600 at December 31, 1995, 1996 and 1997.
10. COMMON STOCK
On April 3, 1998, the Company amended and restated its Articles of
Incorporation to increase the number of shares of authorized capital stock to
51,000,000 shares, consisting of 50,000,000 shares of common stock, par value
$.01 per share and 1,000,000 shares of preferred stock, par value $.01.
On April 3, 1998, the Company effected a stock split of 10,000 for one.
The financial statements have been restated to give retroactive recognition to
the stock split in the prior periods, including all references in the financial
statements to number of shares and per share amounts.
On February 28, 1997, the Company adopted the 1997 Stock Option Plan (the
Plan). Pursuant to the terms of the Plan, incentive stock options and
non-qualified stock options may be granted to eligible
F-19
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. COMMON STOCK--(CONTINUED)
employees, consultants, directors and independent contractors of the Company,
or its subsidiaries. The Company has reserved 1,000,000 shares of its common
stock for issuance under the Plan. The vesting period and the terms of the
incentive stock options and the non-qualified stock options granted are
administered by either a Committee established by the Board of Directors (the
Committee) or the Board of Directors. Upon adoption of the Plan, the Company
granted non-qualified stock options to its employees to purchase 618,700 shares
of its common stock at an exercise price of $2.00 per share. The $2.00 exercise
price was determined by the Board of Directors to be the fair value of the
underlying common stock at the date of grant. On October 27, 1997 and November
30, 1997, non-qualified stock options amounting to 29,900 and 400,
respectively, were granted to employees pursuant to the Plan. The exercise
price of these non-qualified stock options is $4.00 and was determined by the
Board of Directors to be the fair value of the underlying common stock at the
date of grant. As a result, no compensation cost has been recognized under the
provisions of APB Opinion No. 25. At December 31, 1997, 351,000 shares remained
available for future grants. Options vest one fifth each year beginning on the
first anniversary of the date of grant and become 100% vested on the fifth
anniversary of the date of grant. At December 31, 1997, none of these options
were vested. The non-qualified stock options expire no later than ten years
from the date of grant.
The Company has adopted only the disclosure provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the Plan. Had
compensation cost for the Plan been determined based on the fair value of the
stock options on the grant date for awards issued in 1997 consistent with the
provisions of SFAS No. 123, the Company's net earnings and EPS would have been
reduced to the pro forma amounts indicated below:
DECEMBER 31,
1997
---------------
Net income--pro forma ......................... $ 5,986,932
Basic earnings per share--pro forma ........... 0.60
Diluted earnings per share--pro forma ......... 0.59
The fair value of each option grant is estimated on the date of grant
using the Minimum Value fair value model with the following weighted-average
assumptions used for grants in 1997: dividend yield of 0.0%; risk-free interest
rate of 6.39% and average expected life of five years.
At December 31, 1997, the weighted average exercise price of the options
outstanding is $2.10 and the weighted average remaining contractual life of
those options is four years.
11. RELATED PARTY TRANSACTIONS
In June 1997, the Company entered into an agreement with F Fifty Holdings,
Inc. for the lease of a jet aircraft. F Fifty Holdings, Inc. is wholly owned by
a shareholder of the Company. The term of the lease is from June 1, 1997
through June 30, 2007 and requires annual rental payments of $150,000. The
Company also pays an additional hourly fee at the current market rate based on
the utilization of the aircraft. The Company made payments to F Fifty Holdings,
Inc. amounting to approximately $246,000 and $123,000 for the year ended
December 31, 1997 and three months ended March 31, 1998, respectively. The
Company provided this affiliated entity noninterest bearing advances amounting
to $330,000 and $359,000 at December 31, 1997 and March 31, 1998. These amounts
are included in due from affiliates. The Company received $90,000 and $45,000
from Windmere for the use of the aircraft during the year ended December 31,
1997 and the three months ended March 31, 1998, respectively.
F-20
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. RELATED PARTY TRANSACTIONS--(CONTINUED)
Also included in due from affiliates at December 31, 1997 and March 31,
1998 is $125,000 due from Electronics Industries of America, Inc., an inactive
entity which is wholly owned by the shareholders of the Company and holds a
license to distribute microwave ovens under the Philco brand name. On April 3,
1998 this entity was merged into Newtech Electronics Industries, Inc. with
Newtech Electronics Industries, Inc. being the surviving entity.
Windmere provides the Company with certain administrative services with
respect to DEI for a monthly management fee of approximately $11,800. The
Company has paid Windmere a total of approximately $93,200 for the year ended
December 31, 1997 and $35,400 for the three months ended March 31, 1998.
Additionally, DEM pays certain expenses on behalf of DEI and collects accounts
receivable on behalf of DEI. At December 31, 1997, DEM owed DEI $829,000. This
amount is included in due from affiliates. At March 31, 1998, DEI owed DEM
$329,000. This amount is included in due to affiliates.
The Company has an unsecured loan receivable from a shareholder, due on
demand and bearing interest at 7% per annum. The outstanding balance of this
loan amounted to approximately $230,000, $271,000 and $224,000, at December 31,
1996 and 1997 and March 31, 1998, respectively. Interest income on the loan
amounted to $15,100, $16,300, $15,800, $4,000 and $4,400, for the years ended
December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and
1998, respectively.
During 1997, the Company entered into various notes payable to affiliate
and shareholders (see Note 6). Interest expense associated with these notes
amounted to $465,643 and $369,044 for the year ended December 31, 1997 and the
three months ended March 31, 1998, respectively. Of this amount, $359,780 for
the year ended December 31, 1997 and $134,497 for the three months ended March
31, 1998 related to interest on the notes payable to Windmere and its
affiliate.
In certain instances Windmere may pay for expenditures on behalf of the
Company which are reimbursed by the Company. Amounts payable to Windmere for
these expenditures totaling $1,099,549 and $160,093 are included in accounts
payable at December 31, 1997 and March 31, 1998, respectively.
The Company made payments to a shareholder amounting to $72,000, $42,000,
$18,000 and $0 for the years ended December 31, 1996 and 1997 and the three
months ended March 31, 1997 and 1998, respectively, for the use of his personal
assets as collateral on the Company's credit facility (see Note 5).
On April 15, 1996, the Company entered into an agreement with Windmere
which resulted in the issuance to the Company of $5 million in promissory notes
(see Note 8). Interest income on these promissory notes amounted to $284,931,
$400,000, $98,630 and $98,630 for the years ended December 31, 1996 and 1997
and the three months ended March 31, 1997 and 1998, respectively. Accrued
interest receivable on these promissory notes amounted to $100,822 at December
31, 1996 and 1997, and $199,452 at March 31, 1998. This amount is included in
due from affiliates.
During 1996, Newtech Do Brazil, a company under common ownership and
control, closed its operations. As a result, the Company wrote off $980,018 due
from this affiliate. Sales to Newtech Do Brazil amounted to $1,395,000 and
$502,541 for the years ended December 31, 1995 and 1996, respectively.
12. SUPPLY CONTRACT AND SIGNIFICANT CUSTOMERS
The Company entered into a seven and a half year supply contract with
Kmart on January 27, 1997, pursuant to which the Company appointed Kmart as the
exclusive discount department store to market
F-21
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SUPPLY CONTRACT AND SIGNIFICANT CUSTOMERS--(CONTINUED)
and sell a broad range of audio, video and telecommunications products in the
U.S. under the White-Westinghouse brand name. The agreement provides for
minimum purchases, subject to adjustment, by Kmart applied to specific product
categories. The minimum purchases by Kmart increase from $135 million for the
18 month period ending June 30, 1998 to $171 million for the 12 month period
ending June 30, 2004. Sales to Kmart, amounted to approximately $0,
$14,441,000, $158,734,000, $4,112,000 and $28,866,000 for the years ended
December 31, 1995, 1996, and 1997 and the three months ended March 31, 1997 and
1998, respectively, representing 0%, 37%, 76%, 49% and 74% of net sales in each
of these periods, respectively.
Sales to certain other customers, each constituting 10% or more of total
sales, were approximately $7,172,000, $22,040,000, $0, $3,788,000 and $0 for
the years ended December 31, 1995, 1996 and 1997 and the three months ended
March 31, 1997 and 1998, respectively.
13. GEOGRAPHIC INFORMATION
The Company operates predominantly in a single industry: the design,
sourcing, manufacturing, and marketing of high-quality, value-priced brand-name
consumer electronic products. While the Company offers a wide range of items
for sale, many of them are manufactured at common production facilities and
marketed by a common sales force.
In addition to its U.S. operations, the Company has subsidiaries in Hong
Kong. All significant intercompany revenues and expenses are eliminated in
computing revenues and operating income.
Segment information by geographic area is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------- ------------------------------
1995 1996 1997 1997 1998
-------------- -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
UNITED STATES
Net sales ........... $ 2,254,301 $14,852,520 $129,530,298 $3,814,777 $24,952,395
Loss from
operations ......... (1,447,307) (378,375) (714,324) (785,449) (509,519)
HONG KONG
Net sales ........... 11,098,710 24,207,616 78,886,314 $4,605,164 $13,947,787
Income from
operations ......... 806,739 159,565 7,567,344 585,034 337,199
</TABLE>
Identifiable assets by geographic area are as follows:
DECEMBER 31,
------------------------------ MARCH 31,
1996 1997 1998
------------- -------------- --------------
United States ......... $7,086,477 $51,667,843 $46,005,496
Hong Kong ............. 3,285,823 16,925,577 16,050,784
F-22
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. GEOGRAPHIC INFORMATION--(CONTINUED)
The Company had sales to unrelated customers outside the U.S. of
approximately $5,527,000, $6,204,000, $9,084,000, $1,118,000 and $1,018,000 for
the years ended December 31, 1995, 1996 and 1997 and three months ended March
31, 1997 and 1998, respectively. These sales were made principally to customers
in Mexico, Central, and South America and the Caribbean. The geographic area
which includes these sales is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------- ----------------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
United States ......... $ 499,000 $ 612,000 $2,393,000 $ -- $ 537,000
Hong Kong ............. 5,028,000 5,592,000 6,691,000 1,118,000 481,000
---------- ---------- ---------- ---------- ----------
Total ................ $5,527,000 $6,204,000 $9,084,000 $1,118,000 $1,018,000
========== ========== ========== ========== ==========
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
The Company leases office space and a manufacturing facility under
operating leases which expire at various dates through 2001. The Company also
leases an aircraft from a corporation that is wholly-owned by a shareholder of
the Company through June 30, 2007 (see Note 11).
Future minimum payments under operating leases at December 31, 1997 are
approximately as follows:
Year ending December 31:
1998 .................. $ 621,800
1999 .................. 632,600
2000 .................. 484,000
2001 .................. 504,000
2002 .................. 150,000
Thereafter ............. 675,000
----------
Total .................. $3,067,400
==========
Total rent expense for the years ended December 31, 1995, 1996 and 1997
and the three months ended March 31, 1997 and 1998 was approximately $96,000,
$130,000, $714,000, $64,000, and $84,000, respectively.
The Company has license agreements with White Consolidated Industries,
Inc. (White Consolidated). The initial term of the agreement is through
December 31, 1998, and may be extended at the Company's option for up to
fourteen one-year renewal terms through December 31, 2012. The current level of
royalty payments are in excess of the minimum requirements. The Company also
has various license agreements with other parties which may be extended at the
Company's option, with renewal terms ranging from December 31, 2003 to December
31, 2015. The agreements are typically renewable upon mutual consent. These
license agreements require royalty payments based on the sales of licensed
product in a given period. Total royalties under these agreements, including
the White Consolidated agreement, were $31,000, $339,000, $2,902,000, $79,000
and $527,000 for the years ended December 31, 1995, 1996 and 1997 and the three
months ended March 31, 1997 and 1998, respectively.
F-23
<PAGE>
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Future minimum royalty guarantees, at December 31, 1997 are as follows:
Year ending December 31:
1998 .................. $ 3,405,000
1999 .................. 3,025,000
2000 .................. 3,025,000
2001 .................. 3,025,000
2002 .................. 3,025,000
2003 .................. 325,000
-----------
Total .................. $15,830,000
===========
The Company, White Consolidated, Windmere and certain other parties have
been named as defendants in litigation filed by Westinghouse Electric
Corporation (Westinghouse) in the United States District Court for the Western
District of Pennsylvania on December 18, 1996. The action arises from a dispute
between Westinghouse and White Consolidated over rights to use the
"Westinghouse" trademark for consumer products, based on transactions between
Westinghouse and White Consolidated in the 1970's and the parties' subsequent
conduct. Procedural motions concerning the jurisdiction in which the dispute
should be heard have been filed by the parties. The action seeks, among other
things, a preliminary injunction enjoining the defendants from using the
trademark, unspecified damages and attorneys' fees. Pursuant to the Company's
license agreements with White Consolidated, White Consolidated is defending the
Company and is obligated to indemnify the Company from and against any and all
costs and expenses of claims, losses and damages arising out of the action,
including the costs of litigation. An adverse decision in this litigation could
result in the Company being limited in further use of the Westinghouse
trademark and in termination or significant modification of the Kmart
agreement, any of which would have a material adverse effect on the Company's
business, financial condition and results of operations. In the event that a
favorable outcome for the Company is not obtained, the Company intends to
vigorously pursue its rights to indemnification under the license agreements
described above.
15. SUBSEQUENT EVENTS (UNAUDITED)
On June 8, 1998, the Company entered into a three year $105 million
revolving credit facility with a group of banks. The facility is secured by
substantially all of the Company's assets. Proceeds from the new credit
facility were used to repay all outstanding amounts under the Company's then
current credit facility and all of the shareholder indebtedness. The facility
will also be used to finance working capital requirements, including trade
financing activities. The credit facility includes a $2.0 million sub-facility
for the issuance of standby letters of credit and a $10.0 million sub-facility
for the creation of bankers' acceptances. Under the facility, the Company is
required to comply with certain financial covenants and is subject to
limitations on capital expenditures and capital and other distributions.
Availability under the credit facility is based on a formula of eligible
receivables, inventories and letters of credit issued by the Company.
Availability based on accounts receivable ranges from 40% for unsecured foreign
accounts receivable to 90% for accounts receivable from certain customers that
are secured by a standby letter of credit. Interest on advances under the
revolving credit facility is based on the Company's leverage ratio which enable
the Company to select either the prime rate or LIBOR plus a percentage, as
defined.
F-24
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer contained herein, and if given or made,
such information or representation must not be relied upon as having been
authorized by the Company, the Selling Shareholders or any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy, shares of Common Stock in any jurisdiction where or to any person to
whom it is not lawful to make any such offer or solicitation in such
jurisdiction or in which the person making such offer or solicitation is not
qualified to do so. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Prospectus Summary ........................... 3
Risk Factors ................................. 7
Use of Proceeds .............................. 18
Dividend Policy .............................. 18
Capitalization ............................... 19
Dilution ..................................... 20
Selected Consolidated Financial Data ......... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 22
Business ..................................... 31
Management ................................... 43
Certain Transactions ......................... 48
Principal and Selling Shareholders ........... 51
Description of Capital Stock ................. 52
Shares Eligible for Future Sale .............. 55
Certain United States Tax Consequences to
Non-U.S. Holders .......................... 57
Underwriting ................................. 59
Legal Matters ................................ 60
Experts ...................................... 60
Additional Information ....................... 60
Index to Financial Statements ................ F-1
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
PROSPECTUS, 1998
[LOGO]
Shares
Newtech Electronics Industries, Inc.
Common Stock
Warburg Dillon Read LLC
Jefferies & Company, Inc.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions) of
the sale of the shares of Common Stock are as follows:
SEC registration fee ....................... $ 30,533
NASD filing fee ............................ 10,850
Nasdaq National Market listing fee ......... *
Legal fees and expenses .................... *
Accounting fees and expenses ............... *
Printing and engraving expenses ............ *
Transfer agent and registrar fees .......... 10,000
Miscellaneous fees and expenses ............ *
--------
Total ...................................... $
========
- ----------------
* To be provided by amendment.
All amounts, except the Securities and Exchange Commission registration
fee, the NASD filing fee and the Nasdaq National Market listing fee, are
estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under Section 607.0850 of the FBCA to
indemnify its directors and officers to the extent provided for in such
statute. The Registrant's Amended and Restated Articles of Incorporation
provide that the Registrant will indemnify and may insure its officers and
directors to the full extent not prohibited by law. The Registrant has also
entered into an agreement (the form of which is filed as Exhibit 10.1 hereto)
with each of its directors and executive officers where it has agreed to
indemnify each of them to the fullest extent permitted by law. In general,
Florida law permits a Florida corporation to indemnify its directors, officers,
employees and agents, and persons serving at the corporation's request in such
capacities for another enterprise, against liabilities arising from conduct
that such persons reasonably believed to be in, nor not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
Pursuant to the Underwriting Agreement to be filed as Exhibit 1.1 to this
Registration Statement, the Underwriter has agreed to indemnify the directors,
officers and controlling persons of the Registrant against certain civil
liabilities that may be incurred in connection with the Offering, including
certain liabilities under the Securities Act of 1933, as amended,
Section of the Underwriting Agreement (to be filed as Exhibit 1.1 to
this Registration Statement) provides that the Underwriters severally and not
jointly will indemnify and hold harmless the Registrant and each director,
officer and controlling person of the Registrant from and against any liability
caused by any statement or omission in the Registration Statement, in the
Prospectus, in any Preliminary Prospectus or in any amendment of supplement
thereto, in each case to the extent that the statement or omission was made in
reliance upon and in conformity with written information furnished to the
Registrant by the Underwriters expressly for use therein.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities that were not registered under the Securities Act have been
issued or sold by the Registrant within the past three years except as follows:
<TABLE>
<CAPTION>
DATE OF SALE
AMOUNT AND TYPE OF SECURITIES OR ENTITLEMENT PURCHASER(S) CONSIDERATION
- ---------------------------------- ---------------- ------------------------------- --------------
<S> <C> <C> <C>
5,000,000 shares of Common Stock April 16, 1996 Windmere Holdings Corporation $10,000,000
</TABLE>
The aforementioned issuances and sales were made in reliance upon the
exemption from the registration provisions of the 1933 Act afforded by Section
4(2) thereof and/or Regulation D promulgated thereunder, as transactions by an
issuer not involving a public offering. The purchasers of the securities
described above acquired them for their own account and not with a view to any
distribution thereof to the public. The certificates evidencing the securities
bear legends stating that the securities may not be offered, sold or
transferred other than pursuant to an effective registration statement under
the 1933 Act, or an exemption from such registration requirements. The
Registrant will place stop transfer instructions with its transfer agent with
respect to all such securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as exhibits to this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.**
3.1 Amended and Restated Articles of Incorporation of the Registrant.*
3.2 Articles of Amendment to Articles of Incorporation filed April 10, 1998.*
3.3 Amended and Restated Bylaws of the Registrant.*
4.1 See Exhibits 3.1 and 3.2 for provisions in the Registrant's Articles of Incorporation and Bylaws
defining the rights of holders of the Registrant's Common Stock.*
4.2 Form of Registrant's Common Stock Certificate.**
5.1 Opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A. with respect to legality
of the Common Stock being issued.**
10.1 Form of Indemnification Agreement between the Registrant and each of its directors and
executive officers.*
10.2 Registrant's 1997 Stock Option Plan.*
10.3+ Trademark User Agreement dated as of October 1, 1993 among Maytag Corporation, Maytag
International, Inc., the Registrant and Newtech (Hong Kong) Ltd.*
10.4+ Trademark License Agreement dated as of May 1, 1996 between the Registrant and White
Consolidated Industries, Inc.**
10.5+ Trademark License Agreement dated as of September 15, 1997 between the Registrant and
White Consolidated Industries, Inc., as amended.**
10.6+ Trademark License Agreement dated as of September 15, 1997 between the Registrant and
White Consolidated Industries, Inc., as amended.**
10.7 Purchase and Distribution Agreement dated as of January 6, 1997 between the Registrant and
AAAA World Import Export, Inc.*
10.8+ Purchase, Distribution and Marketing Agreement dated as of January 27, 1997 between the
Registrant and Kmart Corporation.*
10.9 Guaranty dated January 27, 1997 among Windmere-Durable Holdings, Inc., Kmart
Corporation and the Registrant.*
10.10 Indemnification Agreement dated as of January 23, 1997 among White Consolidated
Industries, Inc., Kmart Corporation and Windmere-Durable Holdings, Inc.*
10.11 Deed of Assignment of Industrial Know-How dated as of October 1, 1997 between Durable
Electronics Industries Limited and Pomillo Limited*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------
<S> <C>
10.12 Loan Agreement dated as of October 1, 1997 among Durable Electronics Industries Limited,
Pomillo Limited and the Registrant relating to a $1,977,613 loan to Pomillo Limited.*
10.13 Agreement for the Sale and Purchase of Shares of Durable Electronics Industries Limited
dated as of November 1, 1997 between Durable Electrical Metal Factory Limited and Pomillo
Limited.*
10.14 Deed of Assignment dated as of November 1, 1997 among Durable Electronics Industries
Limited, Durable Electrical Metal Factory Limited and Pomillo Limited.*
10.15 Loan Agreement dated as of November 1, 1997 among Durable Electrical Metal Factory
Limited, Durable Electronics Industries Limited and the Registrant relating to a $6,219,512
loan to Durable Electronics Industries Limited*
10.16 Working Capital Loan Agreement dated as of November 1, 1997 among Durable Electrical
Metal Factory Limited, Durable Electronics Industries Limited and the Registrant relating to a
$500,000 loan to Durable Electronics Industries Limited.*
10.17 Purchase Agreement dated as of December 8, 1997 between BT Commercial Corporation and
the Registrant.*
10.18 Product Support Agreement dated October 1996 between VAC Service Corp. and the
Registrant.*
10.19 Lease Agreement, dated December 19, 1997 between H. Joel Rahn as lessor and the
Registrant as lessee.*
10.20 Tenancy Agreement dated November 19, 1997 between the Registrant and Lai Sun
Development Registrant Limited*
10.21 Aircraft Lease dated as of June 1, 1997 between the Registrant and F Fifty Holdings, Inc.*
10.22 Charge dated November 1, 1997 between Durable Electronics Industries Limited and Durable
Electrical Metal Factory Limited.*
10.23 Credit Agreement dated as of July 23, 1997 by and among the Registrant and Newtech (Hong
Kong) Limited, as Borrowers, and Bank Leumi Le-Israel B.M., Comerica Bank and National
Bank of Canada, as the Banks, and Bank Leumi Le-Israel B.M., as the Agent, as amended.*
10.24 Indemnification and Security Agreement dated as of September 18, 1997 of the Registrant in
favor of Windmere Durable-Holdings, Inc.*
10.25 Letter Agreement dated as of September 16, 1997 among Joel Newman, Windmere Durable-
Holdings, Inc. and the Registrant.*
10.26 Guaranty Agreement dated as of July 23, 1997 among Joel Newman and Bank Leumi Le-Israel
B.M., as Agent for the Banks named therein.*
10.27 Guaranty Agreement dated as of July 23, 1997 among Windmere Durable-Holdings, Inc. and
Bank Leumi Le-Israel B.M., as Agent for the Banks named therein, as amended.*
10.28 Promissory Note of the Registrant in the principal amount of $2,000,000 payable to Windmere
Holdings Corporation.*
10.29 Revolving Note of the Registrant in the principal amount of $3,091,352 payable to Windmere
Holdings Corporation.*
10.30 Promissory Note of the Registrant in the principal amount of $2,000,000 payable to Joel
Newman.*
10.31 Promissory Note of Windmere Holdings Corporation in the principal amount of $3,000,000
payable to the Registrant.*
10.32 Promissory Note of Windmere Holdings Corporation in the principal amount of $2,000,000
payable to the Registrant.*
10.33 Lease Agreement dated as of December 16, 1996 between Durable Electronics Industries
Limited and the Shenzhen Buji District Economic Development Company.*
10.34 Employment Agreement dated as of April 15, 1998 between the Registrant and Joel
Newman.*
10.35 Employment Agreement dated as of April 15, 1998 between the Registrant and Hatch
Masuda.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------
<S> <C>
10.36 Employment Agreement dated as of April 15, 1998 between the Registrant and Leonor
Schuck.*
10.37 Registration Rights Agreement dated as of April 15, 1998 among the Registrant, Joel Newman
and Windmere Holdings Corporation.*
10.38 Amended and Restated Credit Agreement dated as of June 8, 1998 by and among the
Registrant, Newtech (Hong Kong) Limited, Newtech Electronics Industries Limited and
Durable Electronics Industries Limited, as Borrowers, the Lender parties thereto, National
Bank of Canada, as Agent and NationsBank, N.A., as Collateral Agent.
21.1 List of subsidiaries of the Registrant.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Grant Thornton.
23.3 Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A. (included in its opinion
to be filed as Exhibit 5.1).**
24.1 Powers of Attorney of Directors and Executive Officers (included on the Signature Page of
this Registration Statement).
27 Financial Data Schedule.*
</TABLE>
- ----------------
* Previously filed.
** To be filed by amendment.
+ Certain provisions of this exhibit have been omitted and are subject to a
request for confidential treatment filed with the Securities and Exchange
Commission.
(b) The following financial statement schedules have been filed with this
Registration Statement:
Schedule II-Valuation and Qualifying Accounts ......... S-1
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 14
above, 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 of 1933 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 Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act
of 1933, 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 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, State of Florida,
on this 9th day of July, 1998.
NEWTECH ELECTRONICS INDUSTRIES, INC.
By: /s/ LEONOR SCHUCK
------------------------------------
Leonor Schuck
Vice President, Finance and
Chief Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- ------------------------------- -------------
<S> <C> <C>
/s/ * Chairman, President and July 9, 1998
- ------------------------- Chief Executive officer
Joel Newman
/s/ LEONOR SCHUCK Vice President, Finance and July 9, 1998
- ------------------------- Chief Financial Officer
Leonor Schuck (principal accounting officer)
/s/ * Director July 9, 1998
- -------------------------
Noel Shapiro
/s/ * Director July 9, 1998
- -------------------------
David M. Friedson
/s/ * Director July 9, 1998
- -------------------------
Arnold Thaler
</TABLE>
- ----------------
*By: /s/ LEONOR SCHUCK
--------------------
Leonor Schuck
Attorney-in-fact
II-5
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Newtech Electronics Industries, Inc.
We have audited the consolidated financial statements of Newtech
Electronics Industries, Inc. and subsidiaries as of December 31, 1996 and 1997,
and for each of the three years in the period ended December 31, 1997, and have
issued our report thereon dated April 3, 1998 (included elsewhere in this
Registration Statement). Our audits also included the financial schedule listed
in Item 16(b) of this Registration Statement. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Miami, Florida
April 3, 1998 /s/ ERNST & YOUNG LLP
S-1
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
NEWTECH ELECTRONICS INDUSTRIES, INC. AND SUBSIDIARIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS YEAR
- ------------------------------------------------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts .................... $ 71,513 $ 54,119 $ 103,932 $ 21,700
-------- ---------- ---------- ---------
YEAR ENDED DECEMBER 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts .................... $ 21,700 $ 85,348 $ 34,048 $ 73,000
-------- ---------- ---------- ---------
YEAR ENDED DECEMBER 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts .................... $ 73,000 $ 160,102 $ 83,102 $ 150,000
-------- ---------- ---------- ---------
Allowance for warranty and product returns ......... $ 0 $2,004,185 $1,538,395 $ 465,790
-------- ---------- ---------- ---------
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
Deducted from asset accounts:
Allowance for doubtful accounts .................... $150,000 $ 35,718 $ -- $ 185,718
-------- ---------- ---------- ---------
Allowance for warranty and product returns ......... $465,790 $1,027,000 $1,197,790 $ 295,000
-------- ---------- ---------- ---------
</TABLE>
- ----------------
Note: At December 31, 1996 and 1995 and for the years then ended, there were no
allowance deductions from asset accounts for warranty and product
returns.
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------- ----------------------------------------------------------------------------- -------------
<S> <C> <C>
10.4 Trademark License Agreement dated as of May 1, 1996 between the Registrant
and White Consolidated Industries, Inc.
10.5 Trademark License Agreement dated as of September 15, 1997 between the
Registrant and White Consolidated Industries, Inc., as amended.
10.6 Trademark License Agreement dated as of September 15, 1997 between the
Registrant and White Consolidated Industries, Inc., as amended.
10.38 Amended and Restated Credit Agreement dated as of June 8, 1998 by and
among the Registrant, Newtech (Hong Kong) Limited, Newtech Electronics
Industries Limited and Durable Electronics Industries Limited, as Borrowers,
the Lender parties thereto, National Bank of Canada, as Agent and
NationsBank, N.A., as Collateral Agent.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Grant Thornton.
</TABLE>
EXHIBIT 10.4
TRADEMARK LICENSE AGREEMENT
AGREEMENT entered into as of May 1, 1996, by and between White Consolidated
Industries, Inc., a Delaware Corporation, having its principal office at 11770
Berea Road, Cleveland, Ohio 44111 ("Licensor"), and Newtech, Inc., a Florida
Corporation, having its principal office at 16550 N.W. 10th Avenue, Miami,
Florida 33169 (hereinafter referred to as "Licensee").
WHEREAS, Licensor is the owner of the trademark White-Westinghouse and
associated designs and trade dress, (together, the "Trademark"), and is using
the Trademark throughout the World, and
WHEREAS, Licensor has the right to grant Licensee the license, right and
permission to use the Trademark, and
WHEREAS, Licensee is in the business of manufacturing, distributing and selling
articles described and specified hereinafter (the "Products"), and desires to
secure the license, right and permission to use the Trademark upon, and in
connection with, the manufacturing, distributing and selling of such Products;,
and
WHEREAS, the Products that are the subject of this Agreement have been defined
by the parties as consumer audio and video products and telephones and related
products listed on Exhibit A hereto (and any other articles which the parties
mutually agree to be subject to the provisions of this Agreement which, in
accordance with the terms of this Agreement, bear the Trademark (collectively,
the "Trademarked Product").
WHEREAS, Licensor desires to grant to Licensee, and Licensee desires to accept
from Licensor, a license to use the Trademark in the design, manufacture,
advertising, sale and promotion of the Products, subject to each of the terms,
provisions and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual agreements,
convenants and provisions contained herein, the parties hereto do hereby agree
as follows:
<PAGE>
Page 2--
ARTICLE 1
GRANT OF LICENSE AND DESIGNATION OF TRADEMARKED PRODUCT
Effective upon the execution of this Agreement, Licensor hereby grants to
Licensee, for the period hereinafter specified and upon the terms, provisions
and conditions of this Agreement, the exclusive right and license to use the
Trademark within the geographic area described in Article 2 hereof, in the
design, manufacture, advertising, sale and promotion of the Trademarked Product.
Licensor recognizes that Licensee's affiliate Newtech(HK), Ltd., a Hong Kong
corporation having its principal offices located at Room 909, Holywood Plaza,
610 Nathan Road, Kowloon, Hong Kong, may from time to time ship Trademarked
Product directly to Licensee's customers.
In the event of any disputes between the parties to this Agreement regarding the
definition of Trademarked Product, the final decision regarding such definition
shall rest in Licensor's sole and absolute discretion. The rights granted to
Licensee herein are limited to use on or in connection with the Trademarked
Product and Licensee specifically agrees not to use the Trademark in any manner
or on any product, service or item, except as set forth in the Agreement.
ARTICLE 2
GEOGRAPHIC AREA
The rights granted to Licensee hereunder may be exercised by Licensee within the
USA and Canada (the ''Territory''), and Licensee shall have exclusive rights
with respect to the Trademarked Product. Upon Licensee's request, Licensor may,
in its discretion, extend the areas in which Licensee may exercise said rights,
but any such extension shall, in each instance, be evidenced by a written and
duly executed amendment to this Agreement for such periods and upon such terms
and conditions as shall be determined by Licensor. From time to time Licensor
may wish to purchase Trademarked Product for sale outside the Territory.
Licensee agrees to sell Trademarked Product to Licensor at the same price
Licensee sells Trademarked Product to its best customer.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF LICENSOR
3.1 Organization and Power. Licensor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Licensor
has all corporate power and authority to execute and deliver this Agreement and
perform its obligations hereunder.
<PAGE>
Page 3--
3.2 AUTHORIZATION. The execution, delivery and performance by Licensor of this
Agreement and the consummation of the transaction contemplated hereby has been
duly and validly authorized by all requisite corporate action, and no other
corporate act or proceeding on this part of Licensor is necessary to authorize
the execution, delivery and performance of this Agreement and the consummation
of the transaction contemplated hereby.
3.3 NO VIOLATION. Licensor is not subject to nor obligated under its certificate
of incorporation or bylaws, any applicable law, rule or regulation of any
governmental authority, or any agreement, instrument, license or permit, or
subject to any order, writ, injunction or decree, which would be breached or
violated by its execution, delivery or performance of this Agreement.
3.4 OWNERSHIP OF TRADEMARK. Licensor is the owner of the Trademark and, to
Licensor's knowledge, the use of the Trademark in the design, manufacture,
advertising, sale and promotion of any of the Trademarked Product will not
infringe any intellectual property or any other rights of any third party.
3.5 RIGHT TO GRANT LICENSE. Licensor has the full right, power and authority to
grant the license as set forth in Article 1 hereof.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF LICENSEE
4.1 ORGANIZATION AND POWER. Licensee is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida. Licensee
has all corporate power and authority to execute and deliver this Agreement and
perform its obligations hereunder.
4.2 AUTHORIZATION. The execution, delivery and performance by Licensee of this
Agreement and the consummation of the transaction contemplated hereby has been
duly and validly authorized by all requisite corporate action, and no other
corporate act or proceeding on this part of Licensee is necessary to authorize
the execution, delivery and performance of this Agreement and the consummation
of the transaction contemplated hereby.
4.3 NO VIOLATION. Licensee is not subject to nor obligated under its certificate
of incorporation or bylaws, any applicable law, rule or regulation of any
governmental authority, or any agreement, instrument, license or permit, or
subject to any order, writ, injunction or decree, which would be breached or
violated by its execution, delivery or performance of this Agreement.
<PAGE>
Page 4--
ARTICLE 5
TERM OF AGREEMENT
5.1 CONTRACT TERM. The Contract Term of this Agreement commence of the date
first mentioned above and ending on December 31, 1998 at midnight Eastern
Standard Time, unless sooner terminated pursuant to the terms of this Agreement.
5.2 EXTENSION TERMS. Licensor hereby grants to Licensee the option to extend the
term of this Agreement for up to fourteen (14) one (1) year periods commencing
as of January 1, 1999 and ending on December 31, 2012, at midnight Eastern
Standard Time, unless sooner terminated pursuant to the terms of this Agreement
with such extended terms to be subject to the same terms and must achieve
specified levels of Minimum Sales during the then preceding Contract or
Extension Term of this Agreement as set forth in Article 8 hereof. Such options
to extend the term of this Agreement must be exercised by Licensee, if at all,
by giving written notice to Licensor at least one hundred and twenty (120) days
prior to the expiration of the then preceding Contract Term of this Agreement.
Nine months (270 days) prior to the end of the fourteenth extension, the parties
will negotiate, in good faith, the possibility of extending this Agreement for
one or more extension periods. Either party may terminate this Agreement without
cause, provided however, that such termination shall not be permitted within the
first 5 (five) years following the Effective Date of this Agreement. Notice of
termination must be given in writing to the other Party hereto 1 (one) year
prior to the termination date. Licensee shall have the right to sell off
inventory of Trademarked Product in accordance with Article 21. Neither Licensor
nor Licensee shall be liable for any compensation or damages by reason of such
early termination.
ARTICLE 6
ROYALTIES
6.1 EARNED ROYALTIES. Subject to of Article 7 hereof, Licensee shall pay to
Licensor for the rights granted hereunder a sum equal to the following
percentage of the Net Invoice Value of Trademarked Products Sold by Licensee
(the "Royalties").:
Audio & Telephone Products: [*****]
Video Products: [*****]
The Royalties shall be remitted in accordance with Section 7.4 of this
Agreement.
6.2 DEFINITION OF NET INVOICE VALUE. As used throughout this Agreement, the term
"Net Invoice Value" shall mean the aggregate of the invoiced amounts of
Trademarked Product sold by Licensee, less (a) returned goods, refunds, credits
and allowances actually made or allowed to customer with respect to Trademarked
Product, (b) freight or handling charges charged to customers or incurred on
returned goods, and (c) sales and excise taxes actually paid ("NIV").
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
Page 5--
ARTICLE 7
MINIMUM ROYALTY PAYMENTS
7.1 MINIMUM ROYALTY PAYMENTS. The Minimum Royalties for the Contract Term shall
be paid [*****] dollars ($[*****]) in advance on execution of this Agreement and
the balance in four (4) equal installments of [*****] each by the 30th day of
March, June, September and December 1998. The Minimum Royalties for each
Extension Term as shown below shall be paid in four (4) equal installments each
by the 30th day of March, June, September and December of the respective term.
Term Year(s) Minimum
Contract Royalties
Term 1997/1998 [*****]
First Extension Term 1999 [*****]
Second Extension Term 2000 [*****]
Third Extension Term 2001 [*****]
Fourth Extension Term 2002 [*****]
Fifth Extension Term 2003 [*****]
Sixth Extension Term 2004 [*****]
Seventh Extension Term 2005 [*****]
Eighth Extension Term 2006 [*****]
Ninth Extension Term 2007 [*****]
Tenth Extension Term 2008 [*****]
Eleventh Extension Term 2009 [*****]
Twelfth Extension Term 2010 [*****]
Thirteenth Extension Term 2011 [*****]
Fourteenth Extension Term 2012 [*****]
7.2 INITIAL ROYALTY PAYMENT. Licensee shall pay Licensor an initial royalty
payment (the "initial Royalty Payment") of [*****] upon execution of this
Agreement. The Initial Royalty Payment shall be applied against the first
Royalties payable pursuant to Section 7.4 of this Agreement.
7.3 APPLICATION OF EARNED ROYALTIES. The Earned Royalties to be paid under
Article 6 shall be applied against the Minimum Royalties due under this Article
7, and Licensee shall pay by each due date specified in this Article 7 the sum
of: (i) the Minimum Royalties as specified above; plus (ii) the excess, if any,
of the Earned Royalties (per Article 6) over the Minimum Royalties for the then
current quarter payable by such due date (such sum hereinafter referred to as
the "Royalty Payment").
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
Page 6--
7.4 QUARTERLY REPORTS OF SALES AND ROYALTY PAYMENTS. On or before the twentieth
(20th) day of each January, April, July and October during the Contract Term and
any Extension Term, Licensee shall deliver to Licensor the following: (i) a
written statement, certified to be true and correct by the Chief Financial
Officer of Licensee, setting forth the Gross an NIV sales for each Trademarked
Product during the preceding calendar quarter and a calculation of the Royalties
payable under Article 6 and 7 of this Agreement for such period, and (ii) a
check payable to Licensor in full payment of the amount due under Article 6 and
7 of this Agreement for such period. Each royalty payment, payable in US
currency, shall be remitted by check at Licensor's address as provide by this
Agreement.
ARTICLE 8
MINIMUM SALES OF TRADEMARKED PRODUCT
8.1 FAILURE TO MEET REQUIRED MINIMUM SALES. Licensee shall use its best efforts
to advertise and sell Trademarked Product in the Territory during the term of
this Agreement. Should Licensee fail to achieve the NIV sales over any [*****]
consecutive terms as set forth below in this Article 8 then Licensor may, at its
option, elect to terminate this Agreement by written notice delivered to
Licensee with [*****] after the end of any period in which Licensee failed
to achieve such required Minimum Sales. Such termination shall be effective upon
delivery of said notice but shall not affect Licensee's outstanding indebtedness
to Licensor or any of the provisions relating thereto.
Contract Term [*****]
First Extension Term [*****]
Second Extension Term [*****]
Third Extension Term [*****]
Fourth Extension Term [*****]
Fifth Extension Term [*****]
Sixth Extension Term [*****]
Seventh Extension Term [*****]
Eight Extension Term [*****]
Ninth Extension Term [*****]
Tenth Extension Term [*****]
Eleventh Extension Term [*****]
Twelfth Extension Term [*****]
Thirteenth Extension Term [*****]
Fourteenth Extension Term [*****]
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
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ARTICLE 9
ADVERTISING AND ART WORK
9.1 ADVANCE SUBMISSION. Licensee shall submit to Licensor for approval all
advertising and promotional items, budgets, programs and materials relating to
the Trademarked Product at least fourteen (14) days prior to intended usage.
Licensor shall provide Licensee with written approval or disapproval within ten
(10) business days after Licensor's receipt thereof. Should Licensor disapprove,
its written notice shall explain in detail the reasons for disapproval so that
Licensee may prepare and submit new advertising and art work.
9.2 ART WORK. Licensor shall make available to Licensee any and all necessary
film, photostats, artwork and full color reproductions of its Trademark,
artwork, designs and other materials necessary for Licensee's use in accordance
with this Agreement.
9.3 EXPENSE REIMBURSEMENT. Licensee shall reimburse Licensor for Licensor's
out-of- pocket expenses, including, reasonable hourly charges for creative
personnel incurred by Licensor in the preparation for Licensee, when and if
required, of new artwork, mechanicals, and film. All charges shall be agreed to
prior to the time such expenses are incurred, and all sums due to Licensor under
this Article 9 shall paid by Licensee upon receipt of an appropriate invoice.
ARTICLE 10
LICENSEE'S RECORDS
Licensee shall keep and maintain at its regular place of business separate and
complete books and records of all business transacted by Licensee in connection
with the Trademarked Product, including, but not limited to, books and records
relating to Gross and NIV of Sales and orders for Trademarked Product. Such
books and records shall be maintained in accordance with generally accepted
accounting procedures and principles consistently applied. Licensor or its duly
authorized agents or representatives shall have the right to inspect said books
and records at Licensee's premises during Licensee's regular business hours.
<PAGE>
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ARTICLE 11
LICENSEE'S ANNUAL REPORTS AND ANNUAL ROYALTY PAYMENTS
On or before the fifteenth (15th) day of the second (2nd) month following the
end of Licensee's fiscal year, Licensee shall render to Licensor a statement
certified by Licensee's Chief Financial Officer disclosing gross and NIV Value
of sales, Royalties due and Royalties paid for Licensee's preceding fiscal year,
and for any Contract or Extension Term which ended within said fiscal year. If
said statement discloses that the amount of Royalties paid during any period to
which said statement relates was less than the amount required to be paid under
the provisions of this Agreement, Licensee shall pay said deficiency concurrent
with the delivery of the statement. If said statement discloses the Licensee has
paid Royalties in excess of the amounts required to be paid, Licensor shall
apply said excess to the next Royalty payment.
ARTICLE 12
AUDIT BY LICENSOR
At all times during the existence of this Agreement and for twelve (12) months
after the last report is rendered hereunder, Licensor, if it so chooses, may
cause its independent accountants to audit all books and records of Licensee
pertaining Trademark Product. Licensor shall have the further right to engage an
independent certified public accounting firm, to audit the books and records of
Licensee with regards to the Royalties due hereunder. In the event any such
audit shall disclose that the Licensee has understated NIV Sales or underpaid
Royalties for any reporting period, Licensee shall forthwith and upon written
demand of Licensor, pay the amount, if any, by which the Royalties owing exceed
Royalties paid, plus interest of twelve percent (12%) per annum on such
delinquent amounts, accruing from the date on which such amounts became
delinquent to the date on which such delinquent amounts were paid. In the event
that Licensee has understated NIV Sales and consequently has underpaid Royalties
in excess of One Thousand dollars ($1,000) of amount due for any Contract Term,
Licensee shall forthwith and upon written demand also pay ail costs, fees and
expenses incurred by Licensor in conducting such audit, including, without
limitation, reasonable travel expenses. Should such audit disclose that the
Royalties paid exceed the Royalties due, any excess revealed by such audit will
be remitted to Licensee.
<PAGE>
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ARTICLE 13
LICENSEE OBLIGATIONS
13.1 LICENSEE DILIGENCE. Licensee shall design, manufacture, advertise, sell and
ship the Trademarked Product and shall continuously and diligently during the
term hereof procure and maintain facilities and trained personnel sufficient and
adequate to accomplish the foregoing, all to the extent and in a manner no less
thorough, diligent and professional than the same accorded by Licensee for
Licensee's most favored premium products and/or services. A cessation of the
above for a continuous period of ninety (90) days shall be grounds for
termination by Licensor, without notice. The marketing of Trademarked Product
shall be conducted in a manner consistent with enhancing the long-term value of
the Trademark. It is the interest of the parties that Trademarked Product be
sold simultaneously through a wide range of retailers. Accordingly, Licensee
shall continuously and diligently design, price and promote Trademarked Product
to retailers in all major classes of trade including department stores (i.e.,
Macy's, Burdine's, Bloomingidale's, etc.), mass merchants (i.e., Walmart, Kmart,
etc.), regional discounters (i.e., Caldor, Bradlees, etc.), warehouse clubs
(i.e., Target, Sam's, etc.), specialty electronics chains (i.e., The Wiz, etc.),
mail order, premium and television shopping services. Licensee shall exhibit
Trademarked Product in exhibit or booth space at the annual electronics show.
13.2 LICENSOR INSPECTION RIGHTS. Licensor shall have the right to inspect any of
Licensee's facilities pertaining to the Trademarked Product during regular
business hours. Licensor shall conduct such inspection in the presence of an
officer, partner or authorized representative of Licensee.
13.3 NO COMPETITION WITH TRADEMARKED PRODUCT. During the term of this Agreement,
Licensee shall not enter another license Agreement for products that would
directly compete with the Trademarked Product.
13.4 FORFEITURE OF CATEGORIES OF TRADEMARK PRODUCT FOR NON-USE. Licensee's
failure to introduce for sale, by the commencement of the First Extension term,
Trademarked Product in any of the eleven (11) categories listed on Exhibit A
shall be deemed a forfeiture of its grant to use the Trademark in that
category(ies) of Trademarked Product. Failure of Licensee to ship Trademarked
Product in any of eleven categories of Trademarked Product for a period of one
(1) year shall be deemed a forfeiture of its grant to use the Trademark in those
categories of Trademark Product.
<PAGE>
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13.5 FINANCIAL STANDARDS. Licensee shall provide its financial statements to
Licensor annually or as requested by Licensor, which are to be prepared in
accordance with U.S. GAAP. Licensee must promptly notify Licensor of a
termination of any significant line of credit or guarantee of indebtedness by
personal guarantor. Should Licensee's net worth fall below $2,000,000 in the
aggregate, Licensor may at its option terminate this Agreement. Likewise
Licensor may terminate this Agreement immediately if any of the following events
occur:
1) Licensee is in default under the provisions of any line of credit or
debt agreement with financing institution.
2) A sale or transfer of Licensee's assets which, in Licensor's opinion,
may affect the ability of Licensee to operate the business pursuant to
this Agreement, or
3) Licensee incurs net operating losses in the aggregate for three or more
consecutive years.
ARTICLE 14
APPROVALS AND QUALITY STANDARDS
14.1 ADVANCE APPROVAL. Prior to any use of any Trademark, Licensee shall, at
Licensee's expense, submit to Licensor, for Licensor's written approval, the
following: (a) two (2) specimens of each Product on which the Trademark is to
appear (the "Specimens"); (b) all artwork which Licensee intends to use in
connection with the Trademark; and (c) all packaging, advertising and
promotional literature which Licensee intends to use in the marketing or
merchandising of the Trademarked Product. Licensor shall give Licensee written
notice of approval or disapproval within ten (10) business days from its receipt
of the Specimens, and should Licensor disapprove, its written notice shall
explain in detail the reasons for disapproval so that Licensee may prepare and
submit new Specimens and/or samples.
14.2 STANDARDS. After Licensor has given its written approval of said Specimens,
then the approved product, quality, packaging, advertising and promotional
literature shall be the standard for all Trademarked Product produced thereafter
(the "Approved Quality").
14.3 PERIODIC SAMPLES. Thereafter, consecutively at four (4) month intervals,
Licensee shall, at Licensee's expense, submit to Licensor not less than two (2)
randomly selected production run samples of the Trademarked Product.
14.4 APPROVED QUALITY STANDARDS. Without the prior written approval of Licensor,
Licensee shall not sell or distribute any Trademarked Product which deviates
from the Approved
<PAGE>
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Quality more than the deviation which would occur as a result of normal
deviations in raw material characteristics.
14.5 PRODUCT SERVICING AND REPAIRS. Licensee will propose, prior to the sale of
Trademarked Product at retail, a mechanism by which Licensee will respond to
inquiries from consumers and third party appliance repair vendors regarding the
operation of Trademarked Product and the procedures for obtaining parts for, or
repairs to, Trademarked Product, which mechanism shall be designed to minimize
any confusion with Licensor's existing customer service operations, or the
existing customer service operation of other Licensees of the Trademark.
14.6 PERIODIC REVIEW MEETINGS. Licensee will conduct periodic meetings with
Licensor to review Licensee's progress and performance under the terms of this
Agreement.
ARTICLE 15
RESTRICTIONS UPON SUBCONTRACTS
Licensee is responsible for the work of any subcontractor and for any debts,
obligations or liabilities incurred by any such subcontractor in connection with
the Trademarked Product. Licensee shall discontinue using any subcontractor who
shall fail to comply with the Approved Quality standards and/or delivery
schedules required by Licensee or Licensor.
ARTICLE 16
ASSIGNMENT; TRANSFERS; SUBLICENSE
The parties hereby acknowledge the substantial personal service nature of
Licensee's obligations hereunder. Therefore, without the prior written consent
of Licensor, which consent will not be unreasonably be withheld, Licensee shall
not voluntarily or by operation of law assign or transfer this Agreement or any
of Licensee's rights or duties hereunder or any interest of Licensee herein, nor
shall Licensee enter into any sublicense for the use of the Trademark by others.
Any assignment, transfer or sub-license without Licensor's written consent shall
be void and at the option of the Licensor shall constitute a default hereunder.
For purposes of this Article 16, the failure of Windmere Corporation, a Florida
Corporation, having its principal offices at 5980 Miami Lakes Drive, Miami
Lakes, Florida, 33014, and Joel Newman, President of Newtech (Licensee) to
maintain ownership of at least 51% of the outstanding voting stock of Licensee
shall be deemed an attempted assignment of this Agreement, unless Licensee has
made a public offering of its voting stock in which case Newtech and Windmere
need not retain 51% of the voting stock.
<PAGE>
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ARTICLE 17
NO DILUTION OF TRADEMARK OR ATTACK UPON TRADEMARK
17.1 LIMIT ON USE. Licensee shall not at any time use, promote, advertise,
display or otherwise publish any Trademark or any material utilizing or
reproducing any Trademark in whole or in part, except as specifically provided
in this Agreement, without the prior written consent of Licensor, which consent
shall not be unreasonably withheld.
17.2 NOTICE. Licensee shall cause to appear on all Trademarked Product and on
all materials on, or in connection with which any Trademark is used, such
legends, markings and notices as may be required by law to give appropriate
notice of all Trademark, trade name or other rights therein or pertaining
thereto.
17.3 MATERIALS AND DOCUMENTS. Licensee shall provide all materials and execute
all documents required by law incident to the maintenance and/or preservation of
the Trademark and Licensor's rights therein.
17.4 NO CONTEST OF TRADEMARK VALIDITY. Licensee shall not contest the validity
of the Trademark or any rights of Licensor therein, nor shall Licensee willingly
become an adverse party in litigation in which others shall contest the
Trademark or Licensor's said rights. In addition thereto, Licensee shall not in
any way seek to avoid its obligations hereunder because of the assertion or
allegation by any persons, entities or government agencies, bureaus, or
instrumentalities that any Trademark is invalid or ineffective or by reason of
any contest concerning the rights of Licensor therein.
17.5 NO OTHER TRADEMARK PROTECTION. Licensee agrees not to seek any state,
Federal, foreign or other statutory trademark or service mark or other
protection for the Trademark as they are used in connection with the Licensee's
goods or services and all use of the Trademark shall be for the sole benefit of
the Licensor.
ARTICLE 18
INFRINGEMENT AND OTHER TRADEMARK LITIGATION
18.1 TRADEMARK DEFENSE. Licensee shall apprise Licensor immediately upon
discovery of any possible infringement of the Trademark which comes to the
attention of the Licensee. Licensor, at its sole cost and expense, and in its
own name, may prosecute and defend any action or proceeding which Licensor deems
necessary or desirable to protect the Trademark, including but not limited to
actions or proceedings involving their infringement. Upon written request by
Licensor, Licensee shall join Licensor at Licensor's sole expense in any such
action or proceeding. However, Licensee shall not commence any action or
<PAGE>
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proceeding to protect the Trademark or any action or proceeding alleging
infringement thereof without the prior written consent of Licensor. Licensee may
prosecute and defend, at its sole expense and in its own name, any action or
proceeding to protect its designs or styles. Any and all damages recovered in
any action or proceeding commenced by Licensor shall belong solely and
exclusively to Licensor.
18.2 NO LIABILITY FOR VIOLATION. Licensor shall have no liability to Licensee or
any other person, nor shall be there by any right of contribution against
Licensor therefore, for any action or proceeding alleging any violation of any
antitrust, trade regulation, or similar statute, or for unfair competition.
Furthermore, in the event of any threatened or actual action or proceeding in
which Licensee and Licensor are or may be charged with jointly violating any
antitrust, trade regulation or similar statute, or any law pertaining to unfair
competition, Licensee may, at its option, elect to be represented in such
threatened or actual action or proceeding by Licensor's counsel at no cost to
Licensee for fees, costs or expenses. Should Licensee elect in such event to be
represented by Licensor's counsel, then Licensee shall relinquish any right to
control or direct such threatened or actual action or proceeding, and Licensor
shall maintain full control thereof. Such representation of Licensee shall
continue only so long as Licensor's counsel, in its sole and absolute
discretion, believes that it may properly and ethically represent both Licensor
and Licensee. In the event that Licensor's counsel decides that it may no longer
properly and ethically represent both Licensor and Licensee, then Licensor's
counsel shall continue to represent Licensor only, and Licensee's continued
defense shall be at Licensee's sole expense and shall be conducted by separate
counsel.
ARTICLE 19
ADDITIONAL RESTRICTIONS UPON USE OF TRADEMARK
19.1 IDENTIFICATION OF TRADEMARKED PRODUCT. It is the intention of the parties
hereto and the purpose of this Article 19 that all of the Trademark Product be
identified to the general public by the Trademark. Licensee shall use a
registration indicator in the form of a circled-R or "TM" symbol in conjunction
with the Trademark when so instructed by the Licensor. Licensee further agrees
to assist Licensor in obtaining registrations for the Trademark in the event any
Trademark is not yet registered for the Trademark Product. Licensee shall use
notice language in the manufacture, sale, advertising or other promotion of the
Trademarked Product as follows: "White-Westinghouse is a registered Trademark of
White Consolidated Industries, Inc. and is used under license." or other such
language as Licensor designates in writing.
<PAGE>
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ARTICLE 20
DEFAULTS BY LICENSEE
20.1 DEFAULTS. Except as otherwise expressly provided in this Agreement, in the
event Licensee shall default in the performance of any of the terms, conditions
or obligations to be performed by Licensee hereunder, and if such default
involves the payment of money and same shall not be cured within [*****] after
Licensor gives written notice to Licensee of such default, or if such default
involves performance other than the payment of money and the same is not cured
within [*****] *** after Licensor gives written notice to Licensee of such
default, then and in any such event, Licensor may immediately and without prior
notice terminate this Agreement and all of the rights and obligations hereunder
(except as otherwise expressly provided by this Agreement). In the event that a
Receiver is appointed to, or one or more creditors take possession of all, or
substantially all, of the assets of the Licensee, or if Licensee shall make a
general assignment for the benefit of creditors, or if any action is taken or
suffered by Licensee under any state or Federal insolvency or bankruptcy act,
then this Agreement and all of the rights and obligations hereunder (except as
otherwise expressly provided by this Agreement) shall immediately, and without
notice or need of any further action by any party hereto, terminate.
20.2 TIME FOR PERFORMANCE. The time for performance of any act required of
either party shall be extended by a period equal to the period during which such
party was reasonably prevented from performance by fire, flood, storm, or other
like casualty beyond such party's control.
ARTICLE 21
LICENSOR'S RIGHTS TO DESIGNS, ETC., UPON TERMINATION
21.1 RIGHTS UPON TERMINATION. In the event this Agreement is terminated for any
reason, or expires according to its terms, Licensee shall assign, transfer and
transmit to Licensor any and ail rights of Licensee in the Trademark, including
associated goodwill, and shall not thereafter manufacture, sell or use the
Trademark in any manner; provided that, Licensee may however, dispose of its
stock of Trademarked Product on hand within [*****] after the termination of
this Agreement; provided, however, all sums due to Licensor have first been
paid; and, further provided, that Licensee shall, prior to the effective date of
said termination, deliver to Licensor a detailed schedule of all inventory of
Trademarked Product in Licensee's possession (constructive or otherwise). After
the expiration of the aforesaid [*****] period, Licensee shall destroy all
Trademarked Product and packaging and promotional material remaining in
Licensee's possession which are identified in any manner by or with the
Trademark. Notwithstanding the above, Licensor shall have the right to purchase
such excess stock of Trademarked Product, in whole or in part, prior to any sale
or offer
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
Page 15--
of sale by Licensee to any third party, for an amount equal to the wholesale
cost of such Trademarked Product. It is specifically understood and agreed that
the Licensee's right to dispose of stock shall be conditioned upon the absence
of harm to the Trademark and/or the reputation of the Licensor arising from the
Licensee's use of the Trademark, as determined by the Licensor in its sole
discretion.
21.2 CONTINUATION OF AGREEMENT TERMS. Licensee shall continue to abide by the
terms of this Agreement with respect to such Trademarked Product during the
period in which disposition pursuant to Article 21.1 of this Agreement is taking
place. Neither Licensee nor any creditor (judgment or otherwise), assignee,
transferee, trustee, or receiver of Licensee, or similar person or officer, or
purchaser other than in the regular course of Licensee's business may sell or
transfer any Trademark Product until and unless all sums due Licensor from
Licensee have been paid. Further, upon termination of this Agreement, all
labels, signs, packages, wrappers, cartons, circulars, advertisements, and other
items bearing or containing any reproduction or representation of any of the
Trademark shall automatically and without cost to Licensor become the property
of Licensor, and Licensee shall immediately deliver the same to Licensor's place
of business or other location designated by Licensor. The reasonable cost of
such delivery shall be paid by the Licensor.
21.3 LICENSEE'S OBLIGATIONS. The termination of this Agreement for any reason
shall not relieve Licensee of any accrued obligations to Licensor nor shall such
action relieve Licensee of any obligation or duty which accrued on or after the
termination or expiration of this Agreement.
21.4 NO RIGHT IN LICENSEE. Except for the right to use the Trademark as
specifically provided for in this Agreement, (i) Licensee shall have no right,
title or interest in or to the Trademark, and (ii) upon and after the
termination of this Agreement, all rights granted to Licensee hereunder,
together with any interest in and to the Trademark that Licensee may acquire,
shall forthwith and without further act or instrument be assigned to and revert
to the Licensor. In addition, Licensee shall execute any instruments requested
by Licensor to accomplish or confirm the foregoing. Any such assignment,
transfer or conveyance shall be without consideration other than the mutual
agreements contained herein.
21.5 SURVIVAL OF TERMS. The provisions of this Article 21 shall survive the
termination (or expiration) of this Agreement.
<PAGE>
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ARTICLE 22
ADDITIONAL RIGHTS PRIOR TO TERMINATION
During the final Contract Year of the Term hereof, Licensor shall have the right
to design and manufacture merchandise of the types covered by this Agreement and
to negotiate and conclude such Agreements as it desires pursuant to which it may
grant licenses to any party or parties of any or all of the rights herein
granted to Licensee; provided, however, that no merchandise herein identified as
Trademark Product shall be shipped by Licensor or any third party other than
Licensee prior to the expiration or termination of this Agreement (exclusive of
the additional [*****] period for the disposition of the Trademark Product as
provided in Article 21 hereof).
ARTICLE 23
GOODWILL
Licensee acknowledges and recognizes that the Trademark are of substantial
significance and value to Licensor and that said Trademark have acquired
valuable secondary meaning, value and goodwill. Except as may be otherwise
specified in this Agreement, Licensee shall not use any of the Trademark or any
name or symbol similar thereto as part of its name or symbol or as part of the
name or symbol of any corporation, partnership, joint venture, proprietorship or
other entity or person which it controls or with which it is affiliated.
ARTICLE 24
INSURANCE
Licensee shall at all times carry product liability insurance with respect to
the Trademarked Product with a limit of liability of not less than $[*****] and
Licensor shall be named therein as coinsured as its interests may appear. Such
insurance may be obtained in connection with a policy of product liability
insurance which covers products other than the Trademarked Product and shall
provide for at least thirty (30) days prior written notice to Licensor of the
cancellation or substantial modification thereof. Licensee shall deliver to
Licensor a certificate evidencing the existence of such insurance policies
promptly after their issuance.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
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ARTICLE 25
AGENTS, FINDERS AND BROKERS
Each of the parties to this Agreement shall be responsible for the payment of
any and all agent, brokerage and/or finder commissions, fees and related
expenses incurred by it in connection with this Agreement or the transactions
contemplated hereby and shall indemnify the other and hold it harmless from any
and all liability (including, without limitation, reasonable attorney's fees and
disbursements paid or incurred in connection with any such liability) for any
agent, brokerage and/or finder commissions, fees and related expenses claimed by
its agent, broker or finder, if any, in connection with this Agreement or the
transactions contemplated hereby. Licensor's sole agent/finder/broker in
connection with this Agreement is Leveraged Marketing Corporation of America
("LMCA") with offices at 156 West 56th Street, New York, New York 10019. Any and
all commissions, fees and/or other monies due LMCA in connection with this
Agreement shall be borne exclusively by Licensor as per the Agency Agreement of
March 1, 1995.
ARTICLE 26
RESERVED RIGHTS
Rights not herein specifically granted to Licensee are reserved by Licensor and
may be used by Licensor without limitation. Any use by Licensor of such reserved
rights, including but not limited to the use or authorization of the use of any
Trademark in any manner whatsoever not inconsistent with Licensee's right
hereunder, shall not be deemed to be interference with or infringement of any of
Licensee's rights.
ARTICLE 27
APPLICABLE LAW
This Agreement shall be construed and governed, in all respects, by the law of
the State of Ohio applicable to contracts made and to be performed in that state
without reference to any provisions relating to conflicts of law. Any legal
action or proceeding of any sort against Licensor by or on behalf of Licensee,
shall be brought in a court of competent jurisdiction in Cuyahoga County, Ohio.
<PAGE>
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ARTICLE 28
NON-AGENCY OF PARTIES
This Agreement does not constitute or appoint Licensee as the agent or legal
representative of Licensor, or Licensor as the agent or legal representative of
Licensee, for any purpose whatsoever. Licensee is not granted any right or
authority to assume or to create any obligation or responsibility, express or
implied, on behalf of or in the name of, Licensor or to bind Licensor in any
manner or thing whatsoever; nor is Licensor granted any right or authority to
assume or create any obligation or responsibility, express or implied, on behalf
of or in the name of Licensee, or to bind Licensee in any manner or thing
whatsoever. No joint venture or partnership between the parties hereto is
intended or shall be inferred.
ARTICLE 29
AMENDMENTS AND WAIVERS BY LICENSOR
This Agreement may be amended or modified by Licensorj and Licensor may waive
any of its rights hereunder or performance by Licensee of any of its obligations
hereunder, only by instrument in writing. In the event Licensor shall at any
time waive any of its rights under this Agreement or the performance by Licensee
of any of its obligations hereunder, such waiver shall not be construed as a
continuing waiver of the same rights or obligations, or a waiver of any other
rights or obligations.
ARTICLE 30
ENTIRE AGREEMENT
This Agreement constitutes the entire Agreement between the parties as to the
Trademark Products, and supersedes all prior agreements and understandings
relating to this subject matter hereof.
<PAGE>
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ARTICLE 31
SEPARABILITY OF PROVISIONS
If any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future laws, such provisions shall be fully
severable. The Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provisions had never comprised a part of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance from this Agreement. Furthermore, in
lieu of such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid or enforceable.
ARTICLE 32
COUNTERPARTS; HEADINGS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument. The headings herein are set out for convenience of reference only
and shall not be deemed a part of this Agreement.
ARTICLE 33
BINDING EFFECT
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and, subject to the provisions of Article 16 of this Agreement,
their respective permitted successors and assigns.
<PAGE>
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ARTICLE 34
INDEMNIFICATION BY LICENSEE
34.1 INDEMNIFIED PARTIES; Basic Indemnification. For purposes of this paragraph,
"Indemnified Parties" refers to Licensor, and other licensees (not including
Licensee) of rights relating to the Trademark, and officers, directors,
employees, and agents of each of the foregoing, and persons connected with or
employed by them and each of them. Licensee hereby agrees that it shall
indemnify and hold harmless the Indemnified Parties and each of them from and
against the costs and expenses (including, without limitation, reasonable
attorneys fees and costs) of any and all claims, suits, losses, damages, costs,
demands, obligations, investigations, causes of action, and judgments arising
out of:
(a) the actual or alleged unauthorized use in connection with, or arising out
of, a Trademarked Product of any trademark (including, without limitation, the
Trademark), patent, process, method or device; (b) the actual or alleged
infringement in such connection of any copyrights, trade name or patent or any
act held to constitute libel, slander or defamation; (c) the invasion by
Licensee of the right of privacy, publicity, or other property right; (d) the
failure to perform of, or any defect in, or use of, the Trademarked Product,
including without limitation any injuries to the person or to property arising
therefrom; (e) the infringement or breach of other personal or property right of
any person, firm or corporation by Licensee, its officers, employees, agents, or
anyone directly or indirectly acting by, through, on behalf of, or pursuant to
contractual or any other relationship with Licensee; and (f) Licensee's sales
and/or promotional efforts.
34.2 INDEMNIFICATION FOR BREACH. Licensee hereby further agrees that it shall
indemnify and forever hold harmless the Indemnified Parties against and from any
and all claims, suits, losses, damages, costs, obligations, liabilities,
judgments, damages and expenses, including without limitation, reasonable
attorneys' fees arising out of breach or alleged breach by Licensee of any
provision of this Agreement, or any misrepresentation made by Licensee herein or
any act not expressly authorized herein. Licensee further agrees to insulate the
Indemnified Parties from any and ail product liability claims arising from the
use or misuse of the Trademarked Product.
34.3 SURVIVAL OF TERMS. The provisions of this Article 34 shall survive the
termination (or expiration) of this Agreement.
<PAGE>
Page 21-- -
ARTICLE 35
INFORMATION
35.1 CONFIDENTIALITY. Licensor and Licensee may from time to time disclose to
each other sales, engineering, applications, drawing, designs and any other
knowledge, information, techniques, know-how or data pertaining to the
manufacture, use, application, marketing, distribution and sales of the
Trademarked Product or other products of Licensor or Licensee (the
"Information"). Each party hereto shall hold in confidence all such data and
information and shall not disclose such data and information except to such
personnel and employees as are necessary for the effective performance of this
Agreement or as otherwise permitted by this Agreement. Licensor and Licensee
shall cause all data, documents or other written or printed materials embodying
the Information to be plainly marked to indicate the secret and confidential
nature thereof and to prevent unauthorized access thereto, or reproduction or
use thereof. Licensor and Licensee shall take any necessary action, including
court proceedings, to comply and to compel compliance with the provisions of
this Article 35. The obligations undertaken by Licensor and Licensee pursuant to
this Article 35 shall not apply to any such data or information which is or
becomes published or otherwise generally available to the public without fault
of a party hereto or is otherwise lawfully acquired by a party hereto and such
obligations shall, as so limited, survive the expiration or termination of this
Agreement. Upon termination of this Agreement, either Party hereto may request
the prompt return of all written materials received from the other Party
including originals, copies, extractions, translations and reproductions
thereof. This Agreement is not intended to and shall not be construed to give
either Party any vested right, title or interest in the Trademarked Product or
the Information.
35.2 CONFIDENTIALITY OF TERMS OF AGREEMENT. Licensee shall not disclose to any
third party information relating to the terms and conditions of this Agreement,
including royalty rates, the amounts of minimum NIV Sales or minimum royalties
or the amount of the initial royalty payment pursuant to this Agreement.
35.3 SURVIVAL OF TERMS. The provisions of this Article 35 shall survive the
termination of this Agreement.
ARTICLE 36
PUBLIC ANNOUNCEMENTS
36.1 Unless expressly approved in advance in writing by the other party, neither
shall make any public announcement regarding the subject matter or existence of
this Agreement except as required by law. If such announcement is required by
law, the announcing party
<PAGE>
Page 22--
shall give the other party reasonable notice of such announcement and shall
consult with the other party regarding the announcement.
36.2 IMMEDIATE DISCLOSURE OF PUBLIC ANNOUNCEMENTS. Licensee shall include
Licensor, and its agent, LMCA, among its list of recipients for press releases
and all other public announcements regarding its business, and provide such
information to Licensor and its agent simultaneous to its release to any and all
media outlets or other recipients.
ARTICLE 37
ADDRESSES FOR NOTICE
All notices, statements, consents, instructions or other documents required or
authorized to be given hereunder shall be in writing, and shall be delivered
personally to an officer, partner or authorized representative of the other
party or by certified mail, return receipt requested, addressed to the parties
concerned as follows:
to Licensee Newtech, Inc.
16550 N.W. 10th Avenue
Miami, Florida 33169
Facsimile: 305-624-8901
and to Licensor at: White Consolidated Industries, Inc.
11770 Berea Road
Cleveland, Ohio 44111
Facsimile: 216-252-8158
with copies to: Ms. Sharon Schiller, Trademark Counsel
White Consolidated Industries, Inc.
11770 Berea Road
Cleveland, Ohio 44111
Facsimile: 216-252-8158
and Mr. Allan R. Feldman
Leveraged Marketing Corporation of America
156 West 56th Street, Suite 1400
New York, New York 10019
Facsimile: 212-581-1461
and shall be deemed to have been given upon receipt.
<PAGE>
Page 23--
IN WITNESS WHEREOF, this Agreement is executed on the day and year
first written above.
White Consolidated Industries, Inc. (Licensor)
/s/ Stanley R. Miller
- ---------------------
By: Stanley R. Miller
Assistant Secretary
Newtech, Inc. (Licensee)
/s/ Joel Newman
- ----------------
By: Joel Newman
President
<PAGE>
EXHIBIT A
1. Radios
2. Phonographs
3. Tape Decks
4. CD Players
5. Compact Home Stereo Systems (exclude separate amplifiers, receivers,
tuners and speaker systems sold separately and not part of a self-contained
home theater system)
6. Telephones (excludes mobile phones, pager/beepers and other wireless
communications).
7. Telephone Answering Machines
8. Telephone Accessories (excludes facsimile machines)
9. Televisions
10. Videocassette recorders (VCR's)
11. TV/VCR Combinations
<PAGE>
AMENDMENT 1
AGREEMENT BETWEEN NEWTECH, INC.
and
WHITE-WESTINGHOUSE COMPANY,
DIVISION OF WHITE CONSOLIDATED INDUSTRIES, INC.
DATED 1 MAY 1996
THE NAME "Newtech Corporation" is hereby amended to read NEW M-TECH
CORPORATION, having its principal place of business at 16550 N.W. 10th Avenue,
Miami, Florida 33169, as shown in the Articles of Incorporation, organized under
the Laws of the State of Florida, effective October 25, 1990.
Except as hereby amended, the Agreement entered into and effective May
1, 1996 shall remain in full force and effect.
It is hereby agreed that this Amendment shall be effective as of May 1,
1996.
Signed this 5th day of August, 1996.
NEW M-TECH CORPORATION WHITE CONSOLIDATED INDUSTRIES, INC.
/s/ Joel Newman Stanley R. Miller
- --------------- -----------------
By: By: Stanley R. Miller
Its: Its: Assistant Secretary
<PAGE>
AMENDMENT 2
AGREEMENT BETWEEN NEW M-TECH CORPORATION
And
WHITE CONSOLIDATED INDUSTRIES, INC.
Dated May 1, 1996
In paragraph 5.2 Extension Terms, delete the following.
"Either party may terminate this agreement without cause, provided however, at
such termination shall not be permitted within the first 5 (five) years
following the Effective Date of this Agreement Notice of termination must be
given in writing to the other Party hereto 1 (one) year prior to the termination
date. Licensee shall have the right to sell off inventory of Trademarked Product
in accordance with Article 21. Neither Licensor nor Licensee shall be liable for
any compensation or damages by reason of such early termination."
Except as hereby amended, the Agreement entered into and effective May
1, 1996 shall remain in full force and effect.
It is hereby agreed that this Amendment shad1 be effective as of May l,
1996.
Signed this 23 day of May, 1997.
NEW M-TECH CORPORATION WHITE CONSOLIDATED INDUSTRIES, INC.
/s/ Joel Newman Stanley R. Miller
- --------------- -----------------
By: By: Stanley R. Miller
Its: Its: Assistant Secretary
<PAGE>
AMENDMENT 3
AGREEMENT BETWEEN NEW M-TECH CORPORATION
And
WHITE CONSOLIDATED INDUSTRIES, INC.
DATED MAY 1, 1996
In Article 34 INDEMNIFICATION BY LICENSEE, insert the following new
paragraph 34.2.
34.2 LICENSEE INDEMNIFICATION PARTIES; BASIC INDEMNIFICATION. For
purposes of this Section, "Licensee Indemnification Parties" refers to Licensee
and officers, directors, employees and agents of Licensee. Licensor shall
indemnify and hold harmless the Licensee Indemnified Parties and each of them
from and against the cost and expenses (including, without limitation,
reasonable attorneys fees and costs) of any and all claims, suits, losses,
damages, costs, demands, obligations, investigations, causes of action, and
judgements arising out of any assertion or allegation by any persons, entities
of government agencies that any Trademark infringes any trademark, trade name or
any other personal or property right of a third party.
Re-number existing 34.2 as 34.3 re-number existing 34.3 as 34.4.
It is hereby agreed that this Amendment shall be effective as of May 1,
1996.
Signed this 9 day of June, 1997.
NEW M-TECH CORPORATION WHITE CONSOLIDATED INDUSTRIES, INC.
/s/ Joel Newman Stanley R. Miller
- --------------- -----------------
By: By: Stanley R. Miller
Its: Its: Assistant Secretary
EXHIBIT 10.5
TRADEMARKS LICENSE AGREEMENT
AGREEMENT entered into as of September 15, 1997, by and between White
Consolidated Industries, Inc., a Delaware Corporation, having its principal
office at 11770 Berea Road, Cleveland, Ohio 44111 ("Licensor"), New M-Tech
Corporation, a Florida Corporation, having its principal office at 16550 N.W.
10th Avenue, Miami, Florida 33169 (hereinafter referred to as "Licensee").
WHEREAS, Licensor is the owner of the Trademark White-Westinghouse and
associated designs and trade dress, (together, the "Trademarks"), and is using
the Trademarks throughout the World, and
WHEREAS, Licensor has the right to grant Licensee the license, right and
permission to use the Trademarks, and
WHEREAS, Licensee is in the business of manufacturing, distributing and selling
articles described and specified hereinafter (the "Products"), and desires to
secure the license, right and permission to use the Trademarks upon, and in
connection with, the manufacturing, distributing and selling of such Products;
and
WHEREAS, the Products that are the subject of this Agreement have been defined
by the parties as portable consumer microwave oven products listed on Exhibit A
hereto (and any other articles which the parties mutually agree to be subject to
the provisions of this Agreement which, in accordance with the terms of this
Agreement, bear the Trademarks (collectively, the "Trademarked Product").
WHEREAS, Licensor desires to grant to Licensee, and Licensee desires to accept
from Licensor, a license to use the Trademarks in the design, manufacture,
advertising, sale and- promotion of the Products, subject to each of the terms,
provisions and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual agreements,
covenants and provisions contained herein, the parties hereto do hereby agree as
follows:
<PAGE>
Page 2--
ARTICLE 1
GRANT OF LICENSE AND DESIGNATION OF TRADEMARKED PRODUCT
Effective upon the execution of this Agreement, Licensor hereby grants to
Licensee, for the period hereinafter specified and upon the terms, provisions
and conditions of this Agreement, the exclusive right and license to use the
Trademarks within the geographic area described in Article 2 hereof, in the
design, manufacture, advertising, sale and promotion of the Trademarked Product.
Licensor recognizes that Licensee's wholly-owned subsidiary Newtech(HK), Ltd.,
a Hong Kong corporation having its principal offices [orated at Room 909,
Holywood Plaza, 610 Nathan Road, Kowloon, Hong Kong, may from time to time ship
Trademarked Product directly to Licensee's customers.
In the event of any disputes between the parties to this Agreement regarding the
definition of Trademarked Product, the final decision regarding such definition
shall rest in Licensor's sole and absolute discretion. The rights granted to
Licensee herein are limited to use on or in connection with the Trademarked
Product and Licensee specifically agrees not to use the Trademarks in any manner
or on any product, service or item, except as set forth in the Agreement.
ARTICLE 2
GEOGRAPHIC AREA
The rights granted to Licensee hereunder may be exercised by Licensee within the
USA, Canada and Puerto Rico (the "Territory"), and Licensee shall have exclusive
rights with respect to the Trademarked Product. Upon Licensee's request,
Licensor may, in its discretion, extend the areas in which Licensee may exercise
said rights, but any such extension shall, in each instance, be evidenced by a
written and duly executed amendment to this Agreement for such periods and upon
such terms and conditions as shall be determined by Licensor. From time to time
Licensor may wish to purchase Trademarked Product for sale outside the
Territory. Licensee agrees to sell Trademarked Product to Licensor at the same
price Licensee sells Trademarked Product to its best customer.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF LICENSOR
3.1 Organization and Power. Licensor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Licensor
has all corporate power and authority to execute and deliver this Agreement and
perform its obligations hereunder.
<PAGE>
Page 3--
3.2 AUTHORIZATION. The execution, delivery and performance by Licensor of this
Agreement and the consummation of the transaction contemplated hereby has been
duly and validly authorized by all requisite corporate action, and no other
corporate act or proceeding on this part of Licensor is necessary to authorize
the execution, delivery and performance of this Agreement and the consummation
of the transaction contemplated hereby.
3.3 NO VIOLATION. Licensor is not subject to nor obligated under its certificate
of incorporation or bylaws, any applicable law, rule or regulation of any
governmental authority, or any agreement, instrument, license or permit, or
subject to any order, writ, injunction or decree, which would be breached or
violated by its execution, delivery or performance of this Agreement.
3.4 OWNERSHIP OF TRADEMARKS. Licensor is the owner of the Trademarks and, to
Licensor's knowledge, the use of the Trademarks in the design, manufacture,
advertising, sale and promotion of any of the Trademarked Product will not
infringe any intellectual property or any other rights of any third party.
3.5 RIGHT TO GRANT LICENSE. Licensor has the full right, power and authority to
grant the license as set forth in Article 1 hereof.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF LICENSEE
4.1 ORGANIZATION AND POWER. Licensee is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida. Licensee
has all corporate power and authority to execute and deliver this Agreement and
perform its obligations hereunder.
4.2 AUTHORIZATION. The execution, delivery and performance by Licensee of this
Agreement and the consummation of the transaction contemplated hereby has been
duly and validly authorized by all requisite corporate action, and no other
corporate act or proceeding on this part of Licensee is necessary to authorize
the execution, delivery and performance of this Agreement and the consummation
of the transaction contemplated hereby.
4.3 NO VIOLATION. Licensee is not subject to nor obligated under its certificate
of incorporation or bylaws, any applicable law, rule or regulation of any
governmental authority, or any agreement, instrument, license or permit, or
subject to any order, writ, injunction or decree, which would be breached or
violated by its execution, delivery or performance of this Agreement.
<PAGE>
Page 4--
ARTICLE 5
TERM OF AGREEMENT
5.1 CONTRACT TERM. The Contract Term of this Agreement commence of the date
first mentioned above and ending on December 31, 2002 at midnight Eastern
Standard Time, unless sooner terminated pursuant to the terms of this Agreement.
5.2 EXTENSION TERMS. Licensor hereby grants to Licensee the option to extend the
term of this Agreement for up to six (6) two (2) year periods commencing as of
January 1, 20003 and ending on December 31, 2014, at midnight Eastern Standard
Time, unless sooner terminated pursuant to the terms of this Agreement with such
extended terms to be subject to the same terms and must achieve specified levels
of Minimum Sales during the then preceding Contract or Extension Term of this
Agreement as set forth in Article 8 hereof. Such options to extend the term of
this Agreement must be exercised by Licensee, if at all, by giving written
notice to Licensor at least one hundred and twenty (120) days prior to the
expiration of the then preceding Contract Term of this Agreement. Nine months
(270 days) prior to the end of the fourteenth extension, the parties will
negotiate, in good faith, the possibility of extending this Agreement for one or
more extension periods.
ARTICLE 6
ROYALTIES
6.1 EARNED ROYALTIES. Subject to of Article 7 hereof, Lieensee shall pay to
Licensor for the rights granted hereunder a sum equal to [*****] of the Net
Invoice Value of Trademarked Products Sold by Licensee (the "Royalties").
The Royalties shall be remitted in accordance with Section 7.4 of this
Agreement.
6.2 DEFINITION OF NET INVOICE VALUE. As used throughout this Agreement, the
term "Net Invoice Value" shall mean the aggregate of the invoiced amounts of
Trademarked Product sold by Licensee, less (a) returned goods, refunds, credits
and allowances actually made or allowed to customer with respect to Trademarked
Product, (b) freight or handling charges charged to customers or incurred on
returned goods, and (c) sales and excise taxes actually paid ("NIV").
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
Page 5--
ARTICLE 7
MINIMUM ROYALTY PAYMENTS
7.1 MINIMUM ROYALTY PAYMENTS. The Minimum Royalties for the Contract Term shall
be paid [*****] in advance on execution of this Agreement and the balance in
twenty (20) equal installments of $[*****] paid quarterly beginning March 30,
1998 and throughout the remainder of the contract period. Each installment is
due on or before the 30th day of each March, June, September and December. The
Minimum Royalties for each Extension Term as shown below shall be paid in four
(4) equal installments each by the 30th day of March, June, September and
December of the respective term.
7.1A Licensee shall not be in default of this Paragraph if the minimum royalties
paid pursuant to a Trademark Licensee Agreement between White Consolidated
Industries and Electronic Industries of America, Inc., of even date, and the
royalties paid pursuant to this Agreement equal the minimum royalty payments set
forth below.
Term Year(s) Minimum
- ---- ------- Royalties
Contract ---------
Term 1997/2002 [*****]
First Extension Term 2003/2004 [*****]
Second Extension Term 2005/2006 [*****]
Third Extension Term 2007/2008 [*****]
Fourth Extension Term 2009/2010 [*****]
Fifth Extension Term 2011/2012 [*****]
Sixth Extension Term 2013/2014 [*****]
7.2 INITIAL ROYALTY PAYMENT. Licensee shall pay Licensor an initial royalty
payment (the- "Initial Royalty Payment") of [*****] upon execution of this
Agreement. The Initial Royalty Payment shall be applied against the first
Royalties payable pursuant to Section 7.4 of this Agreement.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
Page 6--
7.3 APPLICATION OF EARNED ROYALTIES. The Earned Royalties to be paid under
Article 6 shall be applied against the Minimum Royalties due under this Article
7, and Licensee shall pay by each due date specified in this Article 7 the sum
of: (i) the Minimum Royalties as specified above; plus (ii) the excess, if any,
of the Earned Royalties (per Article 6) over the Minimum Royalties for the then
current quarter payable by such due date (such sum hereinafter referred to as
the "Royalty Payment").
7.4 QUARTERLY REPORTS OF SALES AND ROYALTY PAYMENTS. On or before the twentieth
(20thj day of each January, April, July and October during the Contract Term and
any Extension Term, Licensee shall deliver to Licensor the following: (i) a
written statement, certified to be true and correct by the Chief Financial
Officer of Licensee, setting forth the Gross an NIV sales for each Trademarked
Product during the preceding calendar quarter and a calculation of the Royalties
payable under Article 6 and 7 of this Agreement for such period, and (ii) a
check payable to Licensor in full payment of the amount due under Article 6 and
7 of this Agreement for such period. Each royalty payment, payable in US
currency, shall be remitted by check at Licensor's address as provide by this
Agreement.
7.5 In the event that during any of the Terms of the Agreement, the aggregate
retail sales of microwave ovens in the United States decreases from the prior
Term (the amount of such reduction of sales of microwave ovens in the United
States is hereinafter express as a percentage and the amount by which such
percentage exceeds [*****]% is hereinafter referred to as the to as the
"Reduction Percentage"), then the Minimum Sales Commitment for the Term
following the Prior Term (the "Adjustment Period") shall be reduced. This
reduction shall be in an amount (the "Reduction Amount") equal to (i) the higher
of (A) the Minimum Sales Commitment for the Adjustment Period or (B) the actual
sales by Newtech of microwave ovens during the Prior Term (the "Actual Prior
Term Sales") multiplied by (ii) the Reduction Percentage. The Reduction amount
will then be subtracted from the higher of (i) the Minimum Sales Commitment for
the Adjustment Period or (ii) the Actual Prior Term Sales, to determine the new
Minimum Sales Commitment for the Adjustment Term; provided, however that if this
computation yields an amount greater than the Minimum Sales Commitment for such
Term, then no adjustment shall be made. For purpose of this section, sales for
microwave ovens in the United States shall be determined by reference to
applicable information published in the most widely-circulated trade publication
containing such information; provided that if Licensor and Licensee are unable
to agree upon the publication from which such information is be derived, then
the applicable information shall be derived by reference to applicable
information shall be derived by reference to a trade publication selected by the
licensor and a trade publication selected by the licensee, and the applicable
sales information shall be determined on the basis of the average of the data
contained on the two publications.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
Page 7--
ARTICLE 8
MINIMUM SALES OF TRADEMARKED PRODUCT
8.1 FAILURE TO MEET REQUIRED MINIMUM SALES. Licensee shall use its best efforts
to advertise and sell Trademarked Product in the Territory during the term of
this Agreement. Should Licensee fail to achieve the NIV sales over any two
consecutive terms as set forth below in this Article 8 then Licensor may, at its
option, elect to terminate this Agreement by written notice delivered to
Licensee with sixty (60) days after the end of any period in which Licensee
failed to achieve such required Minimum Sales Such termination shall be
effective upon delivery of said notice but shall not affect Licensee's
outstanding indebtedness to Licensor or any of the provisions relating thereto.
8.1A. Licensee shall not be in default of this Paragraph if The Minimum Sales
generated pursuant to a Trademark License Agreement between White Consolidated
Industries and Electronic Industries of America, Inc., of even date, and The
minimum sales generated pursuant to this Agreement equal the minimum sales set
forth below.
Contract Term [*****]
First Extension Term [*****]
Second Extension Term [*****]
Third Extension Term [*****]
Fourth Extension Term [*****]
Fifth Extension Term [*****]
Sixth Extension Term [*****]
ARTICLE 9
ADVERTISING AND ART WORK
9.1 ADVANCE SUBMISSION. Licensee shall submit to Licensor for approval all
advertising and promotional items, budgets, programs and materials relating to
the Trademarked Product at least fourteen (14) days prior to intended usage.
Licensor shall provide Licensee with written approval or disapproval within ten
(10) business days after Licensor's receipt thereof. Should Licensor disapprove,
its written notice shall explain in detail the reasons for disapproval so that
Licensee may prepare and submit new advertising and art work.
9.2 Art Work. Licensor shall make available to Licensee any and all necessary
film, photostats, artwork and full color reproductions of its Trademarks,
artwork, designs and other materials necessary for Licensee's use in accordance
with this Agreement.
9.2 ART WORK. Licensor shall make available to Licensee any and all necessary
film, photostats, artwork and full color reproductions of its Trademarks,
artwork, designs and other materials necessary for Licensee's use in accordance
with this Agreement.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
Page 8--
9.3 EXPENSE REIMBURSEMENT. Licensee shall reimburse Licensor for Licensor's
out-of- pocket expenses, including, reasonable hourly charges for creative
personnel incurred by Licensor in the preparation for Licensee, when and if
required, of new artwork, mechanicals, and film. All charges shall be agreed to
prior to the time such expenses are incurred, and all sums due to Licensor under
this Article 9 shall paid by Licensee upon receipt of an appropriate invoice.
ARTICLE 10
LICENSEE'S RECORDS
Licensee shall keep and maintain at its regular place of business separate and
complete books and records of all business transacted by Licensee in connection
with the Trademarked Product, including, but not limited to, books and records
relating to Gross and NIV of Sales and orders for Trademarked Product. Such
books and records shall be maintained in accordance with generally accepted
accounting procedures and principles consistently applied. Licensor or its duly
authorized agents or representatives shall have the right to inspect said books
and records at Licensee's premises during Licensee's regular business hours.
ARTICLE 11
LICENSEE'S ANNUAL REPORTS AND ANNUAL ROYALTY PAYMENTS
On or before the fifteenth (15th) day of the second (2nd) month following the
end of Licensee's fiscal year, Licensee shall render to Licensor a statement
certified by Licensee's Chief Financial Officer disclosing gross and NIV Value
of sales, Royalties due and Royalties paid for Licensee's preceding fiscal year,
and for any Contract or Extension Term which ended within said fiscal year. If
said statement discloses that the amount of Royalties paid during any period to
which said statement relates was less than the amount required to be- paid under
the provisions of this Agreement, Licensee shall pay said deficiency concurrent
with the delivery of the statement. If said statement discloses the Licensee has
paid Royalties in excess of the amounts required to be paid, Licensor shall
apply said excess to the next Royalty payment.
<PAGE>
Page 9--
ARTICLE 12
AUDIT BY LICENSOR
At all times during the existence of this Agreement and for twelve (12) months
after the last report is rendered hereunder, Licensor, if it so chooses, may
cause its independent accountants to audit all books and records of Licensee
pertaining Trademarked Product. Licensor shall have the further right to engage
an independent certified public accounting firm, to audit the books and records
of Licensee with regards to the Royalties due hereunder. In the event any such
audit shall disclose that the Licensee has understated NIV Sales or underpaid
Royalties for any reporting period, Licensee shall forthwith and upon written
demand of Licensor, pay the amount, if any, by which the Royalties owing exceed
Royalties paid, plus interest of twelve percent (12%) per annum on such
delinquent amounts, accruing from the date on which such amounts became
delinquent to the date on which such delinquent amounts were paid. In the event
that Licensee has understated NIV Sales and consequently has underpaid Royalties
in excess of One Thousand dollars ($1,000) of amount due for any Contract Term,
Licensee shall forthwith and upon written demand also pay all costs, fees and
expenses incurred by Licensor in conducting such audit, including, without
limitation, reasonable travel expenses. Should such audit disclose that the
Royalties paid exceed the Royalties due, any excess revealed by such audit will
be remitted to Licensee.
ARTICLE 13
LICENSEE OBLIGATIONS
13.1 LICENSEE DILIGENCE. Licensee shall design, manufacture, advertise, sell and
ship the Trademarked Product and shall continuously and diligently during the
term hereof procure and maintain facilities and trained personnel sufficient and
adequate to accomplish the foregoing, all to the extent and in a manner no less
thorough, diligent and professional than the same accorded by Licensee for
Licensee's most favored premium products and/or services. A cessation of the
above for a continuous period of ninety (90) days shall be grounds for
termination by Licensor, without notice. The marketing of Trademarked Product
shall be conducted in a manner consistent with enhancing the long-term value of
the Trademarks. It is the interest of the parties that Trademarked Product be
sold simultaneously through a wide range of retailers. Accordingly, Licensee
shall continuously and diligently design, price and promote Trademarked Product
to retailers in all major class of trade including department stores (i.e.,
Macy's, Burdine's, Bloomingdale's, etc.), mass merchants (i.e. Walmart, Kmart,
etc.), regional discounters (i.e., Caldor, Bradlees, etc.), warehouse clubs
(i.e., Target, Sam's, etc.), specialty electronics chains (i.e., The Wiz, etc.)
mail order, premium and television shopping services. Licensee shall exhibit
Trademarked Product in exhibit or booth space at the annual electronics show.
<PAGE>
Page 10--
13.2 LICENSOR INSPECTION RIGHTS. Licensor shall have the right to inspect any of
Licensee's facilities pertaining to the Trademarked Product, during regular
business hours. Licensor shall conduct such inspection in the presence of an
officer, partner or authorized representative of Licensee.
13.3 NO COMPETITION WITH TRADEMARKED PRODUCT. During the term of this Agreement,
Licensee shall not enter another license Agreement for products that would
directly compete with the Trademarkad Product other than the Admiral trade name.
13.4 FORFEITURE OF TRADEMARK FOR NON-USE. Licensee's failure to ship Trademarked
Product Trademark by December 31, 1998 shall be deemed a forfeiture of its grant
to use the Trademarks. Failure of Licensee to ship Trademarked Product for a
period of one (1) year shall be deemed a forfeiture of its grant to use the
Trademarks.
13.5 Financial Standards. Licensee shall provide its financial statements to
Licensor annually or as requested by Licensor, which are to be prepared in
accordance with U.S. GMP. Licensee must promptly notify Licensor of a
termination of any significant line of credit or guarantee of indebtedness by
personal guarantor. Should Licensee's net worth fall below $2,000,000 in the
aggregate, Licensor may at its option terminate this Agreement. Likewise
Licensor may terminate this Agreement immediately if any of the following events
occur:
1) Licensee is in default under the provisions of any line of credit or
debt agreement with financing institution.
2) A sale or transfer of Licensee's assets which, in Licensor's opinion,
may affect the ability of Licensee to operate the business pursuant to
this Agreement, or
3) Licensee incurs net operating losses in the aggregate for three or more
consecutive years.
ARTICLE 14
APPROVALS AND QUALITY STANDARDS
14.1 Advance Approval. Prior to any use of any Trademarks, Licensee shall, at
Licensee's expense' submit to Licensor, for Licensor's written approval, the
following: (a) two (2) specimens of each Product on which the Trademarks is to
appear (the "Specimens"); (b) all artwork which Licensee intends to use in
connection with the Trademarks; and (c) all packaging, advertising and
promotional literature which Licensee intends to use in the marketing or
merchandising of the Trademarked Product. Licensor shall give Licensee written
notice of approval or disapproval within ten t10) business days from its receipt
of the Specimens, and should Licensor disapprove, its written notice shall
<PAGE>
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explain in detail the reasons for disapproval so that Licensee may prepare and
submit new Specimens and/or samples.
14.2 STANDARDS. After Licensor has given its written approval of said Specimens,
then the approved product, quality, packaging, advertising and promotional
literature shall be the standard for all Trademarked Product produced thereafter
(the "Approved Quality").
14.3 PERIODIC SAMPLES. Thereafter, consecutively at four (4) month intervals,
Licensee shall, at Licensee's expense; submit to Licensor not less than two (2)
randomly selected production run samples of the Trademarked Product.
14.4 APPROVED QUALITY STANDARDS. Without the prior written approval of Licensor,
Licensee shall not sell or distribute any Trademarked Product which deviates
from the Approved Quality more than the deviation which would occur as a result
of normal deviations in raw material characteristics.
14.5 PRODUCT SERVICING AND REPAIRS. Licensee will propose, prior to the sale of
Trademarked Product at retail, a mechanism by which Licensee will respond to
inquiries from consumers and third party appliance repair vendors regarding the
operation of Trademarked Product and the procedures for obtaining parts for, or
repairs to, Trademarked Product, which mechanism shall be designed to minimize
any confusion with Licensor's existing customer service operations, or the
existing customer service operation of other Licensees of the Trademarks.
14.6 PERIODIC REVIEW MEETINGS. Licensee will conduct periodic meetings with
Licensor to review Licensee's progress and performance under the terms of this
Agreement.
ARTICLE 15
RESTRICTIONS UPON SUBCONTRACTS
Licensee is responsible for the work of any subcontractor and for any debts,
obligations or liabilities incurred by any such subcontractor in connection
with the Trademarked Product. Licensee shall discontinue using any subcontractor
who shall fail to comply with the Approved Quality standards and/or delivery
schedules required by Licensee or Licensor.
<PAGE>
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ARTICLE 16
ASSIGNMENT; TRANSFERS; SUBLICENSE
The parties hereby acknowledge the substantial personal service nature of
Licensee's obligations hereunder. Therefore, without the prior written consent
of Licensor, which consent will not be unreasonably be withheld, Licensee shall
not voluntarily or by operation of law assign or transfer this Agreement or any
of Licensee's rights or duties hereunder or any interest of Licensee herein, nor
shall Licensee enter into any sublicense for the use of the Trademarks by
others. Any assignment, transfer or sub-license without Licensor's written
consent shall be void and at the option of the Licensor shall constitute a
default hereunder. For purposes of this Article 16, the failure of Windmere
Corporation, a Florida Corporation, having its principal offices at 5980 Miami
Lakes Drive, Miami Lakes, Florida, 33014, and Joel Newman, President of New
M-Tech Corporation (Licensee) to maintain ownership of at least 51% of the
outstanding voting stock of Licensee an shall be deemed an attempted assignment
of this Agreement, unless Licensee has made a public offering of its voting
stock in which case New M-Tech corporation and Windmere need not retain 51% of
the voting stock.
ARTICLE 17
NO DILUTION OF TRADEMARKS OR ATTACK UPON TRADEMARKS
17.1 LIMIT ON USE. Licensee shall not at any time use, promote, advertise,
display or otherwise publish any Trademarks or any material utilizing or
reproducing any Trademarks in whole or in part, except as specifically provided
in this Agreement, without the prior written consent of Licensor, which consent
shall not be unreasonably withheld.
17.2 NOTICE. Licensee shall cause to appear on all Trademarked Product and on
all materials on, or in connection with which any Trademarks is used, such
legends, markings and notices as may be required by law to give appropriate
notice of all Trademarks, trade name or other rights therein or pertaining
thereto.
17.3 MATERIALS AND DOCUMENTS. Licensee shall provide all materials and execute
all documents required by law incident to the maintenance and/or preservation of
the Trademarks and Licensor's rights therein.
17.4 NO CONTEST OF TRADEMARKS VALIDITY. Licensee shall not contest the validity
of the Trademarks or any rights of Licensor therein, nor shall Licensee
willingly become an adverse party in litigation in which others shall contest
the Trademarks or Licensor's said rights. In addition thereto, Licensee shall
not in any way seek to avoid its obligations hereunder because of the assertion
or allegation by any persons, entities or government agencies, bureaus, or
instrumentalities that any Trademarks is invalid or ineffective or by reason of
any contest concerning the rights of Licensor therein.
<PAGE>
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17.5 NO OTHER TRADEMARKS PROTECTION. Licensee agrees not to seek any state,
Federal, foreign or other statutory Trademarks or service mark or other
protection for the Trademarks as they are used in connection with the Licensee's
goods or services and all use of the Trademarks shall be for the sole benefit of
the Licensor.
ARTICLE 18
INFRINGEMENT AND OTHER TRADEMARKS LITIGATION
18.1 TRADEMARKS DEFENSE. Licensee shall apprise Licensor immediately upon
discovery of any possible infringement of the Trademarks which comes to the
attention of the Licensee.
Licensor, at its sole cost and expense, and in its own name, may prosecute and
defend any action or proceeding which Licensor deems necessary or desirable to
protect the Trademarks, including but not limited to actions or proceedings
involving their infringement. Upon written request by Licensor, Licensee shall
join Licensor at Licensor's sole expense in any such action or proceeding.
However, Licensee shall not commence any action or proceeding to protect the
Trademarks or any action or proceeding alleging infringement thereof without the
prior written consent of Licensor. Licensee may prosecute and defend, I at its
sole expense and in its own name, any action or proceeding to protect its
designs or styles. Any and all damages recovered in any action or proceeding
commenced by Licensor shall belong solely and exclusively to Licensor.
18.2 NO LIABILITY FOR VIOLATION. Licensor shall have no liability to Licensee or
any other person, nor shall be there by any right of contribution against
Licensor therefore, for any action or proceeding alleging any violation of any
antitrust, trade regulation, or similar statute, or for unfair competition.
Furthermore, in the event of any threatened or actual action or proceeding in
which Licensee and Licensor are or may be charged with jointly violating any
antitrust, trade regulation or similar statute, or any law pertaining to unfair
competition, Licensee may, at its option, elect to be represented in such
threatened or actual action or proceeding by Licensor's counsel at no cost to
Licensee for fees, costs or- expenses. Should Licensee elect in such event to be
represented by Licensor's counsel, then Licensee shall relinquish any right to
control or direct such threatened or actual action or proceeding, and Licensor
shall maintain full control thereof. Such representation of Licensee shall
continue only so long as Licensor's counsel, in its sole and absolute
discretion, believes that it may properly and ethically represent both Licensor
and Licensee. In the event that Licensor's counsel decides that it may no longer
properly and ethically represent both Licensor and Licensee, then Licensor's
counsel shall continue to represent Licensor only, and Licensee's continued
defense shall be at Licensee's sole expense and shall be conducted by separate
counsel.
<PAGE>
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ARTICLE 19
ADDITIONAL RESTRICTIONS UPON USE OF TRADEMARKS
19.1 IDENTIFICATION OF TRADEMARKED PRODUCT. It is the intention of the parties
hereto and the purpose of this Article 19 that all of the Trademarked Product be
identified to the general public by the Trademarks. Licensee shall use a
registration indicator in the form of a circled-R or "TM" symbol in conjunction
with the Trademarks when so instructed by the Licensor. Licensee further agrees
to assist Licensor in obtaining registrations for the Trademarks in the event
any Trademarks is not yet registered for the Trademarked Product. Licensee shall
use notice language in the manufacture, sale, advertising or other promotion of
the Trademarked Product as follows: "White-Westinghouse is a registered
Trademark of White Consolidated Industries, Inc. and is used under license" or
other such language as a Licensor designates in writing.
ARTICLE 20
DEFAULTS BY LICENSEE
20.1 DEFAULTS. Except as otherwise expressly provided in this Agreement, in the
event Licensee shall default in the performance of any of the terms, conditions
or obligations to be performed by Licensee hereunder, and if such default
involves the payment of money and same shall not be cured within ten (10) days
after Licensor gives written notice to Licensee of such default, or if such
default involves performance other than the payment of money and the same is not
cured within fifteen (15) days after Licensor gives written notice to Licensee
of such default, then and in any such event, Licensor may immediately and
without prior notice terminate this Agreement and all of the rights and
obligations hereunder (except as otherwise expressly provided by this
Agreement). in the event that a Receiver is appointed to, or one or more
creditors take possession of all, or substantially all, of the assets of the
Licensee, or if Licensee shall make a general assignment for the benefit of
creditors, or if any action is taken or suffered by Licensee under any state or
Federal insolvency or bankruptcy act, then this Agreement and all of the rights
and obligations hereunder (except as otherwise expressly provided by this
Agreement) shall immediately, and without notice or need of any further action
by any party hereto, terminate.
20.2 TIME FOR PERFORMANCE. The time for performance of any act required of
either party shall be extended by a period equal to the period during which such
party was reasonably prevented from performance by fire, flood, storm, or other
like casualty beyond such party's control.
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ARTICLE 21
LICENSOR'S RIGHTS TO DESIGNS, ETC., UPON TERMINATION
21.1 RIGHTS UPON TERMINATION. In the event this Agreement is terminated for any
reason, or expires according to its terms, Licensee shall assign, transfer and
transmit to Licensor any and all rights of Licensee in the Trademarks, including
associated goodwill, and shall not thereafter manufacture, sell or use the
Trademarks in any manner; provided that, Licensee may however, dispose of its
stock of Trademarked Product on hand within [*****] after the termination of
this Agreement; provided, however, all sums due to Licensor have first been
paid; and, further provided, that Licensee shall, prior to the effective date of
said termination, deliver to Licensor a detailed schedule of all inventory of
Trademarked Product in Licensee's possession (constructive or otherwise). After
the expiration of the aforesaid [*****] period, Licensee shall destroy all
Trademarked Product and packaging and promotional material remaining in
Licensee's possession which are identified in any manner by or with the
Trademarks. Notwithstanding the above, Licensor shall have the right to purchase
such excess stock of Trademarked Product, in whole or in part, prior to any sale
or offer of sale by Licensee to any third party, for an amount equal to the
wholesale cost of such Trademarked Product. It is specifically understood and
agreed that the Licensee's right to dispose of stock shall be conditioned upon
the absence of harm to the Trademarks and/or the reputation of the Licensor
arising from the Licensee's use of the Trademarks, as determined by the Licensor
in its sole discretion.
21.2 CONTINUATION OF AGREEMENT TERMS. Licensee shall continue to abide by the
terms of this Agreement with respect to such Trademarked Product during the
period in which disposition pursuant to Article 21.1 of this Agreement is taking
place. Neither Licensee nor any creditor (judgment or otherwise), assignee,
transferee, trustee, or receiver of Licensee, or similar person or officer, or
purchaser other than in the regular course of Licensee's business may sell or
transfer any Trademarked Product until and unless all sums due Licensor from
Licensee have been paid. Further, upon termination of this Agreement, all
labels, signs, packages, wrappers, cartons, circulars, advertisements, and other
items bearing or containing any reproduction or representation of any of the
Trademarks shalL automatically and without cost to Licensor become the property
of Licensor, and Licensee shall immediately deliver the same to Licensor's place
of business or other location designated by Licensor. The reasonable cost of
such delivery shall be paid by the Licensor.
21.3 LICENSEE'S OBLIGATIONS. The termination of this Agreement for any reason
shall not relieve Licensee of any accrued obligations to Licensor nor shall such
action relieve Licensee of any obligation or duty which accrued on or after the
termination or expiration of this Agreement.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
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21.4 NO RIGHT IN LICENSEE. Except for the right to use the Trademarks as
specifically provided for in this Agreement, (i) Licensee shall have no right,
title or interest in or to the Trademarks, and (ii) upon and after the
termination of this Agreement, all rights granted to Licensee hereunder,
together with any interest in and to the Trademarks that Licensee may acquire,
shall forthwith and without further act or instrument be assigned to and revert
to the Licensor. In addition, Licensee shall execute any instruments requested
by Licensor to accomplish or confirm the foregoing. Any such assignment,
transfer or conveyance shall be without consideration other than the mutual
agreements contained herein.
21.5 SURVIVAL OF TERMS. The provisions of this Article 21 shall survive the
termination (or expiration) of this Agreement.
ARTICLE 22
ADDITIONAL RIGHTS PRIOR TO TERMINATION
During the final Contract Year of the Term hereof, Licensor shall have the right
to design and manufacture merchandise of the types covered by this Agreement and
to negotiate and conclude such Agreements as it desires pursuant to which it may
grant licenses to any party or parties of any or all of the rights herein
granted to Licensee; provided, however, that no merchandise herein identified as
Trademarked Product shall be shipped by Licensor or any third party other than
Licensee prior to the expiration or termination of this Agreement (exclusive of
the additional [*****] period for the disposition of the Trademarked Product as
provided in Article 21 hereof).
ARTICLE 23
GOODWILL
Licensee acknowledges and recognizes that the Trademarks are of substantial
significance and value to Licensor and that said Trademarks have acquired
valuable secondary meaning, value and goodwill. Except as may be otherwise
specified in this Agreement,: Licensee shall not use any of the Trademarks or
any name or symbol similar thereto as part of its name or symbol or as part of
the name or symbol of any corporation, partnership, joint venture,
proprietorship or other entity or person which it controls or with which it is
affiliated.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
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ARTICLE 24
INSURANCE
Licensee shall at all times carry product liability insurance with respect to
the Trademarked Product with a limit of liability of not less than [*****] and
Licensor shall be named therein as coinsured as its interests may appear. Such
insurance may be obtained in connection with a policy of product liability
insurance which covers products other than the Trademarked Product and shall
provide for at least thirty (30) days prior written notice to Licensor of the
cancellation or substantial modification thereof. Licensee shall deliver to
Licensor a certificate evidencing the existence of such insurance policies
promptly after their issuance.
ARTICLE 25
AGENTS,FINDERS AND BROKERS
Each of the parties to this Agreement shall be responsible for the payment of
any and all agent, brokerage and/or finder commissions, fees and related
expenses incurred by it in connection with this Agreement or the transactions
contemplated hereby and shall indemnify the other and hold it harmless from any
and all liability (including, without limitation, reasonable attorney's fees and
disbursements paid or incurred in connection with any such liability) for any
agent, brokerage and/or finder commissions, fees and related expenses claimed by
its agent, broker or finder, if any, in connection with this Agreement or the
transactions contemplated hereby. Licensor's sole agent/finder/broker in
connection with this Agreement is Leveraged Marketing Corporation of America
("LMCA") with offices at 156 West 56th Street, New York, New York 10019. Any and
all commissions, fees and/or other monies due LMCA in connection with this
Agreement shall be borne exclusively by Licensor as per the Agency Agreement of
March 1, 1995.
ARTICLE 26
RESERVED RIGHTS
Rights not herein specifically granted to Licensee are reserved by Licensor and
may be used by Licensor without limitation. Any use by Licensor of such reserved
rights, including but not limited to the use or authorization of the use of any
Trademarks in any manner whatsoever not inconsistent with Licensee's right
hereunder, shall not be deemed to be interference with or infringement of any of
Licensee's rights.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
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ARTICLE 27
APPLICABLE LAW
This Agreement shall be construed and governed, in all respects, by the law of
the State of Ohio applicable to contracts made and to be performed in that state
without reference to any provisions relating to conflicts of law. Any legal
action or proceeding of any sort against Licensor by or on behalf of Licensee,
shall be brought in a court of competent jurisdiction in Cuyahoga County, Ohio.
ARTICLE 28
NON-AGENCY OF PARTIES
This Agreement does not constitute or appoint Licensee as the agent or legal
representative of Licensor, or Licensor as the agent or legal representative of
Licensee, for any purpose whatsoever. Licensee is not granted any right or
authority to assume or to create any obligation or responsibility, express or
implied, on behalf of or in the name of, Licensor or to bind Licensor in any
manner or thing whatsoever; nor is Licensor granted any right or authority to
assume or create any obligation or responsibility, express or implied, on behalf
of or in the name of Licensee, or to bind Licensee in any manner or thing
whatsoever. No joint venture or partnership between the parties hereto is
intended or shall be inferred.
ARTICLE 29
AMENDMENTS AND WAIVERS BY LICENSOR
This Agreement may be amended or modified by Licensor, and Licensor may waive
any of its rights hereunder or performance by Licensee of any of its obligations
hereunder! only by instrument in writing. In the event Licensor shall at any
time waive any of its rights under this Agreement or the performance by Licensee
of any of its obligations hereunder, such waiver shall not be construed as a
continuing waiver of the same rights or obligations, or a waiver of any other
rights or obligations.
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ARTICLE 30
ENTIRE AGREEMENT
This Agreement constitutes the entire Agreement between the parties as to the
Trademarked Products, and supersedes all prior agreements and understandings
relating to this subject matter hereof.
ARTICLE 31
SEPARABILITY OF PROVISIONS
If any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future laws, such provisions shall be fully
severable. The Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provisions had never comprised a part of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance from this Agreement. Furthermore, in
lieu of such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid or enforceable.
ARTICLE 32
COUNTERPARTS; HEADINGS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument. The headings herein are set out for convenience of reference only
and shall not be deemed a part of this Agreement.
ARTICLE 33
BINDING EFFECT
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and, subject to the provisions of Article 16 of this Agreement,
their respective permitted successors and assigns.
<PAGE>
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ARTICLE 34
INDEMNIFICATION BY LICENSEE
34.1 INDEMNIFIED PARTIES; BASIC INDEMNIFICATION. For purposes of this paragraph,
"Indemnified Parties" refers to Licensor, and other licensees (not including
Licensee) of rights relating to the Trademarks, and officers, directors,
employees, and agents of each of the foregoing, and persons connected with or
employed by them and each of them. Licensee hereby agrees that it shall
indemnify and hold harmless the Indemnified Parties and each of them from and
against the costs and expenses (including, without limitation, reasonable
attorneys fees and costs) of any and all claims, suits, losses, damages, costs,
demands, obligations, investigations, causes of action, and judgments arising
out of:
(a) the actual or alleged unauthorized use in connection with, or arising out
of, a Trademarked Product of any Trademarks (including, without limitation, the
Trademarks), patent, process, method or device;
(b) the actual or alleged infringement in such connection of any copyrights,
trade name or patent or any act held to constitute libel, slander or defamation;
(c) the invasion by Licensee of the right of privacy, publicity, or other
property right;
(d) the failure to perform of, or any defect in, or use of, the Trademarked
Product, including without limitation any injuries to the person or to property
arising therefrom;
(e) the infringement or breach of other personal or property right of any
person, firm or i corporation by Licensee, its officers, employees, agents, or
anyone directly or indirectly acting by, through, on behalf of, or pursuant to
contractual or any other relationship with Licensee; and
(f) Licensee's sales and/or promotional efforts.
34.2 LICENSEE INDEMNIFIED PARTIES; BASIC INDEMNIFICATION. For purpose of this
Section, "Licensee Indemnification Parties. refers to Licensee and officers,
directors, employees and agents of Licensee. Licensor shall indemnify and hold
harmless the Licensee Indemnified Parties and each of them from and against the
cost and expenses (including, without limitation, reasonable attorneys fees and
costs) of any and all claims, suits, losses, damages, costs, demands,
obligations, investigations, causes of action, and judgements arising out of any
assertion or allegation by any persons, entities of government agencies that any
Trademark infringes any trademark, trade name or any other personal or property
right of a third party.
34.3 INDEMNIFICATION FOR BREACH. Licensee hereby further agrees that it shall
indemnify and forever hold harmless the Indemnified Parties against and from any
and all claims, suits, losses, damages, costs, obligations, liabilities,
judgments, damages and expenses, including without limitation, reasonable
attorneys' fees arising out of breach or alleged breach by Licensee of any
provision of this Agreement, or any misrepresentation made by Licensee herein or
any act not expressly authorized herein. Licensee further agrees to
<PAGE>
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insulate the Indemnified Parties from any and all product liability claims
arising from the use or misuse of the Trademarked Product.
34.4 SURVIVAL OF TERMS. The provisions of this Article 34 shall survive the
termination (or expiration) of this Agreement.
ARTICLE 35
INFORMATION
35.1 CONFIDENTIALITY. Licensor and Licensee may from time to time disclose to
each other sales, engineering, applications, drawing designs and any other
knowledge, information, techniques, know-how or data pertaining to the
manufacture, use, application, marketing, distribution and sales of the
Trademarked Product or other products of Licensor or Licensee (the
"Information"). Each party hereto shall hold in confidence all such data and
information and shall not disclose such data and information except to such
personnel and employees as are necessary for the effective performance of this
Agreement or as otherwise permitted by this Agreement. Licensor and Licensee
shall cause all data, documents or other written or printed materials embodying
the information to be plainly marked to indicate the secret and confidential
nature thereof and to prevent unauthorized access thereto, or reproduction or
use thereof. Licensor and Licensee shall take any necessary action, including
Court proceedings, to comply and to compel compliance with the provisions of
this Article 35. The obligations undertaken by Licensor and Licensee pursuant to
this Article 35 shall not apply to any such data or information which is or
becomes published or otherwise generally available to the public without fault
of a party hereto or is otherwise lawfully acquired by a party hereto and such
obligations shall, as so limited, survive the expiration or termination of this
Agreement. Upon termination of this Agreement, either Party hereto may request
the prompt return, of all written materials received from the other Party
including originals, copies, extractions, translations and reproductions
thereof. This Agreement is not intended to and shall not be construed to give
either Party any vested right, title or interest in the Trademarked Product or
the Information.
35.2 CONFIDENTIALITY OF TERMS OF AGREEMENT. Licensee shall not disclose to any
third party information relating to the terms and conditions of this Agreement,
including royalty rates, the amounts of minimum NIV Sales or minimum royalties
or the amount of the initial royalty payment pursuant to this Agreement.
35.3 SURVIVAL OF TERMS. The provisions of this Article 35 shall survive the
termination of this Agreement.
<PAGE>
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ARTICLE 36
PUBLIC ANNOUNCEMENTS
36.1 Unless expressly approved in advance in writing by the other party, neither
shall make any public announcement regarding the subject matter or existence of
this Agreement except as required by law. If such announcement is required by
law, the announcing party shall give the other party reasonable notice of such
announcement and shall consult with the other party regarding the announcement.
36.2 IMMEDIATE DISCLOSURE OF PUBLIC ANNOUNCEMENTS. Licensee shall include
Licensor, and its agent, LMCA, among its list of recipients for press releases
and all other public announcements regarding its business, and provide such
information to Licensor and its agent simultaneous to its release to any and all
media outlets or other recipients.
ARTICLE 37
ADDRESSES FOR NOTICE
All notices, statements, consents, instructions or other documents required or
authorized to be given hereunder shall be in writing, and shall be delivered
personally to an officer, partner or authorized representative of the other
party or by certified mail, return receipt requested, addressed to the parties
concerned as follows:
to Licensee New M-Tech Corporation
16550 N.W. 10th Avenue
Miami, Florida 33169
Facsimile: 305-624-8901
and to Licensor at: White Consolidated Industries, Inc.
11770 Berea Road
Cleveland, Ohio 44111
Facsimile: 216-252-8158
with copies to: Ms. Sharon Schiller, Trademarks Counsel
White Consolidated Industries, Inc.
11770 Berea Road
Cleveland, Ohio 44111 Facsimile: 216-252-8158
and Mr. Allan R. Feldman
Leveraged Marketing Corporation of America
156 West 56th Street, Suite 1400
New York, New York 10019
Facsimile: 212-581-1461
and shall be deemed to have been given upon receipt.
<PAGE>
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IN WITNESS WHEREOF, this Agreement is executed on the day and year
first written above.
White Consolidated Industries, Inc. (Licensor)
/S/ STANLEY R. MILLER
- ----------------------
By: Stanley R. Miller
Assistant Secretary
New M-Tech Corporation (Licensee)
/s/ Leonor Schuck
- -----------------
By: Leonor Schuck
Vice President, Finance
<PAGE>
EXHIBIT A
Portable consumer microwave ovens
<PAGE>
AMENDMENT 1
AGREEMENT BETWEEN
ELECTRONIC INDUSTRIES OF NORTH AMERICA
AND
WHITE CONSOLIDATED INDUSTRIES, INC.
DATED 15 SEPTEMBER 1997
ARTICLE 5
TERM OF AGREEMENT
5.1 CONTRACT TERM. The Contract Term of this Agreement commences on the
date first mentioned above and ends on December 31, 2003 at midnight Eastern
Standard Time unless sooner terminated pursuant to the terms of this Agreement.
ARTICLE 7
7.1 MINIMUM ROYALTY PAYMENTS. The minimum Royalties for the Contract
Term shall be paid [*****] in advance on execution of this Agreement and the
balance in twenty (20) equal installments of $[*****] paid quarterly beginning
March 30, 1999 and throughout the remainder of the contract period. Each
installment is due on or before the 30th day of each March, June, September and
December. The Minimum Royalties for each Extension Term as shown below shall be
paid in four (4) equal installments each by the 30th day of March, June,
September and December of the respective term.
EXCEPT AS HEREBY AMENDED, THE AGREEMENT ENTERED INTO AND EFFECTIVE 15
SEPTEMBER 1997 SHALL REMAIN IN FULL FORCE AND EFFECT.
SIGNED THIS DAY OF DECEMBER, 1997.
ELECTRONIC INDUSTRIES OF WHITE CONSOLIDATED INDUSTRIES, INC.
NORTH AMERICA
/s/ JOEL NEWMAN /s/ ILLEGIBLE
- ---------------------------------- -----------------------------------
By: By:
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
EXHIBIT 10.6
TRADEMARKS LICENSE AGREEMENT
AGREEMENT entered into as of September 15, 1997, by and between White
Consolidated Industries, Inc., a Delaware Corporation, having its principal
office at 11770 Berea Road, Cleveland, Ohio 44111 ("Licensor"), Electronic
Industries of America, Inc., a Florida Corporation, having its principal office
at 16550 N.W. 10th Avenue, Miami, Florida 33169 (hereinafter referred to as
"Licensee").
WHEREAS, Licensor is the owner of the Trademark Philco and associated designs
and trade dress (together, the "Trademarks"), and is using the Trademarks
throughout the World, and
WHEREAS, Licensor has the right to grant Licensee the license, right and
permission to use the Trademarks, and
WHEREAS, Licensee is in the business of manufacturing, distributing and selling
articles described and specified hereinafter (the "Products"), and desires to
secure the license, right and permission to use the Trademarks upon, and in
connection with, the manufacturing, distributing and selling of such Products;
and
WHEREAS, the Products that are the subject of this Agreement have been defined
by the parties as portable consumer microwave oven products listed on Exhibit A
hereto (and any other articles which the parties mutually agree to be subject to
the provisions of this Agreement which, in accordance with the terms of this
Agreement, bear the Trademarks (collectively, the "Trademarked Product").
WHEREAS, Licensor desires to grant to Licensee, and Licensee desires to accept
from Licensor, a license to use the Trademarks in the design, manufacture,
advertising, sale and promotion of the Products, subject to each of the terms,
provisions and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual agreements,
covenants and provisions contained herein, the parties hereto do hereby agree as
follows:
<PAGE>
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ARTICLE 1
GRANT OF LICENSE AND DESIGNATION OF TRADEMARKED PRODUCT
Effective upon the execution of this Agreement, Licensor hereby grants to
Licensee, for the period hereinafter specified and upon the terms, provisions
and conditions of this Agreement, the exclusive right and license to use the
Trademarks within the geographic area described in Article 2 hereof, in the
design, manufacture, advertising, sale and promotion of the Trademarked
Product.
In the event of any disputes between the parties to this Agreement regarding the
definition of Trademarked Product, the final decision regarding such definition
shall rest in Licensor's sole and absolute discretion. The rights granted to
Licensee herein are limited to use on or in connection with the Trademarked
Product and Licensee specifically agrees not to use the Trademarks in any manner
or on any product, service or item, except as set forth in the Agreement.
ARTICLE 2
GEOGRAPHIC AREA
The rights granted to Licensee hereunder may be exercised by Licensee within the
USA, Canada and Puerto Rico (the "Territory"), and Licensee shall have exclusive
rights with respect to the Trademarked Product. Upon Licensee's request,
Licensor may, in its discretion, extend the areas in which Licensee may exercise
said rights, but any such extension shall, in each instance, be evidenced by a
written and duly executed amendment to this Agreement for such periods and upon
such terms and conditions as shall be determined by Licensor. From time to time
Licensor may wish to purchase Trademarked Product for sale outside the
Territory. Licensee agrees to sell Trademarked Product to Licensor at the same
price Licensee sells Trademarked Product to its best customer.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF LICENSOR
3.1 Organization and Power. Licensor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Licensor
has all corporate power and authority to execute and deliver this Agreement and
perform its obligations hereunder.
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3.2 AUTHORIZATION. The execution, delivery and performance by Licensor of this
Agreement and the consummation of the transaction contemplated hereby has been
duly and validly authorized by all requisite corporate action, and no other
corporate act or proceeding on this part of Licensor is necessary to authorize
the execution, delivery and performance of this Agreement and the consummation
of the transaction contemplated hereby.
3.3 NO VIOLATION. Licensor is not subject to nor obligated under its certificate
of incorporation or bylaws, any applicable law, rule or regulation of any
governmental authority, or any agreement, instrument, license or permit, or
subject to any order, writ, injunction or decree, which would be breached or
violated by its execution, delivery or performance of this Agreement.
3.4 OWNERSHIP OF TRADEMARKS. Licensor is the owner of the Trademarks and, to
Licensor's knowledge, the use of the Trademarks in the design, manufacture,
advertising, sale and promotion of any of the Trademarked Product will not
infringe any intellectual property or any other rights of any third party.
3.5 RIGHT TO GRANT LICENSE. Licensor has the full right, power and authority to
grant the license as set forth in Article 1 hereof.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF LICENSEE
4.1 ORGANIZATION AND POWER. Licensee is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida. Licensee
has all corporate power and authority to execute and deliver this Agreement and
perform its obligations hereunder. - 4.2 Authorization. The execution, delivery
and performance by Licensee of this Agreement and the consummation of the
transaction contemplated hereby has been duly and validly authorized by ail
requisite corporate action, and no other corporate act or proceeding on this
part of Licensee is necessary to authorize the execution, delivery and
performance of this Agreement and the consummation of the transaction
contemplated hereby.
4.2 AUTHORIZATION. The execution, delivery and performance by Licensee of this
Agreement and the consummation of the transaction contemplated hereby has been
duly and validly authorized by all requisite corporate action, and no other
corporate act or proceeding on this part of Licensee is necessary to authorize
the execution, delivery and performance of this Agreement and the consummation
of the transaction contemplated hereby.
4.3 NO VIOLATION. Licensee is not subject to nor obligated under its certificate
of incorporation or bylaws, any applicable law, rule or regulation of any
governmental authority, or any agreement, instrument, license or permit, or
subject to any order, writ, injunction or decree, which would be breached or
violated by its execution, delivery or performance of this Agreement.
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ARTICLE 5
TERM OF AGREEMENT
5.1 CONTRACT TERM. The Contract Term of this Agreement commence of the date
first mentioned above and ending on December 31, 2002 at midnight Eastern
Standard Time, unless sooner terminated pursuant to the terms of this Agreement.
5.2 EXTENSION TERMS. Licensor hereby grants to Licensee the option to extend the
term of this Agreement for up to six (6) two (2) year periods commencing as of
January 1, 2003 and ending on December 31, 2014, at midnight Eastern Standard
Time, unless sooner terminated pursuant to the terms of this Agreement with such
extended terms to be subject to the same terms and must achieve specified levels
of Minimum Sales during the then preceding Contract or Extension Term of this
Agreement as set forth in Article 8 hereof. Such options to extend the term of
this Agreement must be exercised by Licensee, if at all, by giving written
notice to Licensor at least one hundred and twenty (120) days prior to the
expiration of the then preceding Contract Term of this Agreement. Nine months
(270 days) prior to the end of the fourteenth extension, the parties will
negotiate, in good faith, the possibility of extending this Agreement for one or
more extension periods.
ARTICLE 6
ROYALTIES
6.1 EARNED ROYALTIES. Subject to of Article 7 hereof, Licensee shall pay to
Licensor for the rights granted hereunder a sum equal to one and [*****] of the
Net Invoice Value of Trademarked Products Sold by Licensee (the "Royalties").
The Royalties shall be remitted in accordance with Section 7.4 of this
Agreement.
6.2 DEFINITION OF NET INVOICE VALUE. As used throughout this Agreement, the term
"Net Invoice Value" shall mean the aggregate of the invoiced amounts of
Trademarked Product sold by Licensee, less (a) resumed goods, refunds, credits
and allowances actually made or allowed to customer with respect to Trademarked
Product, (b) freight or handling charges charged to customers or incurred on
resumed goods, and (c) sales and excise taxes actually paid ("NIV").
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
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ARTICLE 7
MINIMUM ROYALTY PAYMENTS
7.1 MINIMUM ROYALTY PAYMENTS. The Minimum Royalties for the Contract Term shall
be paid [*****] in advance on execution of this Agreement and the balance in
twenty (20) equal installments of $[*****] paid quarterly beginning March 30,
1998 and throughout the remainder of the contract period. Each installment is
due on or before the 30th day of each March, June, September and December. The
Minimum Royalties for each Extension Term as shown below shall be paid in four
(4) equal installments each by the 30th day of March, June, September and
December of the respective term.
7.1A Licensee shall not be in default of this Paragraph if the minimum royalties
paid pursuant to a Trademark Licensee Agreement between White Consolidated
Industries and New M-Tech Corporation, of even date, and the royalties paid
pursuant to this Agreement equal the minimum royalty payments set forth below.
TERM YEAR(S) MINIMUM
- ---- ------- ROYALTIES
Contract ---------
Term 1997/2002 [*****]
First Extension Term 2003/2004 [*****]
Second Extension Term 2005/2006 [*****]
Third Extension Term 2007/2008 [*****]
Fourth Extension Term 2009/2010 [*****]
Fifth Extension Term 2011/2012 [*****]
Sixth Extension Term 2013/2014 [*****]
7.2 INITIAL ROYALTY PAYMENT. Licensee shall pay Licensor an initial royalty
payment (the "Initial Royalty Payment") of [*****] upon execution of this
Agreement. The Initial Royalty Payment shall be applied against the first
Royalties payable pursuant to Section 7.4 of this Agreement.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
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7.3 APPLICATION OF EARNED ROYALTIES. The Earned Royalties to be paid under
Article 6 shall be applied against the Minimum Royalties due under this Article
7, and Licensee shall pay by each due date specified in this Article 7 the sum
of: (i) the Minimum Royalties as specified above; plus (ii) the excess, if any,
of the Earned Royalties (per Article 6) over the Minimum Royalties for the then
current quarter payable by such due date (such sum hereinafter referred to as
the "Royalty Payment").
7.4 QUARTERLY REPORTS OF SALES AND ROYALTY PAYMENTS. On or before the twentieth
(20th) day of each January, April, July and October during the Contract Term and
any Extension Term, Licensee shall deliver to Licensor the following: (i) a
written statement, certified to be true and correct by the Chief Financial
Officer of Licensee, setting forth the Gross an NIV sales for each Trademarked
Product during the preceding calendar quarter and a calculation of the Royalties
payable under Article 6 and 7 of this Agreement for such period, and (ii) a
check payable to Licensor in full payment of the amount due under Article 6 and
7 of this Agreement for such period. Each royalty payment, payable in US
currency, shall be remitted by check at Licensor's address as provide by this
Agreement.
7.5 In the event that during any of the Terms of the Agreement, the aggregate
retail sales of microwave ovens in the United States decreases from the prior
Term (the amount of such reduction of sales of microwave ovens in the United
States is hereinafter express as a percentage and the amount by which such
percentage exceeds [*****]% is hereinafter referred to as the to as the
"Reduction Percentage"), then the Minimum Sales Commitment for the Term
following the Prior Term (the "Adjustment Period") shall be reduced. This
reduction shall be in an amount (the "Reduction Amount") equal to (i) the higher
of (A) the Minimum Sales Commitment for the Adjustment Period or (B) the actual
sales by Newtech of microwave ovens during the Prior Term (the "Actual Prior
Term Sales") multiplied by (ii) the Reduction Percentage. The Reduction amount
will then be subtracted from the higher of (i) the Minimum Sales Commitment for
the Adjustment Period or (ii) the Actual Prior Term Sales, to determine the new
Minimum Sales Commitment for the Adjustment Term; provided, however that if this
computation yields an amount greater than the Minimum Sales Commitment for such
Term, then no adjustment shall be made. For purpose of this section, sales for
microwave ovens in the United States shall be determined by reference to
applicable information published in the most widely-circulated brace publication
containing such information; provided that if Licensor and Licensee are unable
to agree upon the publication from which such information is be derived, then
the applicable information shall be derived by reference to applicable
information shall be derived by reference to a trade publication selected by the
licensor and a trade publication selected by the licensee, and the applicable
sales information shall be determined on the basis of the average of the data
contained on the two publications.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
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ARTICLE 8
MINIMUM SALES OF TRADEMARKED PRODUCT
8.1 FAILURE TO MEET REQUIRED MINIMUM SALES. Licensee shall use its best efforts
to advertise and sell Trademarked Product in the Territory during the term of
this Agreement. Should Licensee fail to achieve the NIV sales over any two
consecutive terms as set forth below in this Article 8 then Licensor may, at its
option, elect to terminate this Agreement by written notice delivered to
Licensee with sixty (60) days after the end of any period in which Licensee
failed to achieve such required Minimum Sales. Such termination shall be
effective upon delivery of said notice but shall not affect Licensee's
outstanding indebtedness to Licensor or any of the provisions relating thereto.
8.1A. Licensee shall not be in default of this Paragraph if The Minimum Sales
generated pursuant to a Trademark License Agreement between White- Consolidated
Industries and New M-Tech Corporation, of even date, and the minimum sales
generated pursuant to this Agreement equal the minimum sales set forth below.
Contract Term [*****]
First Extension Term [*****]
Second Extension Term [*****]
Third Extension Term [*****]
Fourth Extension Term [*****]
Fifth Extension Term [*****]
Sixth Extension Term [*****]
ARTICLE 9
ADVERTISING AND ART WORK
9.1 ADVANCE SUBMISSION. Licensee shall submit to Licensor for approval all
advertising and promotional items, budgets, programs and materials relating to
the Trademarked Product at least fourteen (14) days prior to intended usage.
Licensor shall provide Licensee with written approval or disapproval within ten
(10) business days after Licensor's receipt thereof. Should Licensor disapprove,
its written notice shall explain in detail the reasons for disapproval so that
Licensee may prepare and submit new advertising and art work.
9.2 ART WORK. Licensor shall make available to Licensee any and ail necessary
film, photostats, artwork and full color reproductions of its Trademarks,
artwork, designs and other materials necessary for Licensee's use in accordance
with this Agreement.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
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9.3 EXPENSE REIMBURSEMENT. Licensee shall reimburse Licensor for Licensor's
out-of- pocket expenses, including, reasonable hourly charges for creative
personnel incurred by Licensor in the preparation for Licensee, when and if
required, of new artwork, mechanicals, and film. All charges shall be agreed to
prior to the time such expenses are incurred, and all sums due to Licensor under
this Article 9 shall paid by Licensee upon receipt of an appropriate invoice.
ARTICLE 10
LICENSEE'S RECORDS
Licensee shall keep and maintain at its regular place of business separate and
complete books and records of all business transacted by Licensee in connection
with the Trademarked Product, including, but not limited to, books and records
relating to Gross and NIV of Sales and orders for Trademarked Product. Such
books and records shall be maintained in accordance with generally accepted
accounting procedures and principles consistently applied. Licensor or its duly
authorized agents or representatives shall have the right to inspect said books
and records at Licensee's premises during Licensee's regular business hours.
ARTICLE 11
LICENSEE'S ANNUAL REPORTS AND ANNUAL ROYALTY PAYMENTS
On or before the fifteenth (1Sth) day of the second (2nd) month following the
end of Licensee's fiscal year, Licensee shall render to Licensor a statement
certified by Licensee's Chief Financial Officer disclosing gross and NIV Value
of sales, Royalties due and Royalties paid for Licensee's preceding fiscal year,
and for any Contract or Extension Term which ended within said fiscal year. If
said statement discloses that the amount of Royalties paid during any period to
which said statement relates was less than the amount required to be paid under
the provisions of this Agreement, Licensee shall pay said deficiency concurrent
with the delivery of the statement. If said statement discloses the Licensee has
paid Royalties in excess of the amounts required to be paid, Licensor shall
apply said excess to the next Royalty payment.
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ARTICLE 12
AUDIT BY LICENSOR
At all times during the existence of this Agreement and for twelve (12) months
after the last report is rendered hereunder, Licensor, if it so chooses, may
cause its independent accountants to audit all books and records of Licensee
pertaining Trademarked Product. Licensor shall have the further right to engage
an independent certified public accounting firm, to audit the books and records
of Licensee with regards to the Royalties due hereunder. In the event any such
audit shall disclose that the Licensee has understated NIV Sales or underpaid
Royalties for any reporting period, Licensee shall forthwith and upon written
demand of Licensor, pay the amount, if any, by which the Royalties owing exceed
Royalties paid, plus interest of twelve percent (12%) per annum on such
delinquent amounts, accruing from the date on which such amounts became
delinquent to the date on which such delinquent amounts were paid. In the event
that Licensee has understated NIV Sales and consequently has underpaid Royalties
in excess of One Thousand dollars ($1,000) of amount due for any Contract Term,
Licensee shall forthwith and upon written demand also pay all costs, fees and
expenses incurred by Licensor in conducting such audit, including, without
limitation, reasonable travel expenses. Should such audit disclose that the
Royalties paid exceed the Royalties due, any excess revealed by such audit will
be remitted to Licensee.
ARTICLE 13
LICENSEE OBLIGATIONS
13.1 LICENSEE DILIGENCE. Licensee shall design, manufacture, advertise, sell and
ship the Trademarked Product and shall continuously and diligently during the
term hereof procure and maintain facilities and trained personnel sufficient and
adequate to accomplish the foregoing, all to the extent and in a manner no less
thorough, diligent and professional than the same accorded by Licensee for
Licensee's most favored premium products and/or services. A cessation of the
above for a continuous period of ninety (90) days shall be grounds for
termination by Licensor, without notice. The marketing of Trademarked Product
shall be conducted in a manner consistent with enhancing the long-term value of
the Trademarks. It is the interest of the parties that Trademarked Product be
sold simultaneously through a wide range of retailers. Accordingly, Licensee
shall continuously and diligently design, price and promote Trademarked Product
to retailers in all major classes of trade including department stores (i.e.,
Macy's, Burdine's, Bloomingdale's, etc.), mass merchants (i.e., Walmart, Kmart,
etc.), regional discounters (i.e., Caldor, Bradlees, etc.), warehouse clubs
(i.e., Target, Sam's, etc.), specialty electronics chains (i.e., The Wiz, etc.),
mail order, premium and television shopping services. Licensee shall exhibit
Trademarked Product in exhibit or booth space at the annual electronics show.
<PAGE>
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13.2 LICENSOR INSPECTION RIGHTS. Licensor shall have the right to inspect any of
Licensee's facilities pertaining to the Trademarked Product during regular
business hours. Licensor shall conduct such inspection in the presence of an
officer, partner or authorized representative of Licensee.
13.3 NO COMPETITION WITH TRADEMARKED PRODUCT. During the term of this Agreement,
Licensee shall not enter another license Agreement for products that would
directly compete with the Trademarked Product other than under the Admiral trade
name.
13.4 FORFEITURE OF TRADEMARK FOR NON-USE. Licensee's failure to ship
Trademarked Product Trademark by December 31, 1998 shall be deemed a forfeiture
of its grant to use the Trademarks. Failure of Licensee to ship Trademarked
Product for a period of one (1) year shall be deemed a forfeiture of its grant
to use the Trademarks.
13.5 FINANCIAL STANDARDS. Licensee shall provide its financial statements to
Licensor annually or as requested by Licensor, which are to be prepared in
accordance with U.S. GAAP. Licensee must promptly notify Licensor of a
termination of any significant line of credit or guarantee of indebtedness by
personal guarantor. Should Licensee's net worth fall below $2,000,000 in the
aggregate, Licensor may at its option terminate this Agreement. Likewise
Licensor may terminate this Agreement immediately if any of the following events
occur
1) Licensee is in default under the provisions of any line of credit or debt
agreement with financing institution.
2) A sale or transfer of Licensee's assets which, in Licensor's opinion, may
affect the ability of Licensee to operate the business pursuant to this
Agreement, or
3) Licensee incurs net operating losses in the aggregate for three or more
consecutive years.
ARTICLE 14
APPROVALS AND QUALITY STANDARDS
14.1. ADVANCE APPROVAL. Prior to any use of any Trademarks, Licensee shall, at
Licensee's expense, submit to Licensor, for Licensor's written approval, the
following: (a) two (2) specimens of each Product on which the Trademarks is to
appear (the "Specimens"); (b) all artwork which Licensee intends to use in
connection with the Trademarks; and (c) all packaging, advertising and
promotional literature which Licensee intends to use in the marketing or
merchandising of the Trademarked Product. Licensor shall give Licensee written
notice of approval or disapproval within ten (10) business days from its receipt
of the Specimens, and should Licensor disapprove, its written notice shall
<PAGE>
Page 11--
explain in detail the reasons for disapproval so that Licensee may prepare and
submit new Specimens and/or samples.
14.2 STANDARDS. After Licensor has given its written approval of said Specimens,
then the approved product, quality, packaging, advertising and promotional
literature shall be the standard for all Trademarked Product produced thereafter
(the "Approved Quality").
14.3 PERIODIC SAMPLES. Thereafter, consecutively at four (4) month intervals,
Licensee shall, at Licensee's expense, submit to Licensor not less than two (2)
randomly selected production run samples of the Trademarked Product.
14.4 APPROVED QUALITY STANDARDS. Without the prior written approval of Licensor,
Licensee shall not sell or distribute any Trademarked Product which deviates
from the Approved Quality more than the deviation which would occur as a result
of normal deviations in raw material characteristics.
14.5 PRODUCT SERVICING AND REPAIRS. Licensee will propose, prior to the sale of
Trademarked Product at retail, a mechanism by which Licensee will respond to
inquiries from consumers and third party appliance repair vendors regarding the
operation of Trademarked Product and the procedures for obtaining parts for, or
repairs to, Trademarked Product, which mechanism shall be designed to minimize
any confusion with Licensor's existing customer service operations, or the
existing customer service operation of other Licensees of the Trademarks.
14.6 PERIODIC REVIEW MEETINGS. Licensee will conduct periodic meetings with
Licensor to review Licensee's progress and performance under the terms of this
Agreement.
ARTICLE 15
RESTRICTIONS UPON SUBCONTRACTS
Licensee is responsible for the work of any subcontractor and for any debts,
obligations or liabilities incurred by any such subcontractor in connection with
the Trademarked Product. Licensee shall discontinue using any subcontractor who
shall fail to comply with the Approved Quality standards and/or delivery
schedules required by Licensee or Licensor.
<PAGE>
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ARTICLE 16
ASSIGNMENT; TRANSFERS; SUBLICENSE
The parties hereby acknowledge the substantial personal service nature of
Licensee's obligations hereunder. Therefore, without the prior written consent
of Licensor, which consent will not be unreasonably be withheld, Licensee shall
not voluntarily or by operation of law assign or transfer this Agreement or any
of Licensee's rights or duties hereunder or any interest of Licensee herein, nor
shall Licensee enter into any sublicense for the use of the Trademarks by.
others. Any assignment, transfer or sub-license without Licensor's written
consent shall be void and at the option of the Licensor shall constitute a
default hereunder. For purposes of this Article 16, the failure of Windmere
Corporation, a Florida Corporation, having its principal offices at 5980 Miami
Lakes Drive, Miami Lakes, Florida, 33014, and Joel Newman, President of
Electronic Industries of America, Inc. (Licensee) to maintain ownership of at
least 51% of the outstanding voting stock of Licensee shall be deemed an
attempted assignment of this Agreement, unless Licensee has made a public
offering of its voting stock in which ease Electronic Industries of America,
Inc. and Windmere need not retain 51% of the voting stock.
ARTICLE 17
NO DILUTION OF TRADEMARKS OR ATTACK UPON TRADEMARKS
17.1 LIMIT ON USE. Licensee shall not at any time use, promote, advertise,
display or otherwise publish any Trademarks or any material utilizing or
reproducing any Trademarks in whole or in part, except as specifically provided
in this Agreement, without the prior written consent of Licensor, which consent
shall not be unreasonably withheld,
17.2 NOTICE. Licensee shall cause to appear on all Trademarked Product and on
all materials on, or in connection with which any Trademarks is used, such
legends, markings and notices as may be required by law to give appropriate
notice of all Trademarks, trade name or other rights therein or pertaining
thereto.
17.3 MATERIALS AND DOCUMENTS. Licensee shall provide all materials and execute
all documents required by law incident to the maintenance and/or preservation of
the Trademarks and Licensor's rights therein.
17.4 NO CONTEST OF TRADEMARKS VALIDITY. Licensee shall not contest the validity
of the Trademarks or any rights of Licensor therein, nor shall Licensee
willingly become an adverse party in litigation in which others shall contest
the Trademarks or Licensor's said rights. In addition thereto, Licensee shall
not in any way seek to avoid its obligations hereunder because of the assertion
or allegation by any persons, entities or government agencies, bureaus, or
instrumentalities that any Trademarks is invalid or ineffective or by reason of
any contest concerning the rights of Licensor therein.
<PAGE>
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17.5 NO OTHER TRADEMARKS PROTECTION. Licensee agrees not to seek any state,
Federal, foreign or other statutory Trademarks or service mark or other
protection for the Trademarks as they are used in connection with the Licensee's
goods or services and all use of the Trademarks shall be for the sole benefit of
the Licensor.
ARTICLE 18
INFRINGEMENT AND OTHER TRADEMARKS LITIGATION
18.1 TRADEMARKS DEFENSE. Licensee shall apprise Licensor immediately upon
discovery of any possible infringement of the Trademarks which comes to the
attention of the Licensee. Licensor, at its sole cost and expense, and in its
own name, may prosecute and defend any action or proceeding which Licensor deems
necessary or desirable to protect the Trademarks, including but not limited to
actions or proceedings involving their infringement. Upon written request by
Licensor, Licensee shall join Licensor at Licensor's sole expense in any such
action or proceeding. However, Licensee shall not commence any action or
proceeding to protect the Trademarks or any action or proceeding alleging
infringement thereof without the prior written consent of Licensor. Licensee may
prosecute and defend, at its sole expense and in its own name, any action or
proceeding to protect its designs or styles. Any and all damages recovered in
any action or proceeding commenced by Licensor shall belong solely and
exclusively to Licensor.
18.2 NO LIABILITY FOR VIOLATION. Licensor shall have no liability to Licensee or
any other person, nor shall be there by any right of contribution against
Licensor therefore, for any action or proceeding alleging any violation of any
antitrust, trade regulation, or similar statute, or for unfair competition.
Furthermore, in the event of any threatened or actual action or proceeding in
which Licensee and Licensor are or may be charged with jointly violating any
antitrust, trade regulation or similar statute, or any law pertaining to unfair
competition, Licensee may, at its option, elect to be represented in such
threatened or actual action or proceeding by Licensor's counsel at no cost to
Licensee for fees, costs or expenses. Should Licensee elect in such event to be
represented by Licensor's counsel, then Licensee shall relinquish any right to
control or direct such threatened or actual action or proceeding, and Licensor
shall maintain full control thereof. Such representation of Licensee shall
continue only so long as Licensor's counsel, in its sole and absolute
discretion, believes that it may properly and ethically represent both Licensor
and Licensee. In the event that Licensor's counsel decides that it may no longer
properly and ethically represent both Licensor and Licensee, then Licensor's
counsel shall continue to represent Licensor only, and Licensee's continued
defense shall be at Licensee's sole expense and shall be conducted by separate
counsel.
<PAGE>
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ARTICLE 19
ADDITIONAL RESTRICTIONS UPON USE OF TRADEMARKS
19.1 IDENTIFICATION OF TRADEMARKED PRODUCT. It is the intention of the parties
hereto and the purpose of this Article 19 that all of the Trademarked Product be
identified to the general public by the Trademarks. Licensee shall use a
registration indicator in the form of a cirded-R or "TM" symbol in conjunction
with the Trademarks when so instructed by the Licensor. Licensee further agrees
to assist Licensor in obtaining registrations for the Trademarks in the event
any Trademarks is not yet registered for the Trademarked Product. Licensee shall
use notice language in the manufacture, sale, advertising or other promotion of
the Trademarked Product as follows: or "Philco is a registered Trademark of
White Consolidated Industries, Inc. and is used under license" or other such
language
as a Licensor designates in writing.
ARTICLE 20
DEFAULTS BY LICENSEE
20.1 DEFAULTS. Except as otherwise expressly provided in this Agreement, in the
event Licensee shall default in the performance of any of the terms, conditions
or obligations to be performed by Licensee hereunder, and if such default
involves the payment of money and same shall not be cured within ten (10) days
after Licensor gives written notice to Licensee of such default, or if such
default involves performance other than the payment of money and the same is not
cured within fifteen (15) days after Licensor gives written notice to Licensee
of such default, then and in any such event, Licensor may immediately and
without prior notice terminate this Agreement and all of the rights and
obligations hereunder (except as otherwise expressly provided by this
Agreement). In the event that a Receiver is appointed to, or one or more
auditors take possession of all, or substantially all, of the assets of the
Licensee, or if Licensee shall make a general assignment for the benefit of
creditors, or if any action is taken or suffered by Licensee under any state or
Federal insolvency or bankruptcy act, then this Agreement and all of the rights
and obligations hereunder (except as otherwise expressly provided by this
Agreement) shall immediately, and without notice or need of any further action
by any party hereto, terminate.
20.2 TIME FOR PERFORMANCE. The time for performance of any act required of
either party shall be extended by a period equal to the period during which such
party was reasonably prevented from performance by fire, flood, storm, or other
like casualty beyond such party's control.
<PAGE>
Page 15--
ARTICLE 21
LICENSOR'S RIGHTS TO DESIGNS, ETC., UPON TERMINATION
21.1 RIGHTS UPON TERMINATION. In the event this Agreement is terminated for any
reason, or expires according to its terms, Licensee shall assign, transfer and
transmit to Licensor any and all rights of Licensee in the Trademarks, including
associated goodwill, and shall not thereafter manufacture, sell or use the
Trademarks in any manner; provided that, Licensee may however, dispose of its
stock of Trademarked Product on hand within [*****] after the termination of
this Agreement; provided, however, all sums due to Licensor have first been
paid; and, further provided, that Licensee shall, prior to the effective date of
said termination, deliver to Licensor a detailed schedule of all inventory of
Trademarked Product in Licensee's possession (constructive or otherwise). After
the expiration of the aforesaid [*****] period, Licensee shall destroy all
Trademarked Product and packaging and promotional material remaining in
Licensee's possession which are identified in any manner by or with the
Trademarks. Notwithstanding the above, Licensor shall have the right to purchase
such excess stock of Trademarked Product, in whole or in part, prior to any sale
or offer of sale by Licensee to any third party, for an amount equal to the
wholesale cost of such Trademarked Product. It is specifically understood and
agreed that the Licensee's right to dispose of stock shall be conditioned upon
the absence of harm to the Trademarks and/or the reputation of the Licensor
arising from the Licensee's use of the Trademarks, as determined by the Licensor
in its sole discretion.
21.2 CONTINUATION OF AGREEMENT TERMS. Licensee shall continue to abide by the
terms of this Agreement with respect to such Trademarked Product during the
period in which disposition pursuant to Article 21.1 of this Agreement is taking
place. Neither Licensee nor any creditor judgment or otherwise), assignee,
transferee, trustee, or receiver of Licensee, or similar person or officer, or
purchaser other than in the regular course of Licensee's business may sell or
transfer any Trademarked Product until and unless all sums due Licensor from
Licensee have been paid. Further, upon termination of this Agreement, all
labels, signs, packages, wrappers, cartons, circulars, advertisements, and other
items bearing or containing any reproduction or representation of any of the
Trademarks shall automatically and without cost to Licensor become the property
of Licensor, and Licensee shall immediately deliver the same to Licensor's place
of business or other location designated by Licensor. The reasonable cost of
such delivery shall be paid by the Licensor.
21.3 LICENSEE'S OBLIGATIONS. The termination of this Agreement for any reason
shall not relieve Licensee of any accrued obligations to Licensor nor shall such
action relieve Licensee of any obligation or duty which accrued on or after the
termination or expiration of this Agreement.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
Page 16
21.4 NO RIGHT IN LICENSEE. Except for the right to use the Trademarks as
specifically provided for in this Agreement, (i) Licensee shall have no right,
title or interest in or to the Trademarks, and (ii) upon and after the
termination of this Agreement, all rights granted to Licensee hereunder,
together with any interest in and to the Trademarks that Licensee may acquire,
shall forthwith and without further act or instrument be assigned to and revert
to the Licensor. In addition, Licensee shall execute any instruments requested
by Licensor to accomplish or confirm the foregoing. Any such assignment,
transfer or conveyance shall be without consideration other than the mutual
agreements contained herein.
21.5 SURVIVAL OF TERMS. The provisions of this Article 21 shall survive the
termination (or expiration) of this Agreement.
ARTICLE 22
ADDITIONAL RIGHTS PRIOR TO TERMINATION
During the final Contract Year of the Term, hereof, Licensor shall have the
right to design and manufacture merchandise of the types covered by this
Agreement and to negotiate and conclude such Agreements as it desires pursuant
to which it may grant licenses to any party or parties of any or all of the
rights herein granted to Licensee; provided, however, that no merchandise herein
identified as Trademarked Product shall be shipped by Licensor or any third
party other than Licensee prior to the expiration or termination of this
Agreement (exclusive of the additional [*****] period for the disposition of the
Trademarked Product as provided in Article 21 hereof).
ARTICLE 23
GOODWILL
Licensee acknowledges and recognizes that the Trademarks are of substantial
significance and value to Licensor and that said Trademarks have acquired
valuable secondary meaning, value and goodwill. Except as may be otherwise
specified in this Agreement; Licensee shall not use any of the Trademarks or any
name or symbol similar thereto as part of its name or symbol or as part of the
name or symbol of any corporation, partnership, joint venture, proprietorship or
other entity or person which it controls or with which it is affiliated.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
Page 17--
ARTICLE 24
INSURANCE
Licensee shall at all times carry product liability insurance with respect to
the Trademarked Product with a limit of liability of not less than [*****] and
Licensor shall be named therein as coinsured as its interests may appear. Such
insurance may be obtained in connection with a policy of product liability
insurance which covers products other than the Trademarked Product and shall
provide for at least thirty (30) days prior written notice to Licensor of the
cancellation or substantial modification thereof. Licensee shall deliver to
Licensor a certificate evidencing the existence of such insurance policies
promptly after their issuance.
ARTICLE 25
AGENTS, FINDERS AND BROKERS
Each of the parties to this Agreement shall be responsible for the payment of
any and ail agent, brokerage and/or finder commissions, fees and related
expenses incurred by it in connection with this Agreement or the transactions
contemplated hereby and shall indemnify the other and hold it harmless from any
and all liability (including, without limitation, reasonable attorney's fees and
disbursements paid or incurred in connection with any such liability) for any
agent, brokerage and/or finder commissions, fees and related expenses claimed by
its agent, broker or finder, if any, in connection with this Agreement or the
transactions contemplated hereby. Licensor's sole agent/finder/broker in
connection with this Agreement is Leveraged Marketing Corporation of America
("LMCA") with offices at 156 West 56th Street, New York, New York 10019. Any
and all commissions, fees and/or other monies due LMCA in connection with this
Agreement shall be borne exclusively by Licensor as per the Agency Agreement of
March 1, 1995.
ARTICLE 26
RESERVED RIGHTS
Rights not herein specifically granted to Licensee are reserved by Licensor and
may be used by Licensor without limitation. Any use by Licensor of such reserved
rights, including but not limited to the use or authorization of the use of any
Trademarks in any manner whatsoever not inconsistent with Licensee's right
hereunder, shall not be deemed to be interference with or infringement of any of
Licensee's rights.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
<PAGE>
Page 18--
ARTICLE 27
APPLICABLE LAW
This Agreement shall be construed and governed, in all respects, by the law of
the State of Ohio applicable to contracts made and to be performed in that state
without reference to any provisions relating to conflicts of law. Any legal
action or proceeding of any sort against Licensor by or on behalf of Licensee,
shall be brought in a court of competent jurisdiction in Cuyahoga County, Ohio.
ARTICLE 28
NON-AGENCY OF PARTIES
This Agreement does not constitute or appoint Licensee as the agent or legal
representative of Licensor, or Licensor as the agent or legal representative of
Licensee, for any purpose whatsoever. Licensee is not granted any right or
authority to assume or to create any obligation or responsibility, express or
implied, on behalf of or in the name of, Licensor or to bind Licensor in any
manner or thing whatsoever; nor is Licensor granted any right or authority to
assume or create any obligation or responsibility, express or implied, on behalf
of or in the name of Licensee, or to bind Licensee in any manner or thing
whatsoever. No joint venture or partnership between the parties hereto is
intended or shall be inferred.
ARTICLE 29
AMENDMENTS AND WAIVERS BY LICENSOR
This Agreement may be amended or modified by Licensor, and Licensor may waive
any of its rights hereunder or performance by Licensee of any of its obligations
hereunder, only by instrument in writing. In the event Licensor shall at any
time waive any of its rights under this Agreement or the performance by Licensee
of any of its obligations hereunder, such waiver shall not be construed as a
continuing waiver of the same rights or obligations, or a waiver of any other
rights or obligations.
<PAGE>
Page 19--
ARTICLE 30
ENTIRE AGREEMENT
This Agreement constitutes the entire Agreement between the parses as to the
Trademarked Products, and supersedes all prior agreements and understandings
relating to this subject matter hereof.
ARTICLE 31
SEPARABILITY OF PROVISIONS
If any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future laws, such provisions shall be fully
severable. The Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provisions had never comprised a part of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance from this Agreement. Furthermore, in
lieu of- such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid or enforceable.
ARTICLE 32
COUNTERPARTS; HEADINGS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument. The headings herein are set out for convenience of reference only
and shall not be deemed a part of this Agreement.
ARTICLE 33
BINDING EFFECT
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and, subject to the provisions of Article 16 of this Agreement,
their respective permitted successors and assigns.
<PAGE>
Page 20--
ARTICLE 34
INDEMNIFICATION BY LICENSEE
34.1 INDEMNIFIED PARTIES; BASIC INDEMNIFICATION. For purposes of this paragraph,
"Indemnified Parties" refers to Licensor, and other licensees (not including
Licensee) of rights relating to the Trademarks, and officers, directors,
employees, and agents of each of the foregoing, and persons connected with or
employed by them and each of them. Licensee hereby agrees that it shall
indemnify and hold harmless the Indemnified Parties and each of them from and
against the costs and expenses (including, without limitation, reasonable
attorneys fees and costs) of any and all claims, suits, losses, damages, costs,
demands, obligations, investigations, causes of action, and judgments arising
out of:
(a) the actual or alleged unauthorized use in connection with, or arising out
of, a Trademarked Product of any Trademarks (including, without limitation, the
Trademarks), patent, process, method or device;
(b) the actual or alleged infringement in such connection of any copyrights,
trade name or patent or any act held to constitute libel, slander or defamation;
(c) the invasion by Licensee of the right of privacy, publicity, or other
property right;
(d) the failure to perform of, or any defect in, or use of, the Trademarked
Product, including without limitation any injuries to the person or to property
arising therefrom;
(e) the infringement or breach of other personal or property right of any
person, firm or corporation by Licensee, its officers, employees, agents, or
anyone directly or indirectly acting by, through, on behalf of, or pursuant to
contractual or any other relationship with Licensee; and
(f) Licensee's sales and/or promotional efforts.
34.2 LICENSEE INDEMNIFIED PARTIES; BASIC INDEMNIFICATION. For purpose of this
Section "Licensee Indemnification Parties" refers to Licensee and officers,
directors, employees and agents of Licensee. Licensor shall indemnify and hold
harmless the Licensee Indemnified Parties and each of them from and against the
cost and expenses (including, without limitation, reasonable attorneys fees and
costs) of any and all claims, suits, losses, damages, costs, demands,
obligations, investigations, causes of action, and judgements arising out of any
assertion or allegation by any persons, entities of government agencies that any
Trademark infringes any trademark, trade name or any other personal or property
right of a third parry.
34.3 INDEMNIFICATION FOR BREACH. Licensee hereby further agrees that it shall
indemnify and forever hold harmless the Indemnified Parties against and from any
and all claims, suits, losses, damages, costs, obligations, liabilities,
judgments, damages and expenses, including without limitation, reasonable
attorneys' fees arising out of breach or alleged breach by Licensee of any
provision of this Agreement, or any misrepresentation made by Licensee herein or
any act not expressly authorized herein. Licensee further agrees to
<PAGE>
insulate the Indemnified Parties from any and all product liability claims
arising from the use or misuse of the Trademarked Product.
34.4 SURVIVAL OF TERMS. The provisions of this Article 34 shall survive the
termination (or expiration) of this Agreement.
ARTICLE 35
INFORMATION
35.1 CONFIDENTIALITY. Licensor and Licensee may from time to time disclose to
each other sales, engineering, applications, drawing, designs and any other
knowledge, information, techniques, know-how or data pertaining to the
manufacture, use, application, marketing, distribution and sales of the
Trademarked Product or other products of Licensor or Licensee (the
41nformabon~). Each par~ hereto shall hold in confidence all such data and
information and shall not disclose such data and information except to such
personnel and employees as are necessary for the effective performance of this
Agreement or as otherwise permitted by this Agreement. Licensor and Licensee
shall cause all data, documents or other written or printed materials embodying
the Information to be plainly marked to indicate the secret and confidential
nature thereof and to prevent unauthorized access thereto, or reproduction or
use thereof. Licensor and Licensee shall take any necessary action, including
court proceedings, to comply and to compel compliance with the provisions of
this Article 35. The obligations undertaken by Licensor and Licensee pursuant to
this Article 35 shall not apply to any such data or information which is or
becomes published or otherwise generally available to the public without fault
of a party hereto or is otherwise lawfully acquired by a party hereto and such
obligations shall, as so limited, survive the expiration or termination of this
Agreement. Upon termination of this Agreement, either Party hereto may request
the prompt return of all written materials received from the other Party
including originals, copies, extractions, translations and reproductions
thereof. This Agreement is not intended to and shall not be construed to give
either Party any vested right, title or interest in the Trademarked Product or
the Information.
35.2 CONFIDENTIALITY OF TERMS OF AGREEMENT. Licensee shall not disclose to any
third party information relating to the terms and conditions of this Agreement,
including royalty rates, the amounts of minimum NIV Sales or minimum royalties
or the amount of the initial royalty payment pursuant to this Agreement.
35.3 SURVIVAL OF TERMS. The provisions of this Article 35 shall survive the
termination of this Agreement.
<PAGE>
ARTICLE 26
PUBLIC ANNOUNCEMENTS
36.1 Unless expressly approved in advance in writing by the other party, neither
shall make any public announcement regarding the subject matter or existence of
this Agreement except as required by law. If such announcement is required by
law, the announcing party shall give the other party reasonable notice of such
announcement and shall consult with the other party regarding the announcement.
36.2 IMMEDIATE DISCLOSURE OF PUBLIC ANNOUNCEMENTS. Licensee shall include
Licensor, and its agent, LMCA, among its list of recipients for press releases
and all other public announcements regarding its business, and provide such
information to Licensor and its agent simultaneous to its release to any and all
media outlets or other recipients.
ARTICLE 37
ADDRESSES FOR NOTICE
All notices, statements, consents, instructions or other documents required or
authorized to be given hereunder shall be in writing, and shall be delivered
personally to an officer, partner or authorized representative of the other
party of by certified mail, return receipt requested, addressed to the parties
concerned as follows:
to Licensee Electronic Industries of America, Inc.
16550 N.W. 10th Avenue
Miami, Florida 33168
Facsimile: 305-624-8901
and to Licensor at: White Consolidated Industries, Inc.
11770 Berea Road
Cleveland, Ohio 44111
Facsimile: 216-252-8158
with copies to: Ms. Sharon Schiller, Trademarks Counsel
White Consolidated Industries, Inc.
11770 Berea Road
Cleveland, Ohio 44111 Facsimile: 216-252-8158
and Mr. Allan R. Feldman
Leveraged Marketing Corporation of America
156 West 56th Street, Suite 1400
New York, New York 10019
Facsimile: 212-581-1461
and shall be deemed to have been given upon receipt.
<PAGE>
IN WITNESS WHEREOF, this Agreement is
executed on the day and year first written above.
White Consolidated Industries, Inc. (Licensor)
/s/ Daniel R. Elliott
- ---------------------
By: Daniel R. Elliott
Senior Vice President,
General Counsel
New M-Tech Corporation (Licensee)
/s/ Leonor Schuck
- -------------------
By: Leonor Schuck
Vice President, Finance
<PAGE>
EXHIBIT A
Portable consumer microwave ovens
<PAGE>
AMENDMENT 1
AGREEMENT BETWEEN
ELECTRONIC INDUSTRIES OF NORTH AMERICA
AND
WHITE CONSOLIDATED INDUSTRIES, INC.
DATED 15 SEPTEMBER 1997
ARTICLE 5
TERM OF AGREEMENT
5.1 CONTRACT TERM. The Contract Term of this Agreement commences on the
date first mentioned above and ends on December 31, 2003 at midnight Eastern
Standard Time unless sooner terminated pursuant to the terms of this Agreement.
ARTICLE 7
7.1 MINIMUM ROYALTY PAYMENTS. The minimum Royalties for the Contract
Term shall be paid [*****] in advance on execution of this Agreement and the
balance in twenty (20) equal installments of $[*****] paid quarterly beginning
March 30, 1999 and throughout the remainder of the contract period. Each
installment is due on or before the 30th day of each March, June, September and
December. The Minimum Royalties for each Extension Term as shown below shall be
paid in four (4) equal installments each by the 30th day of March, June,
September and December of the respective term.
EXCEPT AS HEREBY AMENDED, THE AGREEMENT ENTERED INTO AND EFFECTIVE 15
SEPTEMBER 1997 SHALL REMAIN IN FULL FORCE AND EFFECT.
SIGNED THIS DAY OF DECEMBER, 1997.
ELECTRONIC INDUSTRIES OF WHITE CONSOLIDATED INDUSTRIES, INC.
NORTH AMERICA
/s/ JOEL NEWMAN /s/ ILLEGIBLE
- ---------------------------------- -----------------------------------
By: By:
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERICKS DENOTE SUCH OMMISSIONS.
EXHIBIT 10.38
AMENDED AND RESTATED CREDIT AGREEMENT
$105,000,000.00 REVOLVING CREDIT FACILITY
by and among
NEWTECH ELECTRONICS INDUSTRIES, INC.
(formerly known as NEW M-TECH CORPORATION),
a Florida corporation
NEWTECH (HONG KONG) LIMITED,
a Hong Kong limited liability company
DURABLE ELECTRONICS INDUSTRIES LIMITED,
a Hong Kong limited liability company
and
NEWTECH ELECTRONICS INDUSTRIES LIMITED
(formerly known as Pomillo Limited),
a Hong Kong limited liability company
[collectively, the BORROWERS and each a BORROWER]
and
THE LENDERS PARTY HERETO
[collectively, the LENDERS and each a LENDER]
and
NATIONAL BANK OF CANADA, As Agent
and
NATIONSBANK, N.A.,
As Collateral Agent and Administrative Agent
Dated as of June 8, 1998
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1. CERTAIN DEFINITIONS..........................................................................2
1.1 Certain Definitions................................................................2
1.2 Construction......................................................................27
1.2.1 Number; Inclusion......................................................27
1.2.2 Determination..........................................................27
1.2.3 Agent's Discretion and Consent.........................................27
1.2.4 Documents Taken as a Whole.............................................27
1.2.5 Headings...............................................................27
1.2.6 Implied References to this Agreement...................................28
1.2.7 Persons................................................................28
1.2.8 Modifications to Documents.............................................28
1.2.9 From, To and Through...................................................28
1.2.10 Shall; Will...........................................................28
1.2.11 Neutral Interpretation................................................28
1.3 Accounting Principles.............................................................28
2. REVOLVING CREDIT FACILITY...................................................................29
2.1 Revolving Credit Commitments......................................................29
2.2 Nature of Lenders' Obligations with Respect to Revolving Credit Loans.............29
2.3 Commitment and Administration Fees................................................30
2.4 Revolving Credit Loan Requests....................................................30
2.5 Making Revolving Credit Loans.....................................................31
2.6 Revolving Credit Notes............................................................31
2.7 Use of Proceeds...................................................................31
2.8 Letters of Credit And Bankers' Acceptances Subfacilities..........................32
2.8.1 Letters of Credit Subfacility..........................................32
2.8.2 Bankers' Acceptance Subfacility........................................39
2.8.3 Indemnity..............................................................44
2.8.4 Liability for Acts and Omissions.......................................45
2.9 Borrowing Base Limitation.........................................................46
2.10 Repayment of Obligations.........................................................46
2.11 Collateral.......................................................................46
2.12 Reconciliation Dates.............................................................46
2.12.1 Agent Reconciliation..................................................46
2.12.2 Collateral Agent Reconciliation.......................................47
2.12.3 Payments on Reconciliation Dates......................................47
3. OVERADVANCE FACILITY........................................................................47
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3.1 Overadvance Facility.....................................................................47
4. INTEREST RATES.....................................................................................48
4.1 Interest Rate Options....................................................................48
4.1.1 Revolving Credit Interest Rate Options........................................48
4.1.2 Overadvance Facility Interest Rate............................................49
4.1.3 Rate Quotations...............................................................49
4.2 Interest Periods.........................................................................49
4.2.1 Ending Date and Business Day..................................................50
4.2.2 Amount of Borrowing Tranche...................................................50
4.2.3 Termination Before Expiration Date............................................50
4.2.4 Renewals......................................................................50
4.3 Interest After Default...................................................................50
4.3.1 Other Obligations.............................................................50
4.3.2 Acknowledgment................................................................51
4.4 Euro-Rate Unascertainable; Illegality; Increased Costs; Deposits Not Available...........51
4.4.1 Unascertainable...............................................................51
4.4.2 Illegality; Increased Costs; Deposits Not Available...........................51
4.4.3 Collateral Agent's and Lender's Rights........................................51
4.5 Selection of Interest Rate Options.......................................................52
5. PAYMENTS...........................................................................................52
5.1 Payments.................................................................................52
5.2 Pro Rata Treatment of Lenders............................................................53
5.3 Interest Payment Dates...................................................................53
5.4 Voluntary Prepayments....................................................................53
5.4.1 Right to Prepay...............................................................53
5.4.2 Replacement of a Lender.......................................................54
5.4.3 Change of Lending Office......................................................55
5.4.4 Debit of Accounts.............................................................55
5.5 Mandatory Prepayments....................................................................55
5.5.1 Application Among Interest Rate Options.......................................55
5.6 Additional Compensation in Certain Circumstances.........................................55
5.6.1 Increased Costs or Reduced Return Resulting from Taxes, Reserves, Capital
Adequacy Requirements, Expenses, Etc.....................................55
5.6.2 Indemnity.....................................................................56
5.7 Representations and Warranties...........................................................57
5.7.1 Organization and Qualification................................................57
5.7.2 Capitalization and Ownership..................................................57
5.7.3 Subsidiaries..................................................................57
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5.7.4 Power and Authority....................................................58
5.7.5 Validity and Binding Effect............................................58
5.7.6 No Conflict............................................................58
5.7.7 Litigation.............................................................59
5.7.8 Title to Properties....................................................59
5.7.9 Financial Statements...................................................59
5.7.10 Use of Proceeds; Margin Stock; Section 20 Subsidiaries................60
5.7.11 Full Disclosure.......................................................60
5.7.12 Taxes.................................................................61
5.7.13 Consents and Approvals................................................61
5.7.14 No Event of Default; Compliance with Instruments......................61
5.7.15 Patents, Trademarks, Copyrights, Licenses, Etc........................61
5.7.16 Security Interests....................................................62
5.7.17 Liens.................................................................62
5.7.18 Solvency..............................................................62
5.7.19 Insurance.............................................................63
5.7.20 Compliance with Laws..................................................63
5.7.21 Material Contracts; Burdensome Restrictions...........................63
5.7.22 Investment Companies; Regulated Entities..............................63
5.7.23 Plans and Benefit Arrangements........................................63
5.7.24 Employment Matters....................................................65
5.7.25 Environmental Matters.................................................65
5.7.26 Senior Debt Status....................................................66
5.8 Updates to Schedules..............................................................67
6. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT AND BANKERS' ACCEPTANCES............67
6.1 First Loans, Letters of Credit and Bankers' Acceptances...........................67
6.1.1 Officer's Certificate..................................................67
6.1.2 Secretary's Certificate................................................68
6.1.3 Delivery of Loan Documents.............................................68
6.1.4 Opinions of Counsel....................................................68
6.1.5 Payment of Fees........................................................69
6.1.6 Eligible Securities....................................................69
6.1.7 Solvency...............................................................69
6.1.8 Consents...............................................................70
6.1.9 Officer's Certificate Regarding MACs...................................70
6.1.10 No Violation of Laws..................................................70
6.1.11 No Actions or Proceedings.............................................70
6.1.12 Insurance Policies; Certificates of Insurance; Endorsements...........70
6.1.13 OMITTED...............................................................71
6.1.14 Filing Receipts.......................................................71
6.1.15 Landlord's Waivers....................................................71
6.1.16 Administrative Questionnaire..........................................71
6.2 Each Additional Loan, Letter of Credit or Bankers' Acceptance.....................71
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7. COVENANTS.........................................................................................72
7.1 Affirmative Covenants...................................................................72
7.1.1 Preservation of Existence, Etc...............................................72
7.1.2 Payment of Liabilities, Including Taxes, Etc.................................72
7.1.3 Maintenance of Insurance.....................................................72
7.1.4 Maintenance of Properties and Leases.........................................74
7.1.5 Maintenance of Patents, Trademarks, Etc......................................74
7.1.6 Visitation Rights............................................................74
7.1.7 Keeping of Records and Books of Account......................................74
7.1.8 Plans and Benefit Arrangements...............................................75
7.1.9 Compliance with Laws.........................................................75
7.1.10 Use of Proceeds.............................................................75
7.1.11 Further Assurances..........................................................75
7.1.12 Windmere Subordination......................................................75
7.1.13 Year 2000 Compliance........................................................75
7.1.14 Lockbox Accounts............................................................76
7.2 Negative Covenants......................................................................76
7.2.1 Indebtedness.................................................................76
7.2.2 Liens........................................................................76
7.2.3 Guaranties...................................................................77
7.2.4 Loans and Investments........................................................77
7.2.5 Dividends and Related Distributions..........................................77
7.2.6 Liquidations, Mergers, Consolidations, Acquisitions..........................77
7.2.7 Dispositions of Assets.......................................................77
7.2.8 Affiliate Transactions.......................................................78
7.2.9 Subsidiaries, Partnerships and Joint Ventures................................79
7.2.10 Continuation of or Change in Business.......................................79
7.2.11 Plans and Benefit Arrangements..............................................79
7.2.12 Fiscal Year.................................................................80
7.2.13 Issuance of Stock...........................................................81
7.2.14 Changes in Organizational Documents.........................................81
7.2.15 Capital Expenditures and Leases.............................................81
7.2.16 Consolidated Total Liabilities To Consolidated Tangible Net Worth Ratio.....81
7.2.17 Maximum Leverage Ratio......................................................81
7.2.18 Minimum Interest Coverage Ratio.............................................82
7.2.19 Minimum Tangible Net Worth..................................................82
7.2.20 Minimum Current Ratio.......................................................83
7.3 Reporting Requirements..................................................................83
7.3.1 Monthly Financial Statements.................................................83
7.3.2 Additional Materials.........................................................84
7.3.3 Annual Financial Statements..................................................84
7.3.4 Certificate of the Borrower..................................................85
7.3.5 Notice of Default............................................................85
7.3.6 Notice of Litigation.........................................................86
7.3.7 Certain Events...............................................................86
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7.3.8 Budgets, Forecasts, Other Reports and Information...........................86
7.3.9 Notices Regarding Plans and Benefit Arrangements............................87
8. DEFAULT..........................................................................................88
8.1 Events of Default......................................................................88
8.1.1 Payments Under Loan Documents...............................................88
8.1.2 Breach of Warranty..........................................................89
8.1.3 Breach of Covenants.........................................................89
8.1.4 Defaults in Other Agreements or Indebtedness................................89
8.1.5 Final Judgments or Orders...................................................89
8.1.6 Loan Document Unenforceable.................................................89
8.1.7 Uninsured Losses; Proceedings Against Assets................................90
8.1.8 Notice of Lien or Assessment................................................90
8.1.9 Insolvency..................................................................90
8.1.10 Events Relating to Plans and Benefit Arrangements..........................90
8.1.11 Cessation of Business......................................................91
8.1.12 Change of Control..........................................................91
8.1.13 Involuntary Proceedings....................................................91
8.1.14 Voluntary Proceedings......................................................91
8.1.15 Material Contracts.........................................................92
8.1.16 Events of Default Other Than Bankruptcy, Insolvency or Reorganization
Proceedings............................................................92
8.1.17 Bankruptcy, Insolvency or Reorganization Proceedings.......................92
8.1.18 Set-off....................................................................93
8.1.19 Suits, Actions, Proceedings................................................93
8.1.20 Application of Proceeds....................................................93
8.1.21 Other Rights and Remedies..................................................94
8.2 Notice of Sale.........................................................................94
9. THE AGENT AND COLLATERAL AGENT...................................................................95
9.1 Appointment............................................................................95
9.2 Delegation of Duties...................................................................95
9.3 Nature of Duties; Independent Credit Investigation.....................................95
9.4 Actions in Discretion of Agent and Collateral Agent; Instructions From the Lenders.....96
9.5 Reimbursement and Indemnification of Agent and Collateral Agent by the Borrowers.......97
9.6 Exculpatory Provisions; Limitation of Liability........................................97
9.7 Reimbursement and Indemnification of Agent and Collateral Agent by Lenders.............98
9.8 Reliance by Agent......................................................................99
9.9 Notice of Default......................................................................99
9.10 Notices...............................................................................99
</TABLE>
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9.11 Lenders in Their Individual Capacities..................................................99
9.12 Holders of Notes.......................................................................100
9.13 Equalization of Lenders................................................................100
9.14 Successor Agent and Collateral Agent...................................................101
9.15 Allocation of Facility.................................................................101
9.16 Availability of Funds..................................................................102
9.17 Calculations...........................................................................102
9.18 Beneficiaries..........................................................................103
10. MISCELLANEOUS....................................................................................103
10.1 Modifications, Amendments or Waivers...................................................103
10.1.1 Increase of Commitment; Extension or Expiration Date........................103
10.1.2 Extension of Payment; Reduction of Principal Interest or Fees; Modification
of Terms of Payment.....................................................103
10.1.3 Release of Collateral or Guarantor..........................................104
10.1.4 Miscellaneous...............................................................104
10.2 No Implied Waivers; Cumulative Remedies; Writing Required..............................104
10.3 Reimbursement and Indemnification of Lenders by the Borrowers; Taxes...................105
10.4 Holidays...............................................................................105
10.5 Funding by Branch, Subsidiary or Affiliate.............................................106
10.5.1 Notional Funding............................................................106
10.5.2 Actual Funding..............................................................106
10.6 Notices................................................................................106
10.7 Severability...........................................................................107
10.8 Governing Law..........................................................................107
10.9 Prior Understanding....................................................................107
10.10 Duration; Survival....................................................................108
10.11 Successors and Assigns................................................................108
10.12 Confidentiality.......................................................................109
10.12.1 General....................................................................109
10.12.2 Sharing Information With Affiliates of the Lenders.........................110
10.13 Counterparts..........................................................................110
10.14 Agent's or Lender's Consent...........................................................111
10.15 Exceptions............................................................................111
10.16 Joint and Several Liability of Borrowers..............................................111
</TABLE>
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10.17 CONSENT TO FORUM; WAIVER OF JURY TRIAL..........................................112
10.18 Tax Withholding Clause..........................................................113
</TABLE>
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CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is dated as of June 8, 1998
and is made by and among NEWTECH ELECTRONICS INDUSTRIES, INC. (formerly known as
New M-Tech Corporation), a Florida corporation (together with its predecessors,
"NEII"), NEWTECH (HONG KONG) LIMITED, a Hong Kong limited liability
company("NL"), DURABLE ELECTRONICS INDUSTRIES LIMITED, a Hong Kong limited
liability company( "DEIL") and NEWTECH ELECTRONICS INDUSTRIES LIMITED (formerly
known as Pomillo Limited), a Hong Kong limited liability company ("NEIL") (each
a "Borrower" and collectively and jointly and severally the "Borrowers"), the
Lenders (as hereinafter defined) and NATIONAL BANK OF CANADA, in its capacity as
syndication and documentation Agent for the Lenders under this Agreement
(hereinafter referred to in such capacity as the "Agent") and NATIONSBANK, N.A.,
in its capacity as Collateral Agent and Administrative Agent for the Lenders
under this Agreement (hereinafter referred to in such capacity as the
"Collateral Agent").
WITNESSETH:
WHEREAS, pursuant to a Credit Agreement dated as of July 23, 1997 among
Bank Leumi Le-Israel B.M., Comerica Bank and National Bank of Canada
(collectively, the "Banks") as Banks, NEII and NL (the "Original Borrowers") and
Bank Leumi Le-Israel B.M. as security agent for the Banks (the "(the "Original
Agent")"), as amended by (i) that certain Amendment to Credit Agreement dated as
of September 8, 1997, among the Banks, the Original Agent and the Original
Borrowers, (ii) that certain Amendment to Credit Agreement dated as of November
5, 1997, among the Banks, the Original Agent and the Original Borrowers, (iii)
that certain Amendment to Credit Agreement dated as of December 30, 1997 among
the Banks, the Original Agent and the Original Borrowers , and (iv) that certain
Amendment to Credit Agreement dated as of March 18, 1998 among the Banks, the
Original Agent, and the Borrowers (as amended, the "Original Credit Agreement"),
the Banks have made a revolving credit facility of up to an aggregate principal
amount of $37,000,000 (the " Facility") available to the Borrowers for the
purposes and upon and subject to the terms and conditions set out therein.
WHEREAS, as part of the security for the availability or continued
availability of the Facility and as a condition of the Original Credit
Agreement, various parties executed security agreements, financing statements, a
pledged collateral account agreement, a subordination agreement, certain
collateral assignments, debentures and other related documents in favor of the
Original Agent.
WHEREAS, the Banks, the Borrowers, and the Lenders defined herein have
agreed that the financial transactions contemplated by the Original Credit
Agreement be revised to the effect that (i) the Facility would be increased to
$105,000,000, (ii) the Lenders party hereto would replace Bank
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Leumi Le-Israel B.M. as a Bank, continuing with National Bank of Canada and
Comerica Bank and adding NationsBank, N.A. and Mercantile Business Credit and to
make available the Facility as increased, amended and restated herein to the
Borrowers, (iii) National Bank of Canada would be appointed by the Lenders (as
hereinafter defined) to be their syndication and documentation agent and
NationsBank, N.A. would be appointed by the Lenders (as hereinafter defined) to
be their collateral and administrative agent.
WHEREAS, the revolving credit facility shall be used for the purposes
set forth herein; and
WHEREAS, the Lenders are willing to provide such credit upon the terms
and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. CERTAIN DEFINITIONS
1.1 CERTAIN DEFINITIONS.
In addition to words and terms defined elsewhere in this
Agreement, the following words and terms shall have the following meanings,
respectively, unless the context hereof clearly requires otherwise:
AAAA WORLD SBLC means the standby letter of credit
no. 932890, dated March 30, 1998, issued by NationsBank, N.A. for the account of
AAAA World Import-Export, Inc. and for the benefit of NEII and NL, in the face
amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00), as amended.
ACCOUNT(S) shall mean any account, contract right,
general intangible, chattel paper, instrument or document representing any right
to payment for goods sold or services rendered, whether or not earned by
performance and whether or not evidenced by a contract, instrument or document,
which is now owned or hereafter acquired by any Borrower. All Accounts, whether
Eligible Accounts or not, shall be subject to the Prior Security Interest in
favor of the Collateral Agent for the benefit of the Collateral Agent, the Agent
and the Lenders.
AFFILIATE as to any Person shall mean any other
Person (i) which directly or indirectly controls, is controlled by, or is under
common control with such Person, (ii) which beneficially owns or holds 5% or
more of any class of the voting or other equity interests of such Person, or
(iii) 5% or more of any class of voting interests or other equity interests of
which is beneficially owned or held, directly or indirectly, by such Person.
Control, as used in this definition, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting
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securities, by contract or otherwise, including the power to elect a majority of
the directors or trustees of a corporation or trust, as the case may be.
AGENT shall mean NATIONAL BANK OF CANADA, and its
successors and assigns.
AGENT RECONCILIATION DATE shall mean the fifth (5th)
Business Day immediately following the last day of each Agent's Reporting
Period, pursuant to Section 2.12.1 of this Agreement .
AGENT RECONCILIATION REPORT shall mean the report of
sums due from the Agent to the Lenders furnished by the Agent to the Lenders on
the Agent Reconciliation Date(s), setting forth the sums owed by the Agent to
each Lender in connection with Letters of Credit and Bankers' Acceptances issued
or created by the Agent during the preceding Agent Reporting Period, which
report, in the absence of manifest error, shall be conclusive as the statement
of the sums due from the Lenders to the Agent on such date.
AGENT REPORTING PERIOD shall mean a period commencing
on and including the first day of each month and ending on and including the
last day of each month.
AGREEMENT shall mean this Credit Agreement, as the
same may be supplemented or amended from time to time, including all schedules
and exhibits.
ANNUAL STATEMENTS shall have the meaning assigned to
that term in Section 5.7.9(i).
ASSIGNMENT AND ASSUMPTION AGREEMENT shall mean an
Assignment and Assumption Agreement by and among a Purchasing Lender, a
Transferor Lender, the Agent and the Collateral Agent, as Agent and Collateral
Agent, respectively, on behalf of the remaining Lenders, substantially in the
form of Exhibit "A".
AUTHORIZED OFFICER shall mean the individual or those
individuals, designated by written notice to the Collateral Agent from the
Borrowers, authorized to execute notices, reports and other documents on behalf
of the Borrowers required hereunder. The Borrowers may amend such list of
individuals from time to time by giving written notice of such amendment to the
Agent. Each notice, request or other communication of an Authorized Officer to
the Agent, Collateral Agent or any Lender shall be binding upon all Borrowers
and shall be deemed to have been given by each Borrower.
BANKERS' ACCEPTANCE means a Bankers' Acceptance
created by the Agent as a result of a drawing under a Trade Letter of Credit.
BANKERS' ACCEPTANCE BORROWING shall mean an extension
of credit resulting from a drawing under any Bankers' Acceptance which shall not
have been reimbursed
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<PAGE>
on the date when made and shall not have been converted into a Revolving Credit
Loan under Section 2.8.2.
BANKERS' ACCEPTANCE DOCUMENTS shall mean such general
acceptance agreements, applications, certificates and other documents as Agent
may require in connection with the creation of Bankers' Acceptances.
BANKERS' ACCEPTANCE FEES shall mean the Bankers'
Acceptance Creation Fees, and the Agent's Bankers' Acceptance Fees as set forth
in Section 2.8.2.2
BANKERS' ACCEPTANCE OBLIGATIONS shall mean as of the
date of determination, the sum of the maximum aggregate amount which is, or at
any time thereafter may become, payable by Agent under all then outstanding
Bankers' Acceptances, plus the aggregate amount of all payments made by Agent
under Bankers' Acceptances and not theretofore reimbursed by Borrowers.
BANKERS' ACCEPTANCE TERMINATION DATE shall mean that
date which is one Business Day prior to the Expiration Date.
BANKING RELATIONSHIP shall mean obligations of any
Borrower relating to or arising out of (i) checking and operating account
relationships among any Borrower and any Lender (or any Affiliate of a Lender)
in the ordinary course of business and (ii) Interest Rate Protection Agreements.
BASE RATE shall mean the interest rate per annum
announced from time to time by the Collateral Agent at its Principal Office as
its then prime rate, which rate may not be the lowest rate then being charged
commercial borrowers by the Collateral Agent .
BASE RATE OPTION shall mean the Revolving Credit Base
Rate Option.
BENEFICIAL OWNER shall have the meaning ascribed to
such term in Rule 13d-3 of the General Rules and Regulations under the
Securities and Exchange Act of 1934, as in effect on the date hereof.
BENEFIT ARRANGEMENT shall mean at any time an
"employee benefit plan," within the meaning of Section 3(3) of ERISA, which is
neither a Plan nor a Multiemployer Plan and which is maintained, sponsored or
otherwise contributed to by any member of the ERISA Group.
BORROWING BASE means, at any time, the sum (without
duplication) of (i) 85% of the Eligible Accounts at that time which are Eligible
Domestic Accounts but are not Secured Eligible Domestic Accounts, plus (ii) the
lesser of (A) 40% of the Eligible Accounts at that time which are Eligible
Foreign Accounts but are not Secured Eligible Foreign Accounts or (B) Two
Million Dollars ($2,000,000.00), plus (iii) the lesser of (A) 85% of the
Eligible
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Accounts at that time which are Secured Eligible Foreign Accounts, or (B) the
amount then available under the letters of credit securing the Secured Eligible
Foreign Accounts, plus (iv) the lesser of (A) 90% of the Eligible Accounts at
that time which are Secured Eligible Domestic Accounts, or (B) the amount then
available under the letters of credit securing the Secured Eligible Domestic
Accounts, plus (v) 70% of the Eligible Letters of Credit Amount at that time,
plus (vi) 70% of the lesser of the cost or fair market value of the Eligible
In-Transit White-Westinghouse Inventory at that time, plus (vii) the lesser of
(A) 60% of the lesser of the cost or fair market value of the Eligible Inventory
(subject to a sublimit of Five Million Dollars ($5,000,000.00) as to advances
against Eligible In-Transit Inventory) attributable to finished goods Eligible
Inventory which is not Eligible In-Transit White-Westinghouse Inventory at that
time, or (B) Eighteen Million Dollars ($18,000,000.00) plus (viii) 95% of the
Eligible Securities Value at that time, all of the above being reduced by such
reserves as the Collateral Agent in its reasonable credit judgment may from time
to time establish. For purposes of this Agreement, an account is considered to
be "secured" by a particular letter of credit if the Borrower owning such
account may draw upon the letter of credit to obtain payment of such account.
BORROWING BASE CERTIFICATE means a certificate of an
authorized officer of each of the Borrowers substantially in the form of Exhibit
"B" attached hereto and made a part hereof.
BORROWING BASE LIMITATION shall mean the maximum
aggregate amount of Revolving Credit Loans, Bankers' Acceptance Obligations and
Letters of Credit Outstanding which may exist from time to time under this
Agreement, as determined using the Borrowing Base, subject to periodic increases
during the Overadvance Periods (in the aggregate the "Lender Outstandings").
BORROWING DATE shall mean, with respect to any Loan,
the date for the making thereof or the renewal or conversion thereof at or to
the same or a different Interest Rate Option, which shall be a Business Day.
BORROWING TRANCHE shall mean specified portions of
Loans outstanding as follows: (i) any Loans to which a Euro-Rate Option applies
which become subject to the same Interest Rate Option under the same Loan
Request by a Borrower and which have the same Interest Period shall constitute
one Borrowing Tranche, and (ii) all Loans to which a Base Rate Option applies
shall constitute one Borrowing Tranche.
BUSINESS DAY shall mean any day other than a Saturday
or Sunday or a legal holiday on which commercial banks are authorized or
required to be closed for business in Miami, Florida, Atlanta, Georgia or New
York, New York and if the applicable Business Day relates to any Loan to which
the Euro-Rate Option applies, such day must also be a day on which dealings are
carried on in the London interbank market.
CASH COLLATERAL ACCOUNTS means the restricted,
non-interest bearing cash collateral accounts established by the Borrowers with
the Collateral Agent, one in the name of
5
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NEII and the other in the name of NL and all contents therein from time to time,
including without limitation all cash and cash equivalents, checks, money orders
and deposits of any kind, into which accounts all collections shall be remitted
from the Lockbox Accounts and from all other accounts into which Borrowers'
account debtors remit payments. The Borrowers shall have no access to the Cash
Collateral Accounts or to any deposits in the Cash Collateral Accounts, which
accounts and deposits shall be assigned to and in the exclusive control of the
Collateral Agent, for the benefit of the Agent, the Collateral Agent and the
Lenders, and be Collateral for the Obligations of the Borrowers set forth in
this Agreement. All collections shall be applied against the Loan balance one
(1) Business Day after receipt of such collections in the Cash Collateral
Accounts.
CHANGE OF CONTROL means, from and after the
Transition Date (a) NEII ceasing to own, directly or indirectly, 100% (except
for directors' qualifying shares or as otherwise required by law) of such stock
or other interests of NL and NEIL, or NEIL ceasing to own, directly or
indirectly, 100% of such stock or other interests of DEIL (b) within a period of
twelve (12) consecutive calendar months, individuals who were directors of NEII
on the first day of such period (the "Incumbent Board") shall cease to
constitute a majority of the board of directors of NEII, provided that any
person becoming a director subsequent to the date hereof whose election, or
nomination for election by the NEII shareholders, was approved by a vote of at
least a majority of the Incumbent Board (as opposed to an election or nomination
of an individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of the directors
of NEII, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act of 1934, as amended) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board.
CHANGE OF MANAGEMENT means Joel Newman ceasing to be
the chief executive officer of NEII, his ceasing to be involved in senior
management of any Borrower or any other significant (in the Agent's or the
Required Lender's reasonable judgment) change in the senior management of any
Borrower.
CLOSING DATE shall mean the Business Day on which the
first Loan shall be made, which shall be the date hereof, at the offices of the
Agent, or at such other place as the parties agree.
COLLATERAL shall mean the Pledged Collateral, the UCC
Collateral, the Hong Kong Collateral, the Cash Collateral Accounts and the
Intellectual Property Collateral, all as described in the Security Documents.
COLLATERAL AGENT shall mean NATIONSBANK, N.A., in its
capacity as collateral agent and administrative agent and its successors and
assigns.
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COLLATERAL AGENT RECONCILIATION DATE shall mean the
Business Day immediately following the last day of each Collateral Agent's
Reporting Period, pursuant to Section 2.12.2 of this Agreement.
COLLATERAL AGENT RECONCILIATION REPORT shall mean the
report of Net Sums Due furnished by the Collateral Agent to the Lenders on the
Collateral Agent Reconciliation Date(s), which report, in the absence of
manifest error, shall be conclusive as the statement of the Net Sums Due on such
date.
COLLATERAL AGENT REPORTING PERIOD shall mean a period
commencing on and including Wednesday of each week and ending on and including
the following Tuesday.
COMMITMENT FEE shall have the meaning assigned to
that term in Section 2.3(a).
CONSOLIDATED CASH FLOW FROM OPERATIONS for any period
of determination shall mean (i) the sum of net income, interest expense and
income tax expense minus (ii) non-cash credits to net income, in each case of
the Borrowers for such period determined and consolidated in accordance with
GAAP.
CONSOLIDATED TANGIBLE NET WORTH shall mean at any
time the consolidated shareholders' equity of the Borrowers, plus Subordinated
Debt, less Intangible Assets (to the extent included in determining such
consolidated shareholders' equity) and less any other amounts owing by
Affiliates (other than each other and excluding amounts collected by Windmere or
DEML on behalf of any Borrower) to any Borrower (to the extent included in
determining such consolidated shareholders' equity), in each case, as of such
time. For purposes of this definition, "Intangible Assets" means the amounts of
intangible assets (including, without limitation, goodwill licenses, patents,
trademarks, trademark licenses, trade names, copyrights and franchises)
determined in accordance with GAAP.
Consolidated Total Liabilities shall mean at any time
the consolidated total liabilities of the Borrowers, including without
limitation, all Indebtedness of the Borrowers and all other liabilities which
would appear on a balance sheet of a Borrower, all determined in accordance with
GAAP.
CONTRACT means an indenture, agreement (other than
this Agreement and any other Loan Document), other contractual restriction
lease, instrument (other than the Notes), certificate of incorporation or
charter, or bylaw.
DEBENTURE(S) means the Debentures dated as of July
23, 1997 (in relation to NL) and as of March 18, 1998 (in relation to NEIL and
DEIL), executed by NL, NEIL and DEIL, respectively, in favor of the Original
Agent, together with a Supplemental and Assignment Deed relating to Debentures
dated as of the Closing Date in the form of Exhibit "C" attached
7
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hereto, executed by the Original Agent, NL, NEIL and DEIL in favor of the Agent
and the Collateral Agent, for the benefit of the Agent, the Collateral Agent and
the Lenders.
DEFAULT RATE shall have the meaning assigned to that
term in Section 4.3 hereof.
DEML DEBT has the meaning set forth in Section 7.2.4.
DOLLAR, DOLLARS, U.S. DOLLARS and the symbol $ shall
mean lawful money of the United States of America.
ELIGIBLE ACCOUNTS shall mean the net amount of
Accounts outstanding after eliminating from the aggregate amount of outstanding
Accounts: (i) all Accounts on which Collateral Agent does not have a valid first
priority perfected security interest; (ii) all payments, offsets and credits
applicable to Accounts; (iii) all Accounts which remain unpaid more than ninety
(90) days past the invoice date thereof, other than Ames Department Stores, Inc.
("Ames") or Wakenfern Food Corp. ("Wakenfern"), which Accounts may remain unpaid
up to one hundred twenty (120) days past the invoice date thereof; (iv) all
Accounts arising from sales or services to any Affiliate; (v) all Accounts
receivable from any one account debtor, other than Ames or Wakenfern, where
twenty-five percent (25%) or more of all Accounts from any such account debtor
remain unpaid more than ninety (90) days past the invoice date thereof; (vi) all
Accounts receivable from Ames or Wakenfern where twenty-five percent (25%) or
more of all Accounts from such account debtor remain unpaid more than one
hundred twenty (120) days past the invoice date thereof; (vii) all amounts due
on Accounts which are considered by Collateral Agent to be difficult to collect
or uncollectible by reason of return, rejection, repossession, loss or damage of
or to the merchandise giving rise thereto, insolvency of the account debtor, or
any other reason; (viii) all Accounts arising out of transactions with the
United States or any department, agency or instrumentality thereof, as to which
Borrowers have not taken all steps required by Collateral Agent and under the
Federal Assignment of Claims Act in order that all monies due or to become due
thereunder have been satisfactorily assigned to Lender; (ix) all Accounts
arising from sales or services to account debtors outside of the United States
of America and its territories and possessions and Canada, except for otherwise
Eligible Accounts arising from sales or services to account debtors outside of
the United States of America and its territories and possessions and Canada
which (A) remain unpaid up to ninety (90) days past the invoice date thereof and
(B) remain unpaid up to one hundred fifty (150) days past the invoice date
thereof and which are secured to the Agent's and Collateral Agent's satisfaction
by an irrevocable letter of credit in form acceptable to the Agent and the
Collateral Agent issued or confirmed by a prime bank acceptable to the Agent and
the Collateral Agent and payable in the United States of America and its
territories and possessions, or in Canada; all of the foregoing as determined by
the Agent and Collateral Agent in their reasonable discretion, which
determination shall be final and binding upon the Borrower; (x) all Accounts
which do not represent a complete bona fide transaction for goods sold and
delivered or services rendered or which require further act under any
circumstances on the part of the Borrowers to make such
8
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Account payable by the account debtor; (xi) all Accounts which do not arise from
an arm's-length transaction in the ordinary course of the Borrowers' business
between any Borrower and an account debtor or which arise from an Affiliate of
any Borrower or an officer, shareholder or employee of any Borrower or any
Affiliate of any Borrower, or a member of the family of an officer, shareholder
or employee of any Borrower or any Affiliate of any Borrower; (xii) all accounts
the goods the sale of which gave rise to the Account were not shipped or
delivered or provided to the account debtor on an absolute sale basis or which
were shipped on a bill and hold sale basis, a consignment sale basis, a
guaranteed sale basis, a sale or return basis, or on the basis of any other
similar understanding; (xiii) all Accounts which are evidenced by chattel paper
or an instrument of any kind; (xiv) all Accounts the account debtor of which (a)
is insolvent, (b) is the subject of any bankruptcy or insolvency proceedings of
any kind or of any other proceeding or action, threatened or pending, which
might have a materially adverse effect on its business, and (c) is, in the
reasonable discretion of the Collateral Agent, deemed ineligible for credit for
other reasons (including, without limitation, unsatisfactory past experiences of
any Borrower or any of the Lenders with the account debtor or unsatisfactory
reputation of the account debtor); (xv) all Accounts which are not valid,
binding and legally enforceable obligations of the account debtor with respect
thereto or which are subject to any dispute, condition, contingency, offset,
recoupment, reduction, claim for credit, allowance, adjustment, counterclaim or
defense on the part of such account debtor, or facts exist which may provide a
basis for any of the foregoing in the present or future, to the extent of such
dispute; (xvi) all Accounts not evidenced by an invoice or other documentation
or which arises from a contract which is not in form and substance satisfactory
to the Collateral Agent; (xvii) all Accounts wherein a Borrower has failed to
observe and comply with all laws of the state or country in which the account
debtor or the Account is located which, if not observed and complied with, would
deny to the Borrowers access to the courts of such state or country; (xviii) all
Accounts which are subject to any provision prohibiting its assignment or
requiring notice of or consent to such assignment; (xix) all Accounts the goods
giving rise to which were, at the time of sale thereof, subject to any Lien or
encumbrance except the Collateral Agent's, on behalf of the Lenders; (xx) all
Accounts which are not payable in freely transferable United States Dollars;
(xxi) all Accounts which are disqualified for any other reason generally
accepted in the commercial finance business; (xxii) all Accounts to the extent
of any offset by a credit due and owing from a Borrower to the account debtor;
(xxiii) all Accounts which are due and owing from any creditor of a Borrower;
(xxiv) all Accounts representing finance or service charges due and owing to
Borrowers from an Account Debtor; (xxv) the portion of any Account which
represents a deposit already collected by a Borrower from the account debtor;
(xxvi) all Accounts representing a C.O.D. sale; (xxvii) all Accounts
representing sums due and owing for work and/or service currently being rendered
by Borrower but not yet completed by Borrower; (xxviii) all Accounts arising
from a progress billing for work not yet completed and delivered to the account
debtor; (xxix) all Accounts the Collateral Agent believes, in its reasonable
discretion, that collection of such Account is insecure or that it may not be
paid by reason of financial inability to pay or otherwise or that such Account
is not suitable for use as collateral hereunder; and (xxx) all Accounts
representing retainage due and owing to Borrower.
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ELIGIBLE DOMESTIC ACCOUNT means an Eligible Account
(other than Secured Eligible Domestic Account) that is owed by an account debtor
whose principal place of business is in the United States or Canada and which is
payable in the United States.
ELIGIBLE FOREIGN ACCOUNT means an Eligible Account
(other than Secured Eligible Foreign Account) which is not an Eligible Domestic
Account.
ELIGIBLE INVENTORY means Inventory owned by any
Borrower which is salable in the ordinary course of such Borrower's business and
is not discontinued, slow moving or stale, which is brand new and not
refurbished, which the Collateral Agent determines is not obsolete, which is
located in a warehouse located in the State of Florida, the State of California,
the State of Arkansas or the State of Tennessee, as reflected in the Security
Agreements (and such other locations established from time to time upon not less
than ninety (90) days prior written notice from Borrowers to the Collateral
Agent and the execution by the Borrowers of any and all documents required by
the Agent or Collateral Agent in order to perfect a first priority security
interest in the Collateral to be located in such location, including without
limitation requisite UCC Financing Statements, amendments to security
agreements, landlords' waivers and warehouseman's waivers), for which waivers
have been obtained from each landlord and warehouseman in form and content
satisfactory to the Collateral Agent, which is subject to a valid, perfected,
first-priority security interest in favor of the Collateral Agent, as agent for
the Lenders, securing the Obligations, which is subject to no other liens, which
constitutes finished goods and not work in progress or raw materials and which
is otherwise acceptable to the Collateral Agent. In connection with advances
based on Borrowers' Inventory, the Collateral Agent shall determine, in its
reasonable discretion, which Inventory shall constitute Eligible Inventory.
ELIGIBLE IN-TRANSIT INVENTORY means Inventory owned
by any Borrower which is salable in Borrowers' ordinary course of business,
which does not bear the White-Westinghouse or Double W trademark or logo, which
is in transit to the United States, which a Borrower has paid for and is not the
subject of an open Trade Letter of Credit, which has not yet been converted into
an Eligible Account (or other accounts receivable), which is subject to no other
liens, which constitutes finished goods and not work in progress or raw
materials and in which (together with the documents covering which) the
Collateral Agent as agent for the Lenders has a valid, perfected,
purchase-money, first-priority security interest in favor of the Collateral
Agent, as agent for the Lenders, securing the Obligations. In connection with
advances based on Borrowers' Inventory, the Collateral Agent shall determine, in
its reasonable discretion, which Inventory shall constitute Eligible In-Transit
Inventory.
ELIGIBLE IN-TRANSIT WHITE-WESTINGHOUSE INVENTORY
means Inventory owned by any Borrower which is salable in Borrowers' ordinary
course of business, which bears the White-Westinghouse or Double W trademark or
logo, which is in transit to the United States, which a Borrower has paid for
and is not the subject of an open Trade Letter of Credit, which is earmarked to
be sold to Kmart Corporation pursuant to the Kmart Contract but has not yet been
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converted into Eligible Kmart Accounts (or other accounts receivable), which is
subject to no other liens, which constitutes finished goods and not work in
progress or raw materials and in which (together with the documents covering
which) the Collateral Agent as agent for the Lenders has a valid, perfected,
purchase-money, first-priority security interest in favor of the Collateral
Agent as agent for the Lenders securing the Obligations. In connection with
advances based on Borrowers' Inventory, the Collateral Agent shall determine, in
its reasonable discretion, which Inventory shall constitute Eligible In-Transit
White-Westinghouse Inventory.
ELIGIBLE KMART ACCOUNTS means Eligible Accounts which
are owed to a Borrower by Kmart Corporation.
ELIGIBLE LETTERS OF CREDIT AMOUNT means, at any time,
the sum of the then aggregate undrawn amount of open Trade Letters of Credit
issued by Agent to finance a Borrower's purchase of goods in which (together
with the documents covering which) the Collateral Agent as agent for the Lenders
then has a valid, perfected, first-priority security interest securing the
Obligations.
ELIGIBLE SECURITIES means a U.S. Treasury bill or
note, a Federal National Mortgage Association note or a Federal Farm Credit Bank
note which in each case is owned by a Borrower and held in an account with
Merrill Lynch Pierce Fenner & Smith Incorporated's office in Aventura, Florida
and in which in each case the Collateral Agent as agent for the Lenders has a
valid, perfected, first-priority security interest securing the Obligations.
ELIGIBLE SECURITIES VALUE means, at any time, the
aggregate fair market value (as reasonably determined by the Collateral Agent)
of the Eligible Securities at that time.
ENVIRONMENTAL COMPLAINT shall mean any written
complaint setting forth a cause of action for personal or property damage or
natural resource damage or equitable relief, order, notice of violation,
citation, request for information issued pursuant to any Environmental Laws by
an Official Body, subpoena or other written notice of any type relating to,
arising out of, or issued pursuant to, any of the Environmental Laws or any
Environmental Conditions, as the case may be.
ENVIRONMENTAL CONDITIONS shall mean any conditions of
the environment, including the workplace, the ocean, natural resources
(including flora or fauna), soil, surface water, groundwater, any actual or
potential drinking water supply sources, substrata or the ambient air, relating
to or arising out of, or caused by, the use, handling, storage, treatment,
recycling, generation, transportation, release, spilling, leaking, pumping,
emptying, discharging, injecting, escaping, leaching, disposal, dumping,
threatened release or other management or mismanagement of Regulated Substances
resulting from the use of, or operations on, any Property.
ENVIRONMENTAL LAWS shall mean all federal, state,
local and foreign Laws and regulations, including permits, licenses,
authorizations, bonds, orders, judgments, and
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consent decrees issued, or entered into, pursuant thereto, relating to pollution
or protection of human health or the environment or employee safety in the
workplace.
ERISA shall mean the Employee Retirement Income
Security Act of 1974, (and as to the Borrowers which are Hong Kong Limited
Liability Companies, all comparable laws and statutes under Hong Kong law) as
the same may be amended or supplemented from time to time, and any successor
statute of similar import, and the rules and regulations thereunder, as from
time to time in effect.
ERISA GROUP shall mean, at any time, the Borrowers
and all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) under common control and all other
entities which, together with the Borrowers, are treated as a single employer
under Section 414 of the Internal Revenue Code.
EURO-RATE shall mean, with respect to the Loans
comprising any Borrowing Tranche to which the Euro-Rate Option applies for any
Interest Period, the interest rate per annum determined by the Collateral Agent
by dividing (the resulting quotient rounded upwards, if necessary, to the
nearest 1/100th of 1% per annum) (i) the rate of interest determined by the
Agent in accordance with its usual procedures (which determination shall be
conclusive absent manifest error) to be the average of the London interbank
offered rates for U.S. Dollars quoted by the British Bankers' Association as set
forth on Dow Jones Markets Service (formerly known as Telerate) display page
3750 (or appropriate successor or, if the British Bankers' Association or its
successor ceases to provide such quotes, a comparable replacement determined by
the Collateral Agent) two (2) Business Days prior to the first day of such
Interest Period for an amount comparable to such Borrowing Tranche and having a
borrowing date and a maturity comparable to such Interest Period by (ii) a
number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate may
also be expressed by the following formula:
AVERAGE OF LONDON INTERBANK OFFERED RATES ON DOW
JONES MARKETS SERVICE DISPLAY PAGE 3750 AS QUOTED BY
Euro-Rate = BRITISH BANKERS' ASSOCIATION OR APPROPRIATE SUCCESSOR
-----------------------------------------------------
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Euro-Rate Option outstanding
on the effective date of any change in the Euro-Rate Reserve Percentage as of
such effective date. The Collateral Agent shall give prompt notice to the
Borrowers of the Euro-Rate as determined or adjusted in accordance herewith,
which determination shall be conclusive absent manifest error.
EURO-RATE OPTION shall mean the Revolving Credit
Euro-Rate Option.
EURO-RATE RESERVE PERCENTAGE shall mean the maximum
percentage (expressed as a decimal rounded upward to the nearest 1/100 of 1%) as
determined by the Collateral Agent which is in effect during any relevant
period, as prescribed by the Board of Governors of the Federal Reserve System
(or any successor) for determining the reserve
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requirements (including supplemental, marginal and emergency reserve
requirements) with respect to eurocurrency funding (currently referred to as
"Eurocurrency Liabilities") of a member bank in such System.
EVENT OF DEFAULT shall mean any of the events
described in Section 8.1.1 through 8.1.15.
EXPIRATION DATE shall mean, with respect to the
Revolving Credit Commitments, three (3) years from the Closing Date, on which
date all principal, and accrued but unpaid interest and other fees and charges
hereunder shall be due and payable in full.
FEDERAL FUNDS EFFECTIVE RATE for any day shall mean
the rate per annum (based on a year of 360 days and actual days elapsed and
rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank
of New York (or any successor) on such day as being the weighted average of the
rates on overnight federal funds transactions arranged by federal funds brokers
on the previous trading day, as computed and announced by such Federal Reserve
Bank (or any successor) in substantially the same manner as such Federal Reserve
Bank computes and announces the weighted average it refers to as the "Federal
Funds Effective Rate" as of the date of this Agreement; PROVIDED, if such
Federal Reserve Bank (or its successor) does not announce such rate on any day,
the "Federal Funds Effective Rate" for such day shall be the Federal Funds
Effective Rate for the last day on which such rate was announced.
FINANCIAL PROJECTIONS shall have the meaning assigned
to that term in Section 5.7.9(ii).
GAAP shall mean generally accepted accounting
principles as are in effect from time to time and applied on a consistent basis
both as to classification of items and amounts.
GOVERNMENTAL ACTS shall have the meaning assigned to
that term in Section 2.8.3.
GUARANTY of any Person shall mean any obligation of
such Person guaranteeing or in effect guaranteeing any liability or obligation
of any other Person in any manner, whether directly or indirectly, including any
agreement to indemnify or hold harmless any other Person, any performance bond
or other suretyship arrangement and any other form of assurance against loss,
except endorsement of negotiable or other instruments for deposit or collection
in the ordinary course of business.
HISTORICAL STATEMENTS shall have the meaning assigned
to that term in Section 5.7.9(i).
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HONG KONG COLLATERAL shall mean the Collateral which
is owned by a Borrower and located in Hong Kong and which is subject to the
Liens in the Debentures, the Security Agreements and the Subordination
Agreement.
INDEBTEDNESS shall mean, as to any Person at any
time, without duplication (i) all obligations of such Person for borrowed money,
(ii) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments, (iii) all obligations of such Person to pay the
deferred purchase price of property or services, (iv) capitalized lease
obligations of such Person, (v) all obligations of such Person to reimburse any
other Person in respect of amounts paid under a letter of credit, bankers'
acceptance or similar instrument, (vi) all obligations with respect to interest
rate and currency swaps, caps, collars or floor agreements or other interest
rate management devices and similar obligations obligating such Person to make
payments, whether periodically or upon the happening of a contingency, except
that if any agreement relating to such obligations provides for the netting of
amounts payable by and to such Person thereunder or if any such agreement
provides for the simultaneous payment of amounts by and to such Person, then in
each such case, the amount of such obligations shall be the net amount thereof,
(vii) all of the foregoing of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by) a
Lien on any asset of such Person, whether or not such Indebtedness is assumed by
such Person, and (viii) all of the foregoing of others guaranteed by such
Person.
INDEMNITY shall mean a tax indemnity agreement to be
executed by the Borrowers in favor of the Lenders.
INELIGIBLE SECURITY shall mean any security which may
not be underwritten or dealt in by member banks of the Federal Reserve System
under Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as
amended.
INSOLVENCY PROCEEDING shall mean, with respect to any
Person, (a) a case, action or proceeding with respect to such Person (i) before
any court or any other Official Body under any bankruptcy, insolvency,
reorganization or other similar Law now or hereafter in effect, or (ii) for the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or similar official) of any Borrower or otherwise
relating to the liquidation, dissolution, winding-up or relief of such Person,
or (b) any general assignment for the benefit of creditors, composition,
marshaling of assets for creditors, or other, similar arrangement in respect of
such Person's creditors generally or any substantial portion of its creditors
undertaken under any Law (and any comparable proceeding under Hong Kong Law).
INTELLECTUAL PROPERTY COLLATERAL shall mean all of
the intellectual property described in the Security Documents.
INTEREST PERIOD shall have the meaning assigned to
such term in Section 4.2.
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INTEREST RATE OPTION shall mean any Euro-Rate Option
or Base Rate Option.
INTEREST RATE PROTECTION AGREEMENT shall mean an
interest rate swap, cap or collar agreement or similar arrangement between a
Borrower and a Lender or Affiliate of a Lender, providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
INTERIM STATEMENTS shall have the meaning assigned to
that term in Section 5.7.9(i).
INTERNAL REVENUE CODE shall mean the Internal Revenue
Code of 1986, as the same may be amended or supplemented from time to time, and
any successor statute of similar import, and the rules and regulations
thereunder, as from time to time in effect.
INVENTORY shall mean any and all goods, merchandise
and other personal property, including, without limitation, goods in transit,
wheresoever located and whether now owned or hereafter acquired by the Borrowers
which are or may at any time be held as raw materials, finished goods,
work-in-process, supplies or materials used or consumed in the Borrowers'
business or held for sale or lease, including, without limitation, (a) all such
property the sale or other disposition of which has given rise to Accounts and
which has been returned to or repossessed or stopped in transit by the
Borrowers, and (b) all packing, shipping and advertising materials relating to
all or any such property. All Inventory, whether Eligible Inventory or not,
shall be subject to the Prior Security Interest in favor of the Collateral Agent
for the benefit of itself as Collateral Agent, the Agent and the Lenders.
INVESTMENT means any investment made by stock
purchase, capital contribution, loan, advance, acquisition of indebtedness,
guarantee or otherwise.
IRREVOCABLE ASSIGNMENT means that certain Irrevocable
Assignment of Loan Documents dated as of June 8, 1998, executed by the Original
Agent in favor of the Agent, Collateral Agent and Mercantile Business Credit,
Inc.
KMART CONTRACT means the Purchase, Distribution and
Marketing Agreement between New M-Tech (now known as NEII) and Kmart
Corporation, dated as of January 27, 1997, including all supplements and
amendments thereto.
LABOR CONTRACTS shall mean all employment agreements,
employment contracts, collective bargaining agreements and other agreements
among any Borrower and its employees.
LANDLORDS' WAIVERS shall mean the landlords' waivers
and the warehousemen's waivers required to be furnished by Borrowers to Lenders
for each leased facility and for each public warehouse facility in which any
Borrower conducts business or
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maintains Inventory (except for Borrowers' Tennessee facility which Borrowers
will fully vacate on or before June 30, 1998).
LAW shall mean any law (including common law),
constitution, statute, treaty, regulation, rule, ordinance, opinion, release,
ruling, order, injunction, writ, decree or award of any Official Body.
LENDERS shall mean the financial institutions named
on Schedule 1.1(B) and their respective successors and assigns as permitted
hereunder, each of which is referred to herein as a Lender.
LENDER OUTSTANDINGS shall mean the aggregate sum of
all Revolving Credit Loans, Bankers' Acceptance Obligations, Letters of Credit
Outstanding and Overadvance Amounts which may exist from time to time under this
Agreement.
LETTER(S) OF CREDIT shall have the meaning assigned
to that term in Section 2.8.1 and shall include a Standby Letter of Credit and a
Trade Letter of Credit.
LETTER(S) OF CREDIT BORROWING(S) shall mean an
extension of credit resulting from a drawing under any Letter of Credit which
shall not have been reimbursed on the date when made and shall have been
converted into a Revolving Credit Loan under Section 2.4.
LETTER OF CREDIT FEES shall mean the Standby Letter
of Credit Issuance Fees, the Agent's Standby Letter of Credit Issuance Fees, the
Trade Letter of Credit Issuance Fees, the Agent's Trade Letter of Credit
Issuance Fees, the Trade Letter of Credit Negotiation Fees and the Agent's Trade
Letter of Credit Negotiation Fees as set forth in Section 2.8.1.2.
LETTERS OF CREDIT OUTSTANDING shall mean at any time
the sum of (i) the aggregate undrawn face amount of outstanding Letters of
Credit and (ii) the aggregate amount of all unpaid and outstanding Reimbursement
Obligations and Letter of Credit Borrowings.
LIEN shall mean any mortgage, deed of trust, pledge,
lien, security interest, charge or other encumbrance or security arrangement of
any nature whatsoever, whether voluntarily or involuntarily given, including any
conditional sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security and any
filed financing statement or other notice of any of the foregoing (whether or
not a lien or other encumbrance is created or exists at the time of the filing).
LLC INTERESTS shall have the meaning given to such
term in Section 5.7.3.
LOAN DOCUMENTS shall mean this Agreement, the
Security Documents, the Indemnity, the Subordination Agreement, the Pledge
Agreement, the Notes, the Security Agreement, and any other instruments,
certificates or documents delivered or contemplated to be delivered hereunder or
thereunder or in connection herewith or therewith, as the same may be
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supplemented or amended from time to time in accordance herewith or therewith,
and LOAN DOCUMENT shall mean any of the Loan Documents.
LOAN REQUEST shall have the meaning given to such
term in Section 2.4.
LOANS shall mean collectively and LOAN shall mean
separately all Revolving Credit Loans or any Revolving Credit Loan.
LOCKBOX AGREEMENT shall mean the Special Deposit
Agreement in substantially the form attached hereto as Exhibit "D" executed and
delivered by the Borrowers to the Collateral Agent.
LOCKBOX ACCOUNTS shall have the definition assigned
to such term in Section 7.1.14, and shall include all contents therein from time
to time, including without limitation all cash and cash equivalents, checks,
money orders and deposits of any kind.
MATERIAL ADVERSE CHANGE shall mean any set of
circumstances or events which (a) has or could reasonably be expected to have
any material adverse change whatsoever upon the validity or enforceability of
this Agreement or any other Loan Document, (b) is or could reasonably be
expected to be material and adverse to the business, properties, assets,
financial condition, results of operations or prospects of the Borrowers taken
as a whole, (c) impairs materially or could reasonably be expected to impair
materially the ability of the Borrowers taken as a whole to duly and punctually
pay or perform Borrowers' Indebtedness, or (d) impairs materially or could
reasonably be expected to impair materially the ability of the Agent, Collateral
Agent or any of the Lenders, to the extent permitted, to enforce their legal
remedies pursuant to this Agreement or any other Loan Document.
MATERIAL CONTRACT means any contract or agreement to
which any Borrower is a party or in which any Borrower has a beneficial interest
that is or would be required to be disclosed in accordance with Item 10 of Item
601 of Regulation S-K promulgated under the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended, and includes without
limitation the contracts described in Section 5.7.21 of this Agreement.
MONTH, with respect to an Interest Period under the
Euro-Rate Option, shall mean the interval between the days in consecutive
calendar months numerically corresponding to the first day of such Interest
Period. If any Euro-Rate Interest Period begins on a day of a calendar month for
which there is no numerically corresponding day in the month in which such
Interest Period is to end, the final month of such Interest Period shall be
deemed to end on the last Business Day of such final month.
MULTIEMPLOYER PLAN shall mean any employee benefit
plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA and to which the Borrowers or any member of the ERISA Group is then making
or accruing an obligation to make
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contributions or, within the preceding five Plan years, has made or had an
obligation to make such contributions.
MULTIPLE EMPLOYER PLAN shall mean a Plan which has
two or more contributing sponsors (including the Borrowers or any member of the
ERISA Group) at least two of whom are not under common control, as such a plan
is described in Sections 4063 and 4064 of ERISA.
NET SUMS DUE shall mean the net amounts due among the
Lenders and the Collateral Agent on the Collateral Agent Reconciliation Date(s),
after reconciling (i) the amounts due from Lenders to the Collateral Agent
representing the Ratable Share owed by each Lender to the Collateral Agent in
connection with advances made by the Collateral Agent to fund Revolving Credit
Loans to the Borrowers and Letter of Credit and Bankers' Acceptance
reimbursements due to the Agent for the preceding Collateral Agent Reporting
Period and (ii) the Ratable Share of collections, principal reductions and
payments of interest received by the Collateral Agent during the preceding
Collateral Agent Reporting Period which have not yet been remitted to the
Lenders and (iii) all fees and other sums due in accordance with this
Agreement..
NOTES shall mean the Revolving Credit Notes.
NOTICES shall have the meaning assigned to that term
in Section 10.6.
OBLIGATION(S) shall mean any obligation or liability
of any of the Borrowers, and any Borrower, to the Agent, Collateral Agent or any
of the Lenders, howsoever created, arising or evidenced, whether direct or
indirect, absolute or contingent, now or hereafter existing, or due or to become
due, under or in connection with this Agreement, the Notes, the Letters of
Credit, the Bankers' Acceptances, the Banking Relationships or any other Loan
Document.
OFFICIAL BODY shall mean any national, federal,
state, local or other government or political subdivision or any agency,
authority, bureau, central bank, commission, department or instrumentality of
either, or any court, tribunal, grand jury or arbitrator, in each case whether
foreign or domestic.
ORIGINAL CREDIT AGREEMENT shall have the meaning
assigned to such term in the Recitals to this Agreement.
ORIGINAL LOANS shall mean the credit facilities
extended by the Banks to the Borrowers as defined in and set forth in the
Original Credit Agreement.
OVERADVANCE FACILITY shall mean increased
availability under the Borrowing Base Limitation of Six Million Dollars
($6,000,000.00) from May 1 through June 30 of each year and from October 1
through October 31 of each year, and Nine Million Dollars
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($9,000,000.00) from July 1 through September 30 of each year. The Overadvance
Facility shall terminate and all outstanding principal and interest due thereon
shall be due and payable immediately upon completion of the initial public
offering of common or preferred shares or any other equity interest of any
Borrower.
OVERADVANCE PERIOD(S) shall have the meaning set
forth in Section 3.1.
PARTNERSHIP INTERESTS shall have the meaning given to
such term in Section 5.7.3.
PBGC shall mean the Pension Benefit Guaranty
Corporation established pursuant to Subtitle A of Title IV of ERISA or any
successor.
PERMITTED INVESTMENT MEANS ANY OF THE FOLLOWING:
(a) Investments, if any, existing on the Closing Date
and referred to in Schedule 1.1(C);
(b) Investments by any Borrower in any other
Borrower, provided that both at the time of and immediately after giving effect
of any such Investment, no Potential Default or Event of Default shall have
occurred and be continuing;
(c) Readily marketable obligations (having a maturity
not in excess of 12 months from the date of acquisition thereof) of, or fully
and unconditionally guaranteed (as to both principal and interest) by, (i) the
United States of America or any agency thereof or (ii) the national government
or an agency thereof of the jurisdiction under which the Borrower making such
Investment is incorporated, except that if NEII sells any of its shares of
common stock in an initial public offering, the proceeds of such offering may be
invested in such obligations having a maturity not in excess of 36 months from
the date of acquisition thereof;
(d) negotiable certificates of deposit (having a
maturity not in excess of 12 months from the date of acquisition thereof)
evidencing direct obligations of (i) any federally insured commercial bank or
trust company organized and operating in the United States of America having
capital and surplus and undivided profits of at least $100,000,000 and having
the highest or second highest rating available from Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Corporation ("S&P") or Fitch Investors
Service ("Fitch") or (ii) commercial banks incorporated under the laws of the
jurisdiction under which the Borrower making such Investment is incorporated,
each having a capital and surplus and undivided profits of not less than
$100,000,000, and having the highest or second highest rating available from
Moody's, S&P or Fitch or an equivalent rating from IBCA;
(e) commercial paper (having a maturity not in excess
of 270 days from the date of acquisition thereof) evidencing the direct
obligation of any corporation (i) organized and operating in the United States
of America and having the highest or second
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highest rating available from Moody's, S&P or Fitch or (ii) organized under the
laws of the jurisdiction under which the Borrower making such Investment is
organized (which is other than a state of the United States) and having the
highest or second highest rating available from Moody's, S&P or Fitch, or if not
rated by the foregoing, the highest or second highest rating available from a
comparable rating service;
(f) readily marketable obligations for borrowed money
of, or fully and unconditionally guaranteed by, any corporation organized and
operating in the United States of America or any tax exempt obligations of any
state of the United States of America or any municipality of any such state, in
each case having a maturity not in excess of three years from the date of
acquisition thereof and having the highest rating available form Moody's or S&P;
and
(g) shares of so-called "money market funds"
registered under the Investment Company Act of 1940, as amended, organized and
operating in the United States of America having total net assets of $1,000,000
or more which invest only in the following instruments, in each case having a
maturity not in excess of 12 months from the date of acquisition thereof:
(i) certificates of deposit and bankers' acceptances
of the 16 largest banks in the United States;
(ii) commercial paper (A) other than that issued by
bank holding companies, consisting only of obligations (1) rated "Prime-1" by
Moody's or "A-1" by S&P, or (2) issued by any corporation organized and
operating in the United States of America which at the date of investment has an
outstanding debt issue which has the highest rating available from Moody's or
S&P, or (B) issued by bank holding companies of the 16 largest banks described
in clause (i) above;
(iii) obligations of the United States Government, or
any agency thereof, and obligations guaranteed by the United States Government;
and
(iv) repurchase agreements pertaining to the
securities referred to in clauses (i), (ii) and (iii) above.
PERMITTED LIENS shall mean certain Purchase Money
Liens in favor of DEML on equipment purchased by DEIL from DEML and on all DEIL
Inventory securing the DEML Debt ( up to an amount not to exceed the lesser of
$6,700,000.00 or the principal balance outstanding thereon, as further reduced
from time to time), provided such Liens and Indebtedness are subordinated
pursuant to the Subordination Agreement, together with the following:
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(i) Liens for taxes, assessments, or similar charges,
incurred in the ordinary course of business and which are not yet due and
payable or which are being contested in good faith by appropriate proceedings
and as to which adequate reserves have been established;
(ii) Liens of mechanics, materialmen, warehousemen,
carriers, suppliers, vendors or other like Liens, securing obligations incurred
in the ordinary course of business that are not yet due and payable or which
have been bonded off to the satisfaction of the Collateral Agent, and Liens of
landlords (which have been subordinated to the Liens in favor of the Collateral
Agent for the benefit of the Agent, Collateral Agent and the Lenders) securing
obligations to pay lease payments that are not yet due and payable or in
default;
(iii) Attachment or judgment Liens not discharged
within thirty (30) days;
(iv) OMITTED;
(v) Workers or unemployment compensation Liens
arising in the ordinary course of business that are not yet due and payable;
(vi) Purchase money Liens (provided that such Liens
attach only to the assets so purchased and secure only Indebtedness incurred in
order to purchase such assets) and Liens securing rental payments under capital
lease arrangements, in each case only to the extent permitted under Section
7.2.15;
(vii) OMITTED; and
(viii) Any Lien in favor of the Agent, Collateral
Agent or the Lenders given to secure the Obligations.
PERSON shall mean any individual, corporation,
partnership, limited liability company, association, joint-stock company, trust,
unincorporated organization, joint venture, government or political subdivision
or agency thereof, or any other entity.
PLAN shall mean at any time an employee pension
benefit plan (including a Multiple Employer Plan, but not a Multiemployer Plan)
which is covered by Title IV of ERISA or is subject to the minimum funding
standards under Section 412 of the Internal Revenue Code and either (i) is
maintained by any member of the ERISA Group for employees of any member of the
ERISA Group or (ii) has at any time within the preceding five years been
maintained by any entity which was at such time a member of the ERISA Group for
employees of any entity which was at such time a member of the ERISA Group (and
as to the Borrowers which are Hong Kong Limited Liability Companies, all
comparable laws and statutes under Hong Kong law).
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PLEDGE AGREEMENT shall mean the Pledged Collateral
Control Account Agreement in substantially the form of Exhibit "E" attached
hereto and made a part hereof, executed and delivered by NEII to the Collateral
Agent for the benefit of the Agent, Collateral Agent and the Lenders.
PLEDGED COLLATERAL shall mean the property of the
Borrowers in which security interests are to be granted under the Pledge
Agreement.
POTENTIAL DEFAULT shall mean any event or condition
which with notice, passage of time or a determination by the Agent, Collateral
Agent or the Required Lenders, or any combination of the foregoing, would
constitute an Event of Default.
PRC means the People's Republic of China.
PRINCIPAL OFFICE as to the Agent shall mean the main
banking office of the Agent at 5100 Town Center Circle, Suite 430, Boca Raton,
FL 33486, and as to the Collateral Agent shall mean the main banking office of
the Agent at 600 Peachtree Street, 13th Floor, Atlanta, Georgia 30308.
PRIOR SECURITY INTEREST shall mean a valid and
enforceable perfected first-priority security interest in the UCC Collateral,
the Pledged Collateral and the Hong Kong Collateral.
PROHIBITED TRANSACTION shall mean any prohibited
transaction as defined in Section 4975 of the Internal Revenue Code or Section
406 of ERISA for which neither an individual nor a class exemption has been
issued by the United States Department of Labor.
PROPERTY shall mean all real property, both owned and
leased, of any Borrower, but does not include any facility utilized for the
storage of Borrowers' Property that is a public warehouse.
PURCHASE MONEY LIENS shall mean Liens upon tangible
personal property securing loans to any Borrower or deferred payments by such
Borrower for the purchase price of such tangible personal property.
PURCHASING LENDER shall mean a Lender which becomes a
party to this Agreement by executing an Assignment and Assumption Agreement.
RATABLE SHARE shall mean the proportion that a
Lender's Commitment bears to the Commitments of all of the Lenders.
REGULATED SUBSTANCES shall mean any substance,
including any solid, liquid, semisolid, gaseous, thermal, thoriated or
radioactive material, refuse, garbage, wastes, chemicals, petroleum products,
by-products, coproducts, impurities, dust, scrap, heavy metals, defined as a
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"hazardous substance," "pollutant," "pollution," "contaminant," "hazardous or
toxic substance," "extremely hazardous substance," "toxic chemical," "toxic
waste," "hazardous waste," "industrial waste," "residual waste," "solid waste,"
"municipal waste," "mixed waste," "infectious waste," "chemotherapeutic waste,"
"medical waste," or "regulated substance" or any related materials, substances
or wastes as now or hereafter defined pursuant to any Environmental Laws,
ordinances, rules, regulations or other directives of any Official Body, the
generation, manufacture, extraction, processing, distribution, treatment,
storage, disposal, transport, recycling, reclamation, use, reuse, spilling,
leaking, dumping, injection, pumping, leaching, emptying, discharge, escape,
release or other management or mismanagement of which is regulated by the
Environmental Laws.
REGULATION U shall mean Regulation U, T, G or X as
promulgated by the Board of Governors of the Federal Reserve System, as amended
from time to time.
REIMBURSEMENT OBLIGATION shall mean the Borrowers'
obligations to reimburse a draw or advance under a Letter of Credit or a
Bankers' Acceptance.
REPORTABLE EVENT shall mean a reportable event
described in Section 4043 of ERISA and regulations thereunder with respect to a
Plan or Multiemployer Plan.
REPORTING PERIOD(S) shall mean the Collateral Agent
Reporting Period and the Agent Reporting Period.
REQUIRED LENDERS shall mean
(i) if there are no Loans, Reimbursement
Obligations, Letter of Credit Borrowings, Letters of Credit Outstanding,
Bankers' Acceptance Obligations and Bankers' Acceptance Borrowings outstanding ,
Lenders whose Commitments aggregate at least 66-2/3% of the Commitments of all
of the Lenders, or
(ii) if there are Loans, Reimbursement
Obligations, Letter of Credit Borrowings, Letters of Credit Outstanding,
Bankers' Acceptance Obligations or Bankers' Acceptance Borrowings outstanding,
any Lender or group of Lenders if the sum of the Loans, Reimbursement
Obligations, Letter of Credit Borrowings, Bankers' Acceptance Obligations and
Bankers' Acceptance Borrowings of such Lenders then outstanding aggregates at
least 66-2/3% of the total principal amount of all of the Loans , Reimbursement
Obligations, Letter of Credit Borrowings, Letters of Credit Outstanding,
Bankers' Acceptance Obligations and Bankers' Acceptance Borrowings then
outstanding. All voting rights of each participating Lender which has failed to
make all participation advances in respect thereof, when due in accordance with
this Agreement, shall be in favor of the Agent or Collateral Agent (if the
Collateral Agent has funded such non-advancing Lender's share).
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REVOLVING CREDIT BASE RATE OPTION shall mean the
option of the Borrowers to have Revolving Credit Loans bear interest at the rate
and under the terms and conditions set forth in Section 4.1.1.
REVOLVING CREDIT COMMITMENT shall mean, as to any
Lender at any time, the obligation of such Lender to make Loans, to purchase
participations in Bankers' Acceptances and to purchase participations in Letters
of Credit, such that the sum of the outstanding principal amount of its Loans
plus its participation in Reimbursement Obligations, Bankers' Acceptance
Obligations and Letters of Credit Outstanding does not exceed the amount
initially set forth opposite its name on Schedule 1.1(B) in the column labeled
"Amount of Commitment for Revolving Credit Loans," and thereafter on schedule I
to the most recent Assignment and Assumption Agreement, and Revolving Credit
Commitments shall mean the aggregate Revolving Credit Commitments of all of the
Lenders.
REVOLVING CREDIT EURO-RATE OPTION shall mean the
option of the Borrowers to have Revolving Credit Loans bear interest at the rate
and under the terms and conditions set forth in Section 4.1.1.
REVOLVING CREDIT LOANS shall mean collectively and
REVOLVING CREDIT LOAN shall mean separately all Revolving Credit Loans or any
Revolving Credit Loan made by the Lenders or one of the Lenders to the Borrowers
pursuant to Section 2.1.
REVOLVING CREDIT NOTES shall mean collectively and
REVOLVING CREDIT NOTE shall mean separately all the Revolving Credit Notes of
the Borrowers in the form of Exhibit "F" evidencing the Revolving Credit Loans
together with all amendments, extensions, renewals, replacements, refinancings
or refundings thereof in whole or in part.
SECTION 20 SUBSIDIARY shall mean the subsidiary of
the bank holding company controlling any Lender, which subsidiary has been
granted authority by the Federal Reserve Board to underwrite and deal in certain
Ineligible Securities.
SECURED ELIGIBLE DOMESTIC ACCOUNTS shall mean
Eligible Domestic Accounts which are outstanding up to one hundred fifty days
(150) from the date of invoice and are secured by an irrevocable letter of
credit in form and content acceptable to the Agent and the Collateral Agent,
which is issued or confirmed by a prime bank acceptable to the Agent and the
Collateral Agent and the proceeds of which are payable in the United States or
Canada.
SECURED ELIGIBLE FOREIGN ACCOUNTS shall mean Eligible
Foreign Accounts which are outstanding up to one hundred fifty days (150) from
the date of invoice and are secured by an irrevocable letter of credit in form
and content acceptable to the Agent and the Collateral Agent, which is issued or
confirmed by a prime bank acceptable to the Agent and the Collateral Agent and
the proceeds of which are payable in the United States or Canada.
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SECURITY AGREEMENT(S) shall mean the Amended and
Restated Security Agreement(s) in substantially the form of Exhibit "G" ,
attached hereto and made a part hereof, executed and delivered by each of the
Borrowers in favor of or to the Agent and Collateral Agent for the benefit of
the Agent, Collateral Agent and the Lenders.
SECURITY DOCUMENTS shall mean the Security
Agreements, the Debentures, the Pledge Agreement, the UCC-1 Financing
Statements, UCC-3's, the Lockbox Agreements, the Subordination Agreement and all
other documents executed by the Borrowers or any other Person in connection
therewith.
SHARES shall have the meaning assigned to that term
in Section 5.7.2.
STANDARD & POOR'S shall mean Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc.
STANDBY LETTER(S) OF CREDIT shall mean a Letter of
Credit issued to support obligations of one or more of the Borrowers, contingent
or otherwise, which finances the working capital and business needs of the
Borrowers incurred in the ordinary course of business.
SUBORDINATED DEBT shall mean all Indebtedness of the
Borrowers and any Borrower which is subordinate to the Indebtedness and other
obligations of the Borrowers or any Borrower to the Lenders or any Lender,
pursuant to subordination agreements or other agreements approved by the
Required Lenders.
SUBORDINATION AGREEMENT shall mean that certain
Amended and Restated Subordination Agreement executed by DURABLE ELECTRICAL
METAL FACTORY LIMITED, a Hong Kong Limited Liability Company in favor of the
Agent and Collateral Agent, for the benefit of the Agent, Collateral Agent and
the Lenders, in form and content satisfactory to the Agent and the Collateral
Agent.
SUBSIDIARY of any Person at any time shall mean (i)
any corporation or trust of which 50% or more (by number of shares or number of
votes) of the outstanding capital stock or shares of beneficial interest
normally entitled to vote for the election of one or more directors or trustees
(regardless of any contingency which does or may suspend or dilute the voting
rights) is at such time owned directly or indirectly by such Person or one or
more of such Person's Subsidiaries, (ii) any partnership of which such Person is
a general partner or of which 50% or more of the partnership interests is at the
time directly or indirectly owned by such Person or one or more of such Person's
Subsidiaries, (iii) any limited liability company of which such Person is a
member or of which 50% or more of the limited liability company interests is at
the time directly or indirectly owned by such Person or one or more of such
Person's Subsidiaries or (iv) any corporation, trust, partnership, limited
liability company or other entity which is controlled or capable of being
controlled by such Person or one or more of such Person's Subsidiaries.
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TERMINATION DATE shall mean the earlier of the
Expiration Date or such earlier date the Revolving Credit Commitments are
terminated and the Obligations of Borrowers to Lenders hereunder become
immediately due and payable.
TRADE LETTER(S) OF CREDIT shall mean any Letter of
Credit which is a commercial letter of credit issued by the Agent in respect of
the purchase of goods or services by one or more of the Borrowers in the
ordinary course of their business.
TRANSFEROR LENDER shall mean the selling Lender
pursuant to an Assignment and Assumption Agreement.
TRANSITION shall mean the completion by the Borrowers
of all actions required to be taken in order to vest ownership of the Borrowers
in the post-Transition ownership described in Schedule 5.7.3, attached hereto
and made a part of this Agreement.
TRANSITION DATE shall mean the date on which the
Borrowers shall have completed the Transition as evidenced by a certificate of
same being delivered to the Agent together which such evidence of the Transition
as the Agent may reasonably request, but in any event, not later than June 30,
1998.
UCC COLLATERAL shall mean the Property of the
Borrowers in which security interests are to be granted under the Security
Agreement.
UNIFORM COMMERCIAL CODE shall have the meaning
assigned to that term in Section 5.7.16.
WCI LICENSE AGREEMENTS means, collectively, (i) that
certain Trademark License Agreement dated as of May 1, 1996 between NEII and
White Consolidated Industries, Inc. relating to the use of the
White-Westinghouse trademark in connection with the sale of certain audio, video
and telecommunications products, (ii) that certain Trademark License Agreement
dated as of September 15, 1997 between NEII and White Consolidated Industries,
Inc. relating to the use of the White-Westinghouse trademark in connection with
the sale of microwave ovens, and (iii) that certain Trademark License Agreement
dated as of September 15, 1997 between NEII and White Consolidated Industries,
Inc. relating to the use of the Philco trademark in connection with the sale of
microwave ovens.
WINDMERE means Windmere-Durable Holdings, Inc., a
Florida corporation.
WINDMERE INDEBTEDNESS means the June 1997 Two Million
Dollar ($2,000,000.00) working capital loan from Windmere to NEII and the August
1997 Three Million Dollar ($3,000,000.00) revolving loan from Windmere to NEII,
which loans shall be repaid in full with the proceeds of the Loans.
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WINDMERE NOTES means, collectively, (i) that certain
promissory note of Windmere Corporation dated April 16, 1996 payable to the
order of NEII in the principal amount of $3,000,000, $2,500,000 of which has
been repaid and of which $500,000 remains outstanding, and (ii) that certain
promissory note of Windmere Corporation dated April 16, 1996 payable to the
order of NEII in the principal amount of $2,000,000.
1.2 CONSTRUCTION.
Unless the context of this Agreement otherwise clearly
requires, the following rules of construction shall apply to this Agreement and
each of the other Loan Documents:
1.2.1 NUMBER; INCLUSION.
References to the plural include the singular, the
plural, the part and the whole; "or" has the inclusive meaning represented by
the phrase "and/or," and "including" has the meaning represented by the phrase
"including without limitation";
1.2.2 DETERMINATION.
References to "determination" of or by the Agent,
Collateral Agent or the Lenders shall be deemed to include good-faith estimates
by the Agent, Collateral Agent, or the Lenders (in the case of quantitative
determinations) and good-faith beliefs by the Agent, Collateral Agent, or the
Lenders (in the case of qualitative determinations) and such determination shall
be conclusive absent manifest error;
1.2.3 AGENT'S DISCRETION AND CONSENT.
Whenever the Agent, Collateral Agent, or the Lenders
are granted the right herein to act in its or their sole discretion or to grant
or withhold consent, such right shall be exercised in good faith;
1.2.4 DOCUMENTS TAKEN AS A WHOLE.
The words "hereof," "herein," "hereunder," "hereto"
and similar terms in this Agreement or any other Loan Document refer to this
Agreement or such other Loan Document as a whole and not to any particular
provision of this Agreement or such other Loan Document;
1.2.5 HEADINGS.
The section and other headings contained in this
Agreement or such other Loan Document and the Table of Contents (if any),
preceding this Agreement or such other Loan Document are for reference purposes
only and shall not control or affect the construction of this Agreement or such
other Loan Document or the interpretation thereof in any respect;
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1.2.6 IMPLIED REFERENCES TO THIS AGREEMENT.
Article, section, subsection, clause, schedule and
exhibit references are to this Agreement or other Loan Document, as the case may
be, unless otherwise specified;
1.2.7 PERSONS.
Reference to any Person includes such Person's
successors and assigns but, if applicable, only if such successors and assigns
are permitted by this Agreement or such other Loan Document, as the case may be,
and reference to a Person in a particular capacity excludes such Person in any
other capacity;
1.2.8 MODIFICATIONS TO DOCUMENTS.
Reference to any agreement (including this Agreement
and any other Loan Document together with the schedules and exhibits hereto or
thereto), document or instrument means such agreement, document or instrument as
amended, modified, replaced, substituted for, superseded or restated;
1.2.9 FROM, TO AND THROUGH.
Relative to the determination of any period of time,
"from" means "from and including," "to" means "to but excluding," and "through"
means "through and including";
1.2.10 SHALL; WILL.
References to "shall" and "will" are intended to have
the same meaning; and
1.2.11 NEUTRAL INTERPRETATION.
This Agreement and each other Loan Document has been
thoroughly reviewed by counsel for the Borrowers. No provision of this Agreement
or other Loan Document shall be construed less favorably to the Agent,
Collateral Agent, or the Lenders because it was drafted by the Agent's counsel.
1.3 ACCOUNTING PRINCIPLES.
Except as otherwise provided in this Agreement, all
computations and determinations as to accounting or financial matters and all
financial statements to be delivered pursuant to this Agreement shall be made
and prepared in accordance with GAAP (including principles of consolidation
where appropriate), and all accounting or financial terms shall have the
meanings ascribed to such terms by GAAP; PROVIDED, HOWEVER, that all accounting
terms used in this Agreement (and all defined terms used in the definition of
any accounting term used in this Agreement shall have the meaning given to such
terms (and defined terms) under GAAP as in effect on the date hereof applied on
a basis consistent with those used in preparing the Annual Statements
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referred to in this Agreement. In the event of any change after the date hereof
in GAAP, and if such change would result in the inability to determine
compliance with the financial covenants set forth in this Agreementbased upon
the Borrowers' regularly prepared financial statements by reason of the
preceding sentence, then the parties hereto agree to endeavor, in good faith, to
agree upon an amendment to this Agreement that would adjust such financial
covenants in a manner that would not affect the substance thereof, but would
allow compliance therewith to be determined in accordance with the Borrowers'
financial statements at that time.
2. REVOLVING CREDIT FACILITY
2.1 REVOLVING CREDIT COMMITMENTS.
Subject to the terms and conditions hereof and relying upon
the representations and warranties herein set forth, each Lender severally
agrees to make Revolving Credit Loans to the Borrowers at any time and from time
to time on or after the date hereof to the Termination Date, provided that after
giving effect to such Loans the aggregate amount of Loans from such Lender when
added to such Lender's Ratable Share of all Reimbursement Obligations, Bankers'
Acceptance Obligations, Bankers' Acceptance Borrowings, Letters of Credit
Outstanding and Letter of Credit Borrowings, shall not exceed at any one time
such Lender's Revolving Credit Commitment and with the aggregate amount of all
Lender Outstandings being subject to the Borrowing Base Limitation. Within such
limits of time and amount and subject to the other provisions of this Agreement,
the Borrowers may borrow, repay and reborrow pursuant to this Section 2.1.
2.2 NATURE OF LENDERS' OBLIGATIONS WITH RESPECT TO REVOLVING
CREDIT LOANS.
Each Lender shall be obligated to participate in each request
for Revolving Credit Loans pursuant to Section 2.4 [Revolving Credit Loan
Requests] in accordance with its Ratable Share. The aggregate of each Lender's
Revolving Credit Loans outstanding hereunder to the Borrowers at any time shall
never exceed its Revolving Credit Commitment minus its Ratable Share of the
Reimbursement Obligations, Bankers' Acceptance Obligations, Bankers' Acceptance
Borrowings, Letters of Credit Outstanding and Letter of Credit Borrowings. The
obligations of each Lender hereunder are several. The failure of any Lender to
perform its obligations hereunder shall not affect the Obligations of the
Borrowers to any other party nor shall any other party be liable for the failure
of such Lender to perform its obligations hereunder. The Lenders shall have no
obligation to make Revolving Credit Loans hereunder on or after the Expiration
Date or any earlier date the Revolving Credit Commitments are terminated
pursuant to this Agreement. In no event shall (i) the Collateral Agent be
required to advance any Loans or the Agent be required to issue any Letters of
Credit or create any Bankers' Acceptances, or (ii) the Lenders be required to
make any advances to or on behalf of Borrowers, following a Potential Default or
an Event of Default hereunder, except that (i) the Collateral Agent shall be
required to advance Loans in accordance with Section 2.8.1 and Section 2.8.2
hereof for the purpose of reimbursing Agent for all principal, interest, fees
and other sums due in connection with all Letters of Credit and Bankers'
Acceptances which are issued, converted or created, or which mature or are
unpaid or unreimbursed at the time of or after such Potential Default or Event
of Default, and (ii) the Lenders shall make advances to the
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Agent or Collateral Agent in amounts necessary to fund such Lender's Ratable
Share of all Loans advanced by the Collateral Agent on each Lender's behalf
pursuant to this Section 2.2, as well as Section 2.4 and Section 9.16 of this
Agreement and all Letters of Credit and Bankers' Acceptances which mature or are
unpaid or unreimbursed at the time of or after such Potential Default or Event
of Default, including all principal, interest, fees and other sums due thereon.
2.3 COMMITMENT AND ADMINISTRATION FEES.
(a) COMMITMENT FEES. The Borrowers agree to pay to the Agent
for the account of each Lender, as consideration for such Lender's Revolving
Credit Commitment hereunder, a nonrefundable commitment fee (the "Commitment
Fee") equal to thirty-five basis points (0.35%) of the amount of the Lenders'
Revolving Credit Commitments as the same may be constituted from time to time,
said Commitment Fee to be shared among the Lenders as set forth in Schedule
2.3(a) attached hereto and made a part hereof. The Commitment Fees shall be
payable in four quarterly installments commencing on the Closing Date and
continuing on the first Business Day of each calendar quarter thereafter until
paid in full.
(b) ADMINISTRATION FEE. The Borrowers agree to pay to the
Collateral Agent for its own account an Administration Fee equal to Fifty
Thousand Dollars ($50,000.00) per annum, payable in quarterly installments of
Twelve Thousand Five Hundred Dollars ($12,500.00), commencing on the Closing
Date and continuing on the first Business Day of each calendar quarter
thereafter, through and including the Expiration Date.
2.4 REVOLVING CREDIT LOAN REQUESTS.
(a) Except as otherwise provided herein, the Borrowers may
from time to time prior to the Expiration Date request the Lenders to make
Revolving Credit Loans, or renew or convert the Interest Rate Option applicable
to existing Revolving Credit Loans pursuant to Section 4.2 [Interest Periods],
by delivering to the Collateral Agent, not later than 10:00 a.m., New York, New
York time, (i) two (2) Business Days prior to the proposed Borrowing Date with
respect to the making of Revolving Credit Loans to which the Euro-Rate Option
applies or the conversion to or the renewal of the Euro-Rate Option for any
Loans; and (ii) one (1) Business Day prior to either the proposed Borrowing Date
with respect to the making of a Revolving Credit Loan to which the Base Rate
Option applies or the last day of the preceding Interest Period with respect to
the conversion to the Base Rate Option for any Loan, of a duly completed request
therefor substantially in the form of Exhibit "H", in writing by letter,
facsimile or telex in such form (each, a "Loan Request"). Each Loan Request
shall be irrevocable and shall specify (i) the proposed Borrowing Date; (ii) the
aggregate amount of the proposed Loans comprising each Borrowing Tranche, which
shall be not less than $1,000,000.00 for each Borrowing Tranche to which the
Euro-Rate Option applies; (iii) whether the Euro-Rate Option or Base Rate Option
shall apply to the proposed Loans comprising the applicable Borrowing Tranche;
and (iv) in the case of a Borrowing Tranche to which the Euro-Rate Option
applies, an appropriate Interest Period for the Loans comprising such Borrowing
Tranche. Subject to Section 6.2 [Each Additional Loan], the Collateral Agent
will fund
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such Revolving Credit Loans to the Borrowers in U.S. Dollars and immediately
available funds at the Principal Office of the Collateral Agent.
(b) Revolving Credit Loans will be made based on the most
recent Borrowing Base Certificate submitted by Borrowers to the Collateral
Agent. The Borrowing Base Certificate shall be submitted by Borrowers to the
Collateral Agent one time per month in each fiscal year of Borrowers, or more
frequently as reasonably required by the Collateral Agent.
(c) The Borrowers shall furnish to the Collateral Agent,
monthly on or before the twentieth (20) day of each month, a report of Eligible
Accounts, Eligible Inventory, Eligible In-Transit White-Westinghouse Inventory,
Eligible In-Transit Inventory and such other reports and documentation as shall
be reasonably required by the Collateral Agent.
2.5 MAKING REVOLVING CREDIT LOANS.
On each Collateral Agent Reconciliation Date, the Collateral
Agent shall furnish the Lenders with a Collateral Agent Reconciliation Report
for the immediately preceding Collateral Agent Reporting Period, specifying: (i)
the Borrowing Date and the time and method of disbursement of the Revolving
Credit Loans requested thereby; (ii) the amount and type of each such Revolving
Credit Loan and the applicable Interest Period (if any); and (iii) the
apportionment among the Lenders of such Revolving Credit Loans as determined by
the Collateral Agent in accordance with Section 2.2 [Nature of Lenders'
Obligations]. Each Lender shall remit to the Collateral Agent any Net Sums Due
from such Lender, on or before 2:00 p.m., New York, New York time on the
Collateral Agent Reconciliation Date, PROVIDED that, if any Lender fails to
remit such funds to the Collateral Agent in a timely manner, such Lender shall
be subject to the repayment obligation in Section 9.16 [Availability of Funds].
2.6 REVOLVING CREDIT NOTES.
The Obligations of the Borrowers to each Lender under the
Revolving Credit Commitments shall be evidenced by Revolving Credit Notes dated
the Closing Date payable to the order of each such Lender, substantially in the
form of Exhibit "F" attached hereto.
2.7 USE OF PROCEEDS.
The proceeds of the Revolving Credit Loans shall be used to
refinance the Original Loans, to facilitate Borrowers' trade finance activities,
to repay the Windmere Indebtedness and other indebtedness of the Borrowers to
Joel Newman and to finance working capital needs of Borrowers.
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2.8 LETTERS OF CREDIT AND BANKERS' ACCEPTANCES SUBFACILITIES.
2.8.1 LETTERS OF CREDIT SUBFACILITY
2.8.1.1 CREATION. Subject to the terms and
conditions hereof, so long as no Potential Default or Event of Default exists
hereunder, the Agent, in reliance on the agreements of the Lenders set forth in
this Section 2.8.1.1, agrees to issue letters of credit ("LETTERS OF CREDIT")
for the account of the applicant Borrower on any Business Day, in such form as
may be approved from time to time by the Agent; provided that the Agent shall
have no obligation to issue any Standby Letter of Credit if, after giving effect
to such issuance the Standby Letter of Credit Outstandings would exceed at any
time Two Million Dollars ($2,000,000.00) or issue any Letter of Credit if, after
giving effect to such issuance the Letter of Credit would cause the Lender
Outstandings to exceed the lesser of the Borrowing Base Limitation or the
Revolving Credit Commitments. Each Letter of Credit shall (aa) be denominated in
Dollars and shall be a Standby Letter of Credit or a Trade Letter of Credit (bb)
as to Standby Letters of Credit expire no later than 180 days after issuance and
(cc) as to Trade Letters of Credit, expire within 90 days of issuance, but in
any event no later than the date which is one (1) Business Day prior to the
Expiration Date. Each Friday, the Agent shall furnish to the Lenders a written
report of all Letters of Credit outstanding.
Each Standby Letter of Credit shall be used
only to secure bid, tender, customs, surety, payment, performance or similar
bonds needed by a Borrower in the ordinary course of business, and, with the
consent of the Required Lenders, for other general corporate purposes.
Each Trade Letter of Credit shall (aa)
require presentation of either a sight draft or a time draft with a maturity no
later than 30 days after its date, a bill of lading and whatever other documents
the Agent considers necessary or desirable to give it control over and a
perfected security interest in the related goods, (bb) have an expiration date
no later than 90 days after the date of issuance of such Trade Letter of Credit,
(cc) be used only for the shipment or importation of Inventory of a Borrower and
the payment of the purchase price thereof (inclusive, at the election of the
Borrowers, of freight and insurance charges), (dd) shall indicate only the
Borrower requesting it as the account party (however the Borrowers shall be
jointly and severally liable for all obligations thereunder) on the face of the
Trade Letter of Credit and (ee) be otherwise reasonably acceptable to the Agent
in form and content.
2.8.1.2 LETTERS OF CREDIT AND BANKERS'
ACCEPTANCE FEES.
(a) STANDBY LETTERS OF CREDIT.
The Borrowers shall pay immediately upon the
issuance and renewal of each Standby Letter of Credit, (aa) to the Agent, for
the ratable account of the Lenders a nonrefundable fee (the "Standby Letter of
Credit Issuance Fees") equal to one and one-quarter percent (1.25%) per annum
(but not less than seventy-five dollars ($75.00 for each Letter of Credit), and
(bb) to the Agent for its own account a nonrefundable fronting fee equal to
one-quarter of one
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percent (.25%) per annum, (the fees due to Agent pursuant to (bb) above being
referred to as the "Agent's Standby Letter of Credit Issuance Fees"). The fees
required in (aa) and (bb) immediately above shall be based on a year of 360 days
and computed for the actual number of days to elapse in the initial term or
renewal term (as the case may be) of the applicable Standby Letter of Credit,
and shall, for each Standby Letter of Credit, be payable in full in advance on
the date such Standby Letter of Credit is issued or renewed (as the case may be)
based on the stated amount of such Standby Letter of Credit. The Agent shall
have no obligation to advance any portion of the Standby Letter of Credit Fees
to any Lender who has failed to remit to Agent or Collateral Agent (and Agent
may set off such Standby Letter of Credit Fees against) sums otherwise due Agent
or Collateral Agent from such Lender under this Agreement. The Agent shall be
entitled to assume that each Lender will fund its ratable share of all sums due
under this Agreement unless Agent receives prior written notice from the
Collateral Agent or such Lender to the contrary on or before the Business Day
prior to the requested funding date.
(b) TRADE LETTERS OF CREDIT.
The Borrowers shall pay (aa) to the Agent
for the ratable account of the Lenders upon issuance of Trade Letters of Credit
a non-refundable issuance fee (the "Trade Letter of Credit Issuance Fee") equal
to seven and one-half (7-1/2) basis points (.075%) (but not less than
seventy-five dollars ($75.00 for each Letter of Credit) and (bb) to the Agent
for its own account a nonrefundable fronting fee equal to five (5) basis points
(.05%), together with any additional charges imposed by Agent, all such fees
being computed on the stated amount of each Trade Letter of Credit (the fees due
to Agent pursuant to (bb) immediately above being referred to as the "Agent's
Trade Letter of Credit Issuance Fees). The Borrowers shall pay (aa) to the Agent
for the ratable account of the Lenders upon negotiation of Trade Letters of
Credit a non-refundable negotiation fee (the "Trade Letter of Credit Negotiation
Fees") equal to five (5) basis points (.05%) ( but not less than seventy-five
dollars ($75.00 for each Letter of Credit) and (bb) to the Agent for its own
account a nonrefundable fronting fee equal to seven and one-half (7-1/2) basis
points (.075%), together with any additional charges imposed by Agent, all such
fees being computed on the stated amount of each Trade Letter of Credit (the
fees due to Agent pursuant to (bb) above being referred to as the "Agents Trade
Letter of Credit Negotiation Fees"). The Agent shall have no obligation to
advance any portion of the Trade Letter of Credit Negotiation Fees or the Trade
Letter of Credit Issuance Fees to any Lender who has failed to remit to Agent or
Collateral Agent (and Agent may set off such Trade Letter of Credit Issuance
Fees against) sums otherwise due Agent or Collateral Agent from such Lender
under this Agreement. The Agent shall be entitled to assume that each Lender
will fund its ratable share of all sums due under this Agreement unless Agent
receives prior written notice from the Collateral Agent or such Lender to the
contrary on or before the Business Day prior to the requested funding date.
2.8.1.3 APPLICATION. The Borrowers may from
time to time request the issuance of a Letter of Credit by delivering to the
Collateral Agent at its Principal Office (or such other location designated by
Collateral Agent), an application or agreement therefor in form and substance
satisfactory to Agent and completed to the satisfaction of the Agent, and such
other certificates, documents, and other papers and information as Agent may
request (collectively, a "Letter of Credit Application"). Upon receipt of a
Letter of Credit Application, the Collateral Agent
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shall determine the availability of new Letters of Credit hereunder within such
period of time as shall, if such availability shall exist and if the Letter of
Credit Application has been delivered to the Collateral Agent prior to 10:00
a.m. New York, New York time on a Business Day, result in delivery by the
Collateral Agent to the Agent of the Letter of Credit Application and the
Collateral Agent's determination with respect thereto prior to 11:00 a.m. New
York, New York time on the same Business Day. If the Letter of Credit
Application has been delivered by a Borrower after 10:00 A.M., such
determination shall be made by the Collateral Agent within such time as shall
result in its determination and the Letter of Credit Application being delivered
to the Agent no later than 11:00 a.m. New York, New York time on the next
Business Day. Subject to the terms hereof and of the Letter of Credit
Application, if the Letter of Credit Application and the Collateral Agent's
favorable determination with respect thereto have been delivered to the Agent
prior to 11:00 a.m. New York, New York time on a Business Day, the Agent shall
use best efforts to issue the requested Letter of Credit on the Business Day
immediately following delivery by the Collateral Agent to the Agent of the
Letter of Credit Application and the Collateral Agent's favorable determination
with respect thereto, PROVIDED, HOWEVER, that if the Letter of Credit
Application and the favorable determination of the Collateral Agent is received
by the Agent after 11:00 a.m. New York, New York time, the Agent shall use best
efforts to issue such Letter of Credit on the second Business Day following
delivery by the Collateral Agent to the Agent of the Letter of Credit
Application and the Collateral Agent's favorable determination with respect
thereto. Subject to the terms hereof and of the Letter of Credit Application,
the Agent shall issue the Letter of Credit by issuing the original of such
Letter of Credit to the beneficiary thereof or as otherwise may be agreed by
Agent and Borrowers. Agent shall furnish a copy of such Letter of Credit to the
Borrowers promptly following the issuance thereof. Each Borrower agrees to be
bound by the terms of the Agent's application and agreement for letters of
credit and the Agent's written regulations and customary practices relating to
letters of credit. In the event of a conflict between such application or
agreement and this Agreement, this Agreement shall govern. It is understood and
agreed that the Agent shall not be liable for any error, negligence and/or
mistakes, whether of omission or commission, in following any Borrower's
instructions or those contained in the Letters of Credit or any modifications,
amendments or supplements thereto, except in the case of gross negligence or
willful misconduct (as found in a final, non-appealable judgment by a court of
competent jurisdiction). In determining whether to honor any request for drawing
under any Letter of Credit by the beneficiary thereof, the Agent shall be
responsible only to determine that the documents and certificates required to be
delivered under such Letter of Credit have been delivered and that they comply
on their face with the requirements of such Letter of Credit. Upon issuance by
the Agent of a Letter of Credit the Agent shall notify the Collateral Agent and
the Collateral Agent shall (to the extent the Borrowers' have failed to do so)
immediately reimburse the Agent the full amount of all Standby Letter of Credit
Issuance Fees, Agent's Standby Letter of Credit Issuance Fees, all Trade Letter
of Credit Issuance Fees and all Agent's Trade Letter of Credit Issuance Fees,
together with an amount sufficient to pay to the Agent any other sums due in
connection with the issuance of the Letter of Credit, by advancing a Revolving
Credit Loan in such amount directly into the applicant Borrowers' account
maintained with the Collateral Agent , for debit by the Agent so as to
immediately eliminate the liability of Borrowers to Agent pertaining to such
Letter of Credit. Upon the issuance of each Letter of Credit by the Agent, the
Agent shall be authorized and is hereby authorized and directed, to debit the
operating account maintained at the Collateral Agent by the applicant Borrower
or any other
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account of any Borrower in an amount sufficient to pay to the Agent the fees and
charges due in connection with the Letter of Credit.
2.8.1.4 PURCHASE OF PARTICIPATIONS. The
Agent irrevocably agrees to grant and hereby grants to each other Lender, and,
to induce the Agent to issue Letters of Credit hereunder, each such other Lender
irrevocably agrees, immediately upon issuance of each Letter of Credit, and
without any further action required of the Agent or such Lender, to accept and
purchase and hereby accepts and purchases from the Agent, on the terms and
conditions herein stated, for such Lender's own account and risk, an undivided
interest equal to such Lender's Ratable Share in the Agent's obligations and
rights under each Letter of Credit issued hereunder, and the amount of each
draft paid by the Agent thereunder, except for the Agent's Standby Letter of
Credit Issuance Fees, Agent's Trade Letter of Credit Issuance Fees, and Agent's
Trade Letter of Credit Negotiation Fees. Upon payment by the Agent of a draft
under a Letter of Credit the Agent shall notify the Collateral Agent and the
Collateral Agent shall (to the extent the Borrowers have failed to do so)
immediately reimburse the Agent the full amount of such payment by the Agent,
together with an amount sufficient to pay to the Agent any other sums due in
connection with the issuance and payment of the Letter of Credit, including
without limitation, Trade Letter of Credit Negotiation Fees and Agent's Trade
Letter of Credit Negotiation Fees, by advancing a Revolving Credit Loan in such
amount directly into the requesting Borrower's account maintained with the
Collateral Agent, for debit by the Agent so as to immediately eliminate the
liability of Borrowers to Agent pertaining to such Letter of Credit. The Agent
shall be authorized and is hereby authorized and directed, to debit the
operating account maintained at the Collateral Agent by the applicant Borrower
or any other account of any Borrower in an amount sufficient to pay to the Agent
the principal amount paid, interest, fees and charges due in connection with the
Letter of Credit. Each Lender unconditionally and irrevocably agrees that, if a
draft is paid under any Letter of Credit for which the Agent is not reimbursed
in full by the Borrowers pursuant to this Agreement and the Letter of Credit
Application (including the amount paid by the Agent and any other sums due in
connection with the payment of the Letter of Credit), such Lender shall
immediately pay to the Collateral Agent, on the next Collateral Agent
Reconciliation Date at the Principal Office of Collateral Agent all sums due, or
any part thereof, which is not so reimbursed. Without limiting the scope and
nature of each Lender's participation in any Letter of Credit, to the extent
that Agent has not been immediately reimbursed by the Borrowers or by the
Collateral Agent (pursuant to an advance of a Revolving Credit Loan hereunder or
otherwise) for any payment made by Agent in connection with such Letter of
Credit (including the amount paid by the Agent and any other sums due in
connection with the payment of the Letter of Credit), each Lender shall, in
accordance with its Ratable Share, reimburse the Agent promptly on demand by
Agent for the amount of such payment (including the amount paid by the Agent and
the fees and charges due in connection with the payment of the Letter of
Credit). The obligation of each Lender to so reimburse Agent or Collateral Agent
shall be absolute and unconditional and shall not be affected by the occurrence
of an Event of Default or Potential Default or any other occurrence or event.
Any such reimbursement shall not relieve or otherwise impair the obligation of
Borrowers to reimburse Agent for the amount of any payment made by the Agent
under the Letter of Credit, together with interest at the rate provided in
Section 4 and the fees and charges due in connection with the payment of the
Letter of Credit. Borrowers hereby specifically acknowledge and agree that in
the event Borrowers fail to perform in
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accordance with the terms of the Letters of Credit, the applications and
documents related thereto or this Agreement as it relates to such Letters of
Credit, each Lender shall have a claim against Borrowers, to the extent of such
Lender's Ratable Share of such Letter of Credit.
2.8.1.5 LENDERS' REIMBURSEMENT OF AGENT AND
COLLATERAL AGENT. If any amount required to be paid by any Lender to the Agent
or Collateral Agent pursuant to Section 2.8.1.4 above and Section 2.12 below in
respect to any portion of any payment made or reimbursed by the Agent or
Collateral Agent under any Letter of Credit is not paid to the Agent or
Collateral Agent on the date such payment is due, such Lender shall pay to the
Agent or Collateral Agent, as applicable, on demand an amount equal to the
product of such amount, times the daily average Federal Funds Rate during the
period from and including the date such payment is required to the date on which
such payment is immediately available to the Agent or Collateral Agent, as
applicable, times a fraction the numerator of which is the number of days that
elapse during such period and the denominator of which is 360. If any such
amount required to be paid by any Lender pursuant to Section 2.8.1.4 above or
Section 2.12 below, is not in fact made available to the Agent or Collateral
Agent, as applicable, by such Lender within three (3) Business Days after the
date such payment is due, the Agent or the Collateral Agent, as applicable,
shall be entitled to recover from such Lender, on demand, such amount with
interest thereon calculated from such due date at the rate per annum then
applicable to Base Rate Option Loans hereunder. A certificate of the Agent or
Collateral Agent submitted to any Lender with respect to any amounts owing under
this Section shall be conclusive in the absence of manifest error. Until such
time as Lenders fund their Ratable Shares of drafts, and any other sums due in
connection with the payment of any Letter of Credit paid under this Section, the
Agent or Collateral Agent, as applicable, shall (with respect to any unfunded
Lenders) keep for its own account all interest, fees and charges accrued on
advances made in connection therewith.
2.8.1.6 REDISTRIBUTION TO LENDERS. Whenever,
at any time after the Agent or Collateral Agent has made payment under any
Letter of Credit and has received from any Lender its Ratable Share of such
payment, fees and charges in accordance with Section 2.8.1.5 above, the Agent or
Collateral Agent receives any payment related to such Letter of Credit (whether
directly from the Borrower or otherwise) or any payment of fees, charges or
interest on account thereof, the Agent or Collateral Agent, as applicable, will
promptly on the next Agent Reconciliation Date or Collateral Agent
Reconciliation Date, as applicable, distribute to such Lender its Ratable Share
thereof; provided, however, that in the event that any such payment received by
the Agent or Collateral Agent shall be required to be returned by the Agent or
Collateral Agent, such Lender shall immediately upon demand by the Agent or
Collateral Agent, as applicable, return to the Agent or Collateral Agent, as
applicable, the portion thereof previously distributed by the Agent or
Collateral Agent, as applicable.
2.8.1.7 PAYMENT. Borrowers agree, subject to
the provisions of this Section 2.8.1.7 set forth below, to reimburse and repay
the Agent immediately on the Business Day on which the Agent pays a draft
presented under any Letter of Credit, for the amount of such draft so paid
together with the fees and charges due in connection with the payment of the
Letter of Credit. Each such payment shall be made to the Agent at its Principal
Office immediately on the Business Day on which the Agent pays a draft presented
under any Letter of
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Credit in Dollars and in immediately available funds. Interest shall be due and
payable on the amount so paid on such draft, until reimbursed in full, at the
rate set forth in, and in accordance with the provisions contained in Section 4.
To the extent Loans are available under the
Revolving Credit Commitments and to finance the Reimbursement Obligations of
Borrowers under this Section 2.8.1.7, Borrowers irrevocably authorize and direct
the Collateral Agent and the Lenders to treat each such advance by Agent in
payment of a draft under Letters of Credit as a request for a Revolving Credit
Loan in the amount of such advance, together with the fees and charges due in
connection with the payment of the Letter of Credit, to issue Revolving Credit
Loans simultaneously with any such advance in the aggregate amount of such
advance, together with the fees and charges due in connection with the payment
of the Letter of Credit, and to credit the proceeds of such Revolving Credit
Loans so as to immediately eliminate the liability of Borrowers to Agent
pertaining to such Letter of Credit and immediately eliminate the liability of
each other Lender to Agent with respect to its liability to Agent relating to
such Letter of Credit. Revolving Credit Loans advanced for this purpose shall
bear interest at the rate set forth in, and in accordance with the provisions
contained in, Section 4.1. The Collateral Agent will notify the Lenders of the
amount required to be advanced pursuant to the Letters of Credit before 10:00
a.m. New York, New York time on the Collateral Agent Reconciliation Date
immediately following the date of any advance the Agent or Collateral Agent is
required to make pursuant to the Letters of Credit. On the Collateral Agent
Reconciliation Date each Lender shall make available such Lender's Ratable Share
of such advance in immediately available funds to the Collateral Agent.
2.8.1.8 ICC PUBLICATION NO. 500. Each Letter
of Credit shall be subject to the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
as amended or revised from time to time ("UCP 500") and, to the extent not
inconsistent therewith, the laws of the State of New York. The responsibility of
Agent to a Borrower in connection with any draft presented for payment under any
Letter of Credit shall, in addition to any payment obligation expressly provided
for in such Letter of Credit, be limited to those responsibilities set forth in
UCP 500.
2.8.1.9 CONDITIONS TO ISSUANCE. Agent shall
not be obligated to and shall not issue any Letter of Credit hereunder during
the existence of or which would result in an Event of Default or Potential
Default or if such issuance would conflict with, or cause Agent or any Lender to
exceed any limits imposed by, any applicable Law.
2.8.1.10 COSTS AND EXPENSES. In addition to
the Letter of Credit fees and Bankers' Acceptance Fees provided for herein, the
Borrowers shall pay or reimburse Agent (for Agent's own account) for such normal
and customary costs and expenses as are incurred or charged by Agent in issuing,
creating, effecting payment under, amending or otherwise administering any
Letter of Credit issued by Agent or any Bankers' Acceptance created or draft
paid in connection with any Bankers' Acceptance.
2.8.1.11 UNCONDITIONAL OBLIGATIONS,
LIMITATION ON LIABILITY. The Borrowers' obligations under Section 2.8.1 and each
Lender's obligations under
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Section 2.8.1 shall be absolute and unconditional under any and all
circumstances and irrespective of any set-off, counterclaim or defense to
payment which the Borrowers or any Lender may have or have had against the Agent
or any beneficiary of a Letter of Credit. As between any Borrower and the Agent,
such Borrower assumes all risks of the acts and omissions of, or misuse of the
Letters of Credit by, the respective beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, the Agent shall not be
responsible for: (a) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted by any party in connection with the
application for an issuance of any such Letter of Credit, even if it should in
fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged (even if the Agent shall have been notified thereof); (b)
the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (c) the failure of the beneficiary of
any such Letter of Credit, or any other party to which such Letter of Credit may
be transferred, to comply fully with any conditions required in order to draw
upon such Letter of Credit or any other claim of any Borrower against any
beneficiary of such Letter of Credit, or any such transferee, or any dispute
between or among any Borrower and any beneficiary of any Letter of Credit or any
such transferee; (d) errors, omissions, interruptions or delays in transmission
or delivery of any messages, by mail, cable, telegraph, telex or otherwise,
whether or not they be in cipher; (e) errors in interpretation of technical
terms; (f) any loss or delay in the transmission or otherwise of any document
required in order to make a drawing under any such Letter of Credit or of the
proceeds thereof; (g) the misapplication by the beneficiary of any Letter of
Credit of the proceeds of any drawing under such Letter of Credit or any claims
whatsoever of any Borrower against any beneficiary of such Letter of Credit or
any such transferee; or (h) any consequences arising from causes beyond the
control of the Agent, including any Governmental Acts, and none of the above
shall affect or impair, or prevent the vesting of, any of the Agent's rights or
powers hereunder.
In furtherance and extension and not in
limitation of the specific provisions set forth above, the Borrowers and each
Lender agree that any action taken or omitted by Agent under or in connection
with any Letter of Credit or the related drafts or documents shall be binding on
the Borrowers and each Lender and shall not result in any liability of Agent to
Borrowers or any Lender, except in the case of Agent's gross negligence or
willful misconduct (as found in a final, non-appealable judgment by a court of
competent jurisdiction).
2.8.1.12 INCONSISTENCIES. To the extent that
any provision of any Letter of Credit Application related to any Letter of
Credit is irreconcilably inconsistent with the provisions of this Agreement, the
provisions of this Agreement shall control.
2.8.1.13 INSOLVENCY. If the Agent is
required at any time to pay or return to any Borrower, or to a trustee,
receiver, liquidator, custodian, or any official in any insolvency proceeding,
any portion of the payments made by any Borrower to the Agent pursuant to this
Section in reimbursement of a payment made under the Letter of Credit or
interest or fee thereon, each Lender shall, on demand of the Agent, forthwith
pay to the Agent the amount of its Ratable Share of any amounts so paid or
returned by the Agent plus interest thereon from the date
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such demand is made to the date such amounts are returned by such Lender to the
Agent, at a rate per annum equal to the Federal Funds Rate in effect from time
to time.
2.8.2 BANKERS' ACCEPTANCE SUBFACILITY.
2.8.2.1 CREATION. Subject to the terms and
conditions hereof, so long as no Potential Default or Event of Default exists
hereunder, at any time and from time to time, the Borrowers may elect to convert
into a Bankers' Acceptance any drawing under a Trade Letter of Credit providing
for presentation of time drafts. The Agent, in reliance on the agreements of the
Lenders set forth in this Section 2.8.2, shall convert any drawing under a Trade
Letter of Credit into a Bankers' Acceptance as Borrowers may request by notice
to the Collateral Agent in accordance with the procedure set forth in Section
2.8.2.3; PROVIDED that, after giving effect to any such Bankers' Acceptance, the
aggregate amount of all Bankers' Acceptance Obligations shall not exceed Ten
Million Dollars ($10,000,000.00) (the "Bankers' Acceptance Sublimit" and the
Lender Outstandings shall not exceed the lesser of the Borrowing Base Limitation
or the Revolving Credit Commitments. The maturity of any Bankers' Acceptance
shall not extend beyond the Bankers' Acceptance Termination Date. Each Bankers'
Acceptance shall be executed on behalf of Borrowers and presented to the Agent
pursuant to such procedures as are provided for or required by Agent. The
creation and maturity date of each Bankers' Acceptance shall be Business Days.
Notwithstanding the foregoing, the Agent shall not create or discount any
Bankers' Acceptance (i) that is not "ELIGIBLE" pursuant to paragraph 7 of
Section 13 of the Federal Reserve Act (12 U.S.C. ss.372), as amended from time
to time, or (ii) if creation thereof would cause the Agent to exceed the maximum
amount of outstanding bankers' acceptances permitted by applicable law or under
the Bankers' Acceptance Sublimit, or (iii) if, in the reasonable opinion of the
Agent, general conditions in the public market for rediscounting bankers'
acceptances render it inadvisable to do so.
2.8.2.2 BANKERS' ACCEPTANCE FEES. Upon the
conversion of any drawing under a Trade Letter of Credit to a Bankers'
Acceptance, Borrowers shall pay (aa) to the Agent for the ratable account of the
Lenders a nonrefundable fee (the "Bankers' Acceptance Creation Fees") equal to
one and one-quarter percent (1.25%) per annum and (bb) to the Agent for its own
account a nonrefundable administrative fee equal to one-quarter of one percent
(.25%) per annum (the fees due to Agent pursuant to (bb) above being referred to
as the "Agent's Bankers' Acceptance Fees"). The fees required in (aa) and (bb)
immediately above, shall be computed on the face amount of each Bankers'
Acceptance, based upon a year of 360 days and computed for the actual number of
days from the creation of the relevant Bankers' Acceptance to and excluding the
stated maturity thereof. Agent shall have no obligation to advance any portion
of the Bankers' Acceptance Fees to any Lender who has failed to remit to Agent
(and Agent may set off such Bankers' Acceptance Fees against) sums otherwise due
Agent from such Lender under this Agreement. The Agent shall be entitled to
assume that each Lender will fund its ratable share of all sums due under this
Agreement unless Agent receives prior written notice from the Collateral Agent
or such Lender to the contrary on or before the Business Day prior to the
requested funding date.
2.8.2.3 APPLICATION. The Borrowers may from
time to time request the Collateral Agent to convert any drawing under a Trade
Letter of Credit into a Bankers' Acceptance, by indicating such election on the
Letter of Credit Applications submitted to
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the Collateral Agent. Upon receipt by the Agent of any draft upon, or other
notice of drawing under, a Trade Letter of Credit, the Agent shall promptly give
the Collateral Agent and Borrowers written notice of the amount of such draft or
drawing, of the Trade Letter of Credit against which it is drawn and of the date
upon which the Agent proposes to honor such draft. Upon presentation to the
Agent of a Bankers' Acceptance for payment, the Agent shall notify the
Collateral Agent of such presentation. Upon each request by Borrowers for a
Trade Letter of Credit which will be converted into a Bankers' Acceptance, the
Collateral Agent shall determine the availability of new Bankers' Acceptances.
In no event will the Borrowers be entitled to request or the Agent be required
to issue any Trade Letter of Credit for which a Borrower has selected the
Bankers' Acceptance conversion option ( a "Trade LC With BA Option"), if when
added to the aggregate of all issued and outstanding or unreimbursed Trade LC's
With BA Options, and all outstanding or unreimbursed Bankers' Acceptances, such
sum would exceed the Bankers' Acceptance Sublimit or result in a Potential
Default or an Event of Default. Each Borrower agrees to be bound by the terms of
the Agent's written regulations and customary practices relating to Bankers'
Acceptances. In the event of a conflict between such regulations and customary
practices and this Agreement, this Agreement shall govern. It is understood and
agreed that the Agent shall not be liable for any error, negligence and/or
mistakes, whether of omission or commission, in following any Borrower's
instructions or those contained in the Bankers' Acceptances or any
modifications, amendments or supplements thereto, except in the case of Agent's
gross negligence or willful misconduct (as found in a final, non-appealable
judgment by a court of competent jurisdiction). In determining whether to
convert any drawing under a Trade Letter of Credit into a Bankers' Acceptance,
the Agent shall be responsible only to determine that the documents and
certificates required to be delivered under such Trade Letter of Credit or
Bankers' Acceptances have been delivered and that they comply on their face with
the requirements of such Trade Letter of Credit or Bankers' Acceptances. Upon
the issuance of or conversion to each Bankers' Acceptance by the Agent, the
Agent shall notify the Collateral Agent and the Collateral Agent shall (to the
extent the Borrowers' have failed to do so) immediately reimburse the Agent the
full amount of all Bankers' Acceptance Creation Fees and Agent's Bankers'
Acceptance Fees, together with an amount sufficient to pay to the Agent any
other sums due in connection with the issuance of the issuance of or conversion
to each Bankers' Acceptance, by advancing a Revolving Credit Loan in such amount
directly into the applicant Borrowers' account maintained with the Collateral
Agent , for debit by the Agent so as to immediately eliminate the liability of
Borrowers to Agent pertaining to such Bankers' Acceptance. Upon the issuance of
or conversion to each Bankers' Acceptance by the Agent the Agent shall be
authorized and is hereby authorized and directed, to debit the operating account
maintained at the Collateral Agent by the applicant Borrower, or any other
account of any Borrower, in an amount sufficient to pay to the Agent the fees
and charges due in connection with the Bankers' Acceptance.
2.8.2.4 PURCHASE OF PARTICIPATIONS. The
Agent irrevocably agrees to grant and hereby grants to each other Lender, and to
induce Agent to convert any drawing under a Trade Letter of Credit into a
Bankers' Acceptance and create Bankers' Acceptances hereunder, each such other
Lender irrevocably agrees immediately upon creation of each Bankers' Acceptance
and without any further action required of the Agent or such Lender, to accept
and purchase and hereby accepts and purchases from the Agent, on the terms and
conditions herein stated, for such Lender's own account and risk, an undivided
interest equal to such Lender's
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Ratable Share in the Agent's obligations and rights under each Bankers'
Acceptance created hereunder, and the amount of each draft paid by the Agent
thereunder, except for the Agent's Bankers' Acceptance Fees. Upon payment by the
Agent of a draft under a Bankers' Acceptance the Agent shall notify the
Collateral Agent and the Collateral Agent shall (to the extent the Borrowers'
have failed to do so) immediately reimburse the Agent the full amount of such
payment by the Agent together with an amount sufficient to pay to the Agent any
other sums due in connection with the payment of the Bankers' Acceptance, by
advancing a Revolving Credit Loan in such amount directly into the applicant
Borrower's account maintained with the Collateral Agent, for debit by the Agent
so as to immediately eliminate the liability of Borrowers to Agent pertaining to
such Bankers' Acceptance. Upon the payment of each Bankers' Acceptance by the
Agent the Agent shall be authorized and is hereby authorized and directed, to
debit the operating account maintained at the Collateral Agent by the applicant
Borrower, or any other account of any Borrower, in an amount sufficient to pay
to the Agent the principal amount paid, interest, fees and charges due in
connection with the Bankers' Acceptance. Each Lender unconditionally and
irrevocably agrees that, if a draft is paid or an advance is made by Agent
pursuant to any Bankers' Acceptance for which the Agent is not reimbursed in
full by Borrowers pursuant to this Agreement (including the amount paid by the
Agent and any other sums due in connection with the payment of the draft), such
Lender shall immediately pay to the Collateral Agent on the next Collateral
Agent Reconciliation Date at the Principal Office of Collateral Agent all sums
due, or any part thereof, which is not so reimbursed. Without limiting the scope
and nature of each Lender's participation in any Bankers' Acceptance, to the
extent that Agent has not been immediately reimbursed by the Borrowers or the
Collateral Agent (pursuant to an advance of a Revolving Credit Loan hereunder or
otherwise) for any payment made by Agent in connection with such Bankers'
Acceptance or draft (including the amount paid by the Agent and any other sums
due in connection with the payment of the Bankers' Acceptance or draft), each
Lender shall, in accordance with its Ratable Share, reimburse the Agent promptly
on demand by Agent for the amount of such payment (including the amount paid by
the Agent and any other sums due in connection with the payment of the Bankers'
Acceptance or draft). The obligation of each Lender to so reimburse Agent or
Collateral Agent shall be absolute and unconditional and shall not be affected
by the occurrence of an Event of Default or Potential Default or any other
occurrence or event. Any such reimbursement shall not relieve or otherwise
impair the obligation of Borrowers to reimburse Agent for the amount of any
payment made by the Agent under the Bankers' Acceptance, together with interest
at the rate provided in Section 4 hereof and any other sums due in connection
with the payment of the Bankers' Acceptance or draft. Borrowers hereby
specifically acknowledge and agree that in the event Borrowers fail to perform
in accordance with the terms of the Bankers' Acceptance, the documents related
thereto or this Agreement as it relates to such Bankers' Acceptance, each Lender
shall have a claim against Borrowers, to the extent of such Lender's Ratable
Share of such Bankers' Acceptance.
2.8.2.5 LENDERS' REIMBURSEMENT OF AGENT AND
COLLATERAL AGENT. If any amount required to be paid by any Lender to the Agent
or Collateral Agent pursuant to Section 2.8.2.4 above and Section 2.12 below in
respect to any portion of any payment made or reimbursed by the Agent or
Collateral Agent under any Bankers' Acceptance is not paid to the Agent or
Collateral Agent, as applicable, on the date such payment is due, such Lender
shall pay to the Agent or Collateral Agent on demand an amount equal to the
product of such amount, times
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the daily average Federal Funds Rate during the period from and including the
date such payment is required to the date on which such payment is immediately
available to the Agent or Collateral Agent, as applicable, times a fraction the
numerator of which is the number of days that elapse during such period and the
denominator of which is 360. If any such amount required to be paid by any
Lender pursuant to Section 2.8.2.4 above or Section 2.12 below, is not in fact
made available to the Agent or Collateral Agent, as applicable, by such Lender
within three (3) Business Days after the date such payment is due, the Agent or
Collateral Agent , as applicable, shall be entitled to recover from such Lender,
on demand, such amount with interest thereon calculated from such due date at
the rate per annum then applicable to Base Rate Option Loans hereunder. A
certificate of the Agent or Collateral Agent submitted to any Lender with
respect to any amounts owing under this Section shall be conclusive in the
absence of manifest error. Until such time as Lenders fund their Ratable Shares
of drafts and any other sums due in connection with any payment under this
Section, the Agent or Collateral Agent, as applicable, shall (with respect to
any unfunded Lenders) keep for its own account all interest and any other sums
accrued on advances made in connection therewith.
2.8.2.6 REDISTRIBUTION TO LENDERS. Whenever,
at any time after the Agent or Collateral Agent has made payment under any
Bankers' Acceptance and has received from any Lender its Ratable Share of such
payment, fees and charges in accordance with Section 2.8.2.5 above, the Agent or
Collateral Agent receives any payment related to such Bankers' Acceptance
(whether directly from the Borrowers or otherwise) or any payment of fees,
charges or interest on account thereof, the Agent or Collateral Agent, as
applicable, will promptly on the next Agent Reconciliation Date or Collateral
Agent Reconciliation Date, as applicable, distribute to such Lender its Ratable
Share thereof; PROVIDED, HOWEVER, that in the event that any such payment
received by the Agent or Collateral Agent shall be required to be returned by
the Agent or Collateral Agent, such Lender shall immediately upon demand by the
Agent or Collateral Agent, as applicable, return to the Agent or Collateral
Agent, as applicable, the portion thereof previously distributed by the Agent or
Collateral Agent, as applicable.
2.8.2.7 PAYMENT. Borrowers agree, subject to
the provisions of this Section 2.8.2.7 set forth below, to immediately reimburse
and repay the Agent for the ratable account of the Lenders the face amount of
each Bankers' Acceptance on the maturity date thereof, together with any other
sums due in connection with the payment of the Bankers' Acceptance. Each such
payment shall be made to the Agent at its Principal Office prior to 10:00 a.m.,
New York, New York time in Dollars and in immediately available funds. Interest
shall be due and payable on the amount so paid until reimbursed in full, at the
rate set forth in, and in accordance with the provisions contained in Section 4.
To the extent Loans are available under the Revolving
Credit Commitments, and to finance the Reimbursement Obligation of Borrowers
under this Section 2.8.2.7, Borrowers irrevocably authorize and direct
Collateral Agent and the Lenders to treat each such advance by Agent made in
honoring such Bankers' Acceptance as a request for a Revolving Credit Loan in
the amount of such advance, together with the fees and charges due in connection
with the payment of the Bankers' Acceptance, to issue Revolving Credit Loans
simultaneously with any such advance in the aggregate amount of such advance,
together with the fees and charges due in
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connection with the payment of the Bankers' Acceptance, and to credit the
proceeds of such Revolving Credit Loan so as to immediately eliminate the
liability of Borrowers to Agent pertaining to such Bankers' Acceptance and
immediately eliminate the liability of each other Lender to Agent with respect
to its liability to Agent relating to such Bankers' Acceptance. Revolving Credit
Loans advanced for this purpose shall bear interest at the rate set forth in,
and in accordance with the provisions contained in Section 4.1. The Collateral
Agent will notify the Lenders of the amount required to be advanced pursuant to
the Bankers' Acceptances before 10:00 a.m. New York, New York time on the
Collateral Agent Reconciliation Date immediately following the date of any
advance the Agent or Collateral Agent is required to make pursuant to the
Bankers' Acceptances. On the Collateral Agent Reconciliation Date each Lender
shall make available such Lender's Ratable Share of such advance in immediately
available funds to the Collateral Agent.
2.8.2.8 CONDITIONS TO ISSUANCE. Agent shall
not be obligated to and shall not create any Bankers' Acceptances hereunder
during the existence of or which would result in an Event of Default or
Potential Default or if such issuance would conflict with, or cause Agent or any
Lender to exceed any limits imposed by, any applicable Law.
2.8.2.9 COSTS AND EXPENSES. In addition to
the Bankers' Acceptances fees provided for herein, the Borrowers shall pay or
reimburse Agent (for Agent's own account) for such normal and customary costs
and expenses as are incurred or charged by Agent in issuing, effecting payment
under, amending or otherwise administering any Bankers' Acceptances created.
2.8.2.10 UNCONDITIONAL OBLIGATIONS. The
Borrowers' obligations under Section 2.8.2 and each Lender's obligations under
Section 2.8.2 shall be absolute and unconditional under any and all
circumstances and irrespective of any set-off, counterclaim or defense to
payment which the Borrowers or any Lender may have or have had against the Agent
or any beneficiary of a Bankers' Acceptance. The Borrowers and each Lender also
agree with Agent that Agent shall not be responsible for, and the Borrowers'
obligations and Lenders' obligations under 2.8.2 shall not be affected by, among
other things, the form, validity, sufficiency, accuracy, genuineness or legal
effect of documents or of any endorsements thereon, even though such documents
shall in fact prove to be invalid, fraudulent or forged, or any dispute between
or among any Borrower and any beneficiary of any Bankers' Acceptance or any
other party to which such Bankers' Acceptance may be transferred or any claims
whatsoever of any Borrower against any beneficiary of such Bankers' Acceptance
or any such transferee. Agent shall not be liable for any error, omission,
interruption, or delay in transmission, dispatch, or delivery of any message or
advice, however transmitted, in connection with any Bankers' Acceptance. The
Borrowers and each Lender agree that any action taken or omitted by Agent under
or in connection with any Bankers' Acceptance or the related drafts or
documents, shall be binding on the Borrowers and each Lender and shall not
result in any liability of Agent to Borrowers or any Lender, except in the case
of Agent's gross negligence or willful misconduct (as found in a final,
non-appealable judgment by a court of competent jurisdiction).
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2.8.2.11 LIMITATION OF LIABILITY. Neither
Agent, any Lender, nor any of their respective directors, agents, officers or
employees shall be liable for any action taken or omitted under or in connection
with any Bankers' Acceptance, any draft to which a Bankers' Acceptance relates,
or any documents which in turn relate or pertain to any such draft, except in
the case of gross negligence or willful misconduct (as found in a final,
non-appealable judgment by a court of competent jurisdiction). When dealing with
any Bankers' Acceptance, draft or related documents, Agent shall be entitled to
act, and shall be fully protected against any claim of loss by the Borrowers
occasioned by the lack, or claimed lack, of authenticity or authority, in acting
upon any telephonic communications, telegram, telex, teletype, telecopy, bank
wire, cable, or radiogram or any written application, notice, report, statement,
certificate, resolution, request, order, consent, letter, or other instrument or
communication, any of the foregoing of which is reasonably believed by the Agent
to be genuine and correct and to have been signed or sent or made by an
Authorized Officer.
In furtherance and extension and not in limitation of
the specific provisions set forth above, any action taken or omitted by the
Agent under or in connection with the Bankers' Acceptances or any documents and
certificates delivered thereunder, if taken or omitted in good faith, shall not
put the Agent under any resulting liability to the Borrowers or any Lender. The
Borrowers and each Lender agree that any action taken or omitted by Agent under
or in connection with any Bankers' Acceptance or the related drafts or
documents, shall be binding on the Borrowers and each Lender and shall not
result in any liability of Agent to any Borrower or any Lender.
2.8.2.12 INCONSISTENCIES. To the extent that
any provision of any Bankers' Acceptance Documents related to any Bankers'
Acceptance is irreconcilably inconsistent with the provisions of Section 2.8,
the provisions of Section 2.8 shall control.
2.8.2.13 INSOLVENCY. If the Agent is
required at any time to pay or return to any Borrower, or to a trustee,
receiver, liquidator, custodian, or any official in any insolvency proceeding,
any portion of the payments made by any Borrower to the Agent pursuant to this
Section in reimbursement of a payment made under a Bankers' Acceptance or
interest or fee thereon, each Lender shall, on demand of the Agent, forthwith
pay to the Agent the amount of its Ratable Share of any amounts so paid or
returned by the Agent plus interest thereon from the date such demand is made to
the date such amounts are returned by such Lender to the Agent, at a rate per
annum equal to the Federal Funds Rate in effect from time to time.
2.8.3 INDEMNITY.
Except in the case of Agent's gross negligence or
willful misconduct (as found in a final, non-appealable judgment by a court of
competent jurisdiction),the Borrowers hereby agree to protect, indemnify, pay
and save harmless the Agent from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
fees, expenses and disbursements of counsel and allocated costs of internal
counsel) which the Agent may incur or be subject to as a consequence, direct or
indirect, of (i) the issuance of any Letter of Credit
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or creation of any Bankers' Acceptance or (ii), the wrongful dishonor by the
Agent of a proper demand for payment made under any Letter of Credit or Bankers'
Acceptance, or (iii) the failure of the Agent to honor a drawing under any such
Letter of Credit or Bankers' Acceptance as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de facto
government or governmental authority (all such acts or omissions herein called
"Governmental Acts").
2.8.4 LIABILITY FOR ACTS AND OMISSIONS.
As between any Borrowers and the Agent, except in the
case of Agent's gross negligence or willful misconduct (as found in a final,
non-appealable judgment by a court of competent jurisdiction), each Borrower
assumes all risks of the acts and omissions of, or misuse of the Letters of
Credit or Bankers' Acceptances. In furtherance and not in limitation of the
foregoing, the Agent shall not be responsible for: (i) the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document submitted by
any party in connection with the application for issuance of any such Letter of
Credit or Bankers' Acceptance, even if it should in fact prove to be in any or
all respects invalid, insufficient, inaccurate, fraudulent or forged (even if
the Agent shall have been notified thereof); (ii) the validity or sufficiency of
any instrument transferring or assigning or purporting to transfer or assign any
such Letter of Credit or the rights or benefits thereunder or proceeds thereof
or of any Bankers' Acceptance, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) the failure of the beneficiary of
any such Letter of Credit or Bankers' Acceptance, or any other party to which
such Letter of Credit or Bankers' Acceptance may be transferred, to comply fully
with any conditions required in order to draw upon such Letter of Credit or
Bankers' Acceptance or any other claim of any Borrower against any beneficiary
of such Letter of Credit or Bankers' Acceptance, or any such transferee, or any
dispute between or among any Borrower and any beneficiary of any Letter of
Credit or Bankers' Acceptance or any such transferee; (iv) errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, whether or not they be in cipher; (v)
errors in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Letter of Credit or Bankers' Acceptance or of the proceeds
thereof; (vii) the misapplication by the beneficiary of any such Letter of
Credit or Bankers' Acceptance of the proceeds of any drawing under such Letter
of Credit or Bankers' Acceptance; or (viii) any consequences arising from causes
beyond the control of the Agent, including any Governmental Acts, and none of
the above shall affect or impair, or prevent the vesting of, any of the Agent's
rights or powers hereunder.
In furtherance and extension and not in
limitation of the specific provisions set forth above, any action taken or
omitted by the Agent under or in connection with the Letters of Credit or
Bankers' Acceptances issued by it or any documents and certificates delivered
thereunder, shall not put the Agent under any resulting liability to the
Borrowers or any Lender. The Borrowers and each Lender agree that any action
taken or omitted by Agent under or in connection with any Letter of Credit or
Bankers' Acceptance or the related drafts or documents shall be binding on the
Borrowers and each Lender and shall not result in any liability of Agent to
Borrowers or any
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Lender, except in the case of Agent's gross negligence or willful misconduct (as
found in a final, non-appealable judgment by a court of competent jurisdiction).
2.9 BORROWING BASE LIMITATION.
Borrowers shall not be entitled to request and Lenders shall
not be obligated to advance, issue or create, any Loans, Letters of Credit or
Bankers' Acceptances hereunder if (a) the amount of any Revolving Credit Loan,
Letter of Credit or Bankers' Acceptances requested, when added to (b) the then
current Lender Outstandings, would cause the sum of (a) and (b) to exceed the
Borrowing Base Limitation. If at any time the Lender Outstandings exceed the
Borrowing Base Limitation, Borrowers shall immediately (without any grace or
cure period being applicable) upon demand by the Collateral Agent (and the
Collateral Agent shall make such demand upon the request of the Agent or
Required Lenders), reduce the principal balance outstanding under the Revolving
Credit Commitment to an amount which causes the Lender Outstandings to be equal
to or less than the Borrowing Base Limitation, with failure to do so
constituting an Event of Default under this Agreement.
2.10 REPAYMENT OF OBLIGATIONS.
The Lenders shall have no obligation to make Revolving Credit
Loans hereunder, or issue Letters of Credit or Bankers' Acceptances on or after
the Expiration Date or upon earlier termination of the Revolving Credit
Commitments pursuant this Agreement.
2.11 COLLATERAL.
In order to secure the full and timely payment or
reimbursement of the Loans, Letters of Credit and Bankers' Acceptances and all
other Obligations outstanding under the Revolving Credit Commitments, this
Agreement and the Loan Documents as well as any renewals, extensions or
modifications thereof, and to secure performance of all obligations of each
Borrower to the Agent, Collateral Agent and the Lenders, however and whenever
created, each Borrower shall and does hereby grant to the Agent and the
Collateral Agent, for the benefit of the Agent, the Collateral Agent and the
Lenders, a first priority perfected security interest subject to no other liens
or encumbrances except as may be described in the Security Documents or this
Agreement, in all of the Collateral described in the Security Documents,
together with the proceeds and products thereof.
2.12 RECONCILIATION DATES.
2.12.1 AGENT RECONCILIATION
On each Agent Reconciliation Date the Agent shall
remit to the Lenders, on or before 2:00 p.m., New York, New York time, all fees
and other sums due to the Lenders from the Agent as set forth in the Agent's
Reconciliation Report furnished to the Lenders on the Agent Reconciliation Date.
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2.12.2 COLLATERAL AGENT RECONCILIATION.
On each Collateral Agent Reconciliation Date the
Lenders shall remit to the Collateral Agent and the Collateral Agent shall remit
to the Lenders, as appropriate, on or before 2:00 p.m., New York, New York time,
all Net Sums Due as set forth in the Collateral Agent's Reconciliation Report
furnished to the Lenders on the Collateral Agent Reconciliation Date.
2.12.3 PAYMENTS ON RECONCILIATION DATES.
(a) AGENT. All payments of fees or commissions
received by the Agent from the Borrowers during a particular Reporting Period
shall be distributed to the Lenders (after deduction of all fees and other
amounts then owing to the Agent) on the Agent's Reconciliation Date. Each such
payment by the Agent to a Lender shall be made by electronically transferring
the amount to be paid to such Lender at its lending office set forth in this
Agreement.
(b) COLLATERAL AGENT.All Net Sums Due shall be
distributed among the Lenders and the Collateral Agent (after deduction of all
other amounts then owing to the Collateral Agent) on the Collateral Agent's
Reconciliation Date. Each such payment shall be made by electronically
transferring the amount to be paid to such Lender or Collateral Agent at its
lending office set forth in this Agreement. In the event payments are not
distributed as required in this Section 2.12.3(b) on the next Collateral Agent
Reconciliation Date, the owing party shall pay the interest thereon at a rate
per annum equal to (i) the Federal Funds Effective Rate during the first three
(3) days after the due date thereof and (ii) at the Base Rate Option after the
end of such three-day period for each day until such amounts are paid. The
Collateral Agent's and each Lender's statement of account, ledger or other
relevant record shall, in the absence of manifest error, be conclusive as the
statement of the amount of principal of and interest on the Loans and other
amounts owing under this Agreement and shall be deemed an "account stated" and
in the event of any discrepancy between the records of the Collateral Agent and
the Lenders, the Collateral Agent's records shall, in the absence of manifest
error, control.
3. OVERADVANCE FACILITY
3.1 OVERADVANCE FACILITY.
So long as no Potential Default or Event of Default exists,
Borrowers shall be entitled to exceed the Borrowing Base Limitation, but not the
Revolving Credit Commitments, by Six Million Dollars ($6,000,000.00) from May 1
through June 30 of each year and from October 1 through October 31 of each year,
and by Nine Million Dollars ($9,000,000.00) from July 1 through September 30 of
each year (collectively, the "Overadvance Periods" and the amounts outstanding
the "Overadvance Amounts"). During the Overadvance Periods, Borrowers shall be
entitled to utilize the increased availability under the Borrowing Base in the
same manner and subject to the same
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limitations set forth herein applicable to the Revolving Credit Commitments in
effect during the remainder of the year. The Overadvance Facility shall
terminate and all outstanding principal and interest due thereon shall terminate
immediately upon the closing of an initial public offering of common or
preferred shares or any other equity offering of any Borrower.
4. INTEREST RATES
4.1 INTEREST RATE OPTIONS.
The Borrowers shall pay interest in respect of the outstanding
unpaid principal amount of the Loans as selected by it from the Base Rate Option
or Euro-Rate Option set forth below applicable to the Loans, it being understood
that, subject to the provisions of this Agreement, the Borrowers may select
different Interest Rate Options and different Interest Periods to apply
simultaneously to the Loans comprising different Borrowing Tranches and may
convert to or renew one or more Interest Rate Options with respect to all or any
portion of the Loans comprising any Borrowing Tranche, PROVIDED that there shall
not be at any one time outstanding more than three (3) Borrowing Tranches in the
aggregate among all of the Loans. If at any time the designated rate applicable
to any Loan made by any Lender exceeds such Lender's highest lawful rate, the
rate of interest on such Lender's Loan shall be limited to such Lender's highest
lawful rate. Interest hereunder shall be charged only on the sums outstanding
and shall be computed from the date such indebtedness is incurred to the date of
repayment. In no event shall interest be due at a rate in excess of the highest
lawful rate in effect from time to time. It is not the intention of the parties
hereto to make any agreement which shall be violative of the laws of the State
of Florida, the State of New York or the United States of America relating to
usury. In no event shall Borrowers pay or Lenders accept or charge any interest
which, together with any other charges upon the principal or any portion
thereof, howsoever computed, shall exceed the maximum lawful rate of interest
allowable under the laws of the State of Florida, the State of New York or the
United States of America from time to time, whichever is higher or unlimited.
Should any provision of this Agreement, the Revolving Credit Notes or any
further notes, loan agreements or any other agreements between the parties be
construed to require the payment of interest which, together with any other
charges upon the principal or any portion thereof, shall exceed such maximum
lawful rate of interest, then any such excess shall be applied against the
remaining principal balance.
4.1.1 REVOLVING CREDIT INTEREST RATE OPTIONS.
The Borrowers shall have the right to select from the
following Interest Rate Options applicable to the Revolving Credit Loans:
4.1.1.1 So long as Borrowers' ratio of
Consolidated Total Liabilities to Consolidated Tangible Net Worth is less than
2.0:1.0, determined quarterly at the end of each fiscal quarter, either:
(i) REVOLVING CREDIT BASE RATE OPTION: A
fluctuating rate per annum (computed on the basis of a year of 360 days and
actual days elapsed) equal to the
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Base Rate, such interest rate to change automatically from time to time
effective as of the effective date of each change in the Base Rate; or
(ii) REVOLVING CREDIT EURO-RATE OPTION: A
rate per annum (computed on the basis of a year of 360 days and actual days
elapsed) equal to the Euro-Rate plus two hundred fifteen basis points (2.15 %).
4.1.1.2 At any time Borrowers' ratio of
Consolidated Total Liabilities to Consolidated Tangible Net Worth is greater
than or equal to 2.0:1.0, either:
(i) REVOLVING CREDIT BASE RATE OPTION: A
fluctuating rate per annum (computed on the basis of a year of 360 days and
actual days elapsed) equal to the Base Rate, such interest rate to change
automatically from time to time effective as of the effective date of each
change in the Base Rate; or
(ii) REVOLVING CREDIT EURO-RATE OPTION: A
rate per annum (computed on the basis of a year of 360 days and actual days
elapsed) equal to the Euro-Rate plus two hundred forty basis points (2.40 %).
[The interest rate spreads set forth in Sections 4.1.1.1 and 4.1.1.2 above shall
be effective on the first day of the month immediately following Collateral
Agent's receipt of the fiscal quarter-end financial statements and continue in
effect until the first day of the month immediately following Collateral Agent's
receipt of the next fiscal quarter-end financial statements.]
4.1.2 OVERADVANCE FACILITY INTEREST RATE.
The principal balance outstanding under the
Overadvance Facility shall bear interest at a fluctuating rate per annum
(computed on the basis of a year of 360 days and actual days elapsed) equal to
the Base Rate plus twenty-five basis points (0.25%), such interest rate to
change automatically from time to time effective as of the effective date of
each change in the Base Rate (the "Overadvance Facility Interest Rate").
4.1.3 RATE QUOTATIONS.
The Borrowers may call the Collateral Agent on or
before the date on which a Loan Request is to be delivered to receive an
indication of the rates then in effect, but it is acknowledged that such
projection shall not be binding on the Collateral Agent or the Lenders nor
affect the rate of interest which thereafter is actually in effect when the
election is made.
4.2 INTEREST PERIODS.
At any time when the Borrowers shall select, convert to or
renew a Euro-Rate Option, the Borrowers shall notify the Agent thereof at least
two (2) Business Days prior to the effective date of such Euro-Rate Option by
delivering a Loan Request. The notice shall specify an
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interest period (the "Interest Period") during which such Interest Rate Option
shall apply, such Interest Period to be thirty (30), sixty (60) or ninety (90)
days. Notwithstanding the preceding sentence, the following provisions shall
apply to any selection of, renewal of, or conversion to a Euro-Rate Option:
4.2.1 ENDING DATE AND BUSINESS DAY.
Any Interest Period which would otherwise end on a
date which is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in the next calendar month, in which
case such Interest Period shall end on the next preceding Business Day;
4.2.2 AMOUNT OF BORROWING TRANCHE.
Each Borrowing Tranche of Euro-Rate Loans shall be in
integral multiples of $1,000,000.00 and not less than $1,000,000.00;
4.2.3 TERMINATION BEFORE EXPIRATION DATE.
The Borrowers shall not select, convert to or renew
an Interest Period for any portion of the Loans that would end after the
Expiration Date; and
4.2.4 RENEWALS.
In the case of the renewal of a Euro-Rate Option at
the end of an Interest Period, the first day of the new Interest Period shall be
the last day of the preceding Interest Period, without duplication in payment of
interest for such day.
4.3 INTEREST AFTER DEFAULT.
To the extent permitted by Law, upon the occurrence and during
the continuation of an Event of Default, any principal, interest, fee, or other
amount payable hereunder shall bear interest for each day thereafter until paid
in full (before and after judgment) at a rate per annum which is four percent
(4%) over the rate of interest then applicable to each Borrowing Tranche for the
duration of any pending Interest Periods (but not to exceed the maximum rate of
interest permitted by law) and, thereafter, at a fluctuating rate per annum
which is four percent (4%) in excess of the Base Rate Option or, in the case of
the Overadvance Facility, at a fluctuating rate per annum which is four percent
(4%) in excess of the Overadvance Facility Interest Rate (said increased rates
being hereinafter referred to as the "DEFAULT RATE").
4.3.1 OTHER OBLIGATIONS.
Each other Obligation hereunder if not paid when due shall
bear interest at a rate per annum equal to the Default Rate from the time such
Obligation becomes due and payable and until it is paid in full.
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4.3.2 ACKNOWLEDGMENT.
The Borrowers acknowledge that the increase in rates referred
to in Section 4.3 reflects, among other things, the fact that such Loans or
other amounts have become a substantially greater risk given their default
status and that the Lenders are entitled to additional compensation for such
risk and all such interest shall be payable by Borrowers upon demand by Agent.
4.4 EURO-RATE UNASCERTAINABLE; ILLEGALITY; INCREASED COSTS;
DEPOSITS NOT AVAILABLE.
4.4.1 UNASCERTAINABLE.
If on any date on which a Euro-Rate would otherwise
be determined, the Collateral Agent shall have reasonably determined that:
(i) adequate and reasonable means do not
exist for ascertaining such Euro-Rate, or
(ii) a contingency has occurred which
materially and adversely affects the London interbank eurodollar market relating
to the Euro-Rate, the Collateral Agent shall have the rights specified in
Section 4.4.3.
4.4.2 ILLEGALITY; INCREASED COSTS; DEPOSITS NOT
AVAILABLE.
If at any time any Lender shall have determined that:
(i) the making, maintenance or funding of
any Loan to which a Euro-Rate Option applies has been made impracticable or
unlawful by compliance by such Lender in good faith with any Law or any
interpretation or application thereof by any Official Body or with any request
or directive of any such Official Body (whether or not having the force of Law),
or
(ii) such Euro-Rate Option will not
adequately and fairly reflect the cost to such Lender of the establishment or
maintenance of any such Loan, or
after making all reasonable efforts, deposits of the relevant amount in Dollars
for the relevant Interest Period for a Loan to which a Euro-Rate Option applies,
respectively, are not available to such Lender with respect to such Loan, in the
London interbank market, then the Collateral Agent shall have the rights
specified in Section 4.4.3.
4.4.3 COLLATERAL AGENT'S AND LENDER'S RIGHTS.
In the case of any event specified in Section 4.4.1
above, the Collateral Agent shall promptly so notify the Lenders and the
Borrowers thereof, and in the case of an event specified in Section 4.4.2 above,
such Lender shall promptly so notify the Collateral Agent and endorse a
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certificate to such notice as to the specific circumstances of such notice, and
the Collateral Agent shall promptly send copies of such notice and certificate
to the other Lenders and the Borrowers. Upon such date as shall be specified in
such notice (which shall not be earlier than the date such notice is given), the
obligation of (A) the Lenders, in the case of such notice given by the
Collateral Agent, or (B) such Lender, in the case of such notice given by such
Lender, to allow the Borrowers to select, convert to or renew a Euro-Rate Option
shall be suspended until the Collateral Agent shall have later notified the
Borrowers, or such Lender shall have later notified the Collateral Agent, of the
Collateral Agent's or such Lender's, as the case may be, determination that the
circumstances giving rise to such previous determination no longer exist. If at
any time the Collateral Agent makes a determination under Section 4.4.1 and the
Borrowers have previously notified the Collateral Agent of Borrowers' selection
of, conversion to or renewal of a Euro-Rate Option and such Interest Rate Option
has not yet gone into effect, such notification shall be deemed to provide for
selection of, conversion to or renewal of the Base Rate Option otherwise
available with respect to such Loans. If any Lender notifies the Collateral
Agent of a determination under Section 4.4.2, the Borrowers shall, subject to
the Borrowers' indemnification obligations under Section 5.6.2 [Indemnity], as
to any Loan of the Lender to which a Euro-Rate Option applies, on the date
specified in such notice either convert such Loan to the Base Rate Option
otherwise available with respect to such Loan or prepay such Loan in accordance
with Section 5.4 [Voluntary Prepayments]. Absent due notice from the Borrowers
of conversion or prepayment, such Loan shall automatically be converted to the
Base Rate Option otherwise available with respect to such Loan upon such
specified date.
4.5 SELECTION OF INTEREST RATE OPTIONS.
If the Borrowers fail to select a new Interest Period to apply
to any Borrowing Tranche of Loans under the Euro-Rate Option at the expiration
of an existing Interest Period applicable to such Borrowing Tranche in
accordance with the provisions of Section 4.2 [Interest Periods], the Borrowers
shall be deemed to have converted such Borrowing Tranche to the Revolving Credit
Base Rate Option, commencing upon the last day of the existing Interest Period.
5. PAYMENTS
5.1 PAYMENTS.
All payments and prepayments to be made in respect of
principal, interest, Commitment Fees, Letter of Credit Fees, Bankers' Acceptance
Fees, Administration Fees or other fees or amounts due from the Borrowers
hereunder shall be payable prior to 11:00 a.m., New York, New York time, on the
date when due without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived by the Borrowers, and without set-off,
counterclaim or other deduction of any nature, and an action therefor shall
immediately accrue. Such payments shall be made to the Agent or Collateral
Agent, as applicable, at its Principal Office in U.S. Dollars and in immediately
available funds.
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5.2 PRO RATA TREATMENT OF LENDERS.
Each borrowing shall be allocated to each Lender according to
its Ratable Share, and each selection of, conversion to or renewal of any
Interest Rate Option and each payment or prepayment by the Borrowers with
respect to principal, interest, Commitment Fees, Letter of Credit Fees, Bankers'
Acceptance Fees or other fees (except for the Administration Fee or any fees due
to the Agent for its own account) or amounts due from the Borrowers hereunder to
the Lenders with respect to the Loans, shall (except as provided in Section
4.4.3 [Agent's and Lender's Rights] in the case of an event specified in Section
4.4 [Euro-Rate Unascertainable; Etc.], 5.4.2 [Replacement of a Lender] or 5.6
[Additional Compensation in Certain Circumstances]) be made in proportion to the
applicable Loans outstanding from each Lender and, if no such Loans are then
outstanding, in proportion to the Ratable Share of each Lender.
5.3 INTEREST PAYMENT DATES.
Interest on Loans to which the Base Rate Option applies shall
be due and payable in arrears on the first Business Day of each month and on the
Expiration Date or upon acceleration of the Notes. Interest on Loans to which
the Euro-Rate Option applies shall be due and payable on the last day of each
Interest Period for those Loans. Interest on mandatory prepayments of principal
under Section 5.5 [Mandatory Prepayments] shall be due on the date such
mandatory prepayment is due. Additionally, interest on the principal amount of
each Loan or other monetary Obligation shall be due and payable on demand after
such principal amount or other monetary Obligation becomes due and payable
(whether on the stated maturity date, upon acceleration or otherwise).
5.4 VOLUNTARY PREPAYMENTS.
5.4.1 RIGHT TO PREPAY.
The Borrowers shall have the right at their option
from time to time to prepay the Loans in whole or part without premium or
penalty (except as provided in Section 5.4.2 below or in Section 5.6 [Additional
Compensation in Certain Circumstances]):
(i) at any time with respect to any Loan to
which the Base Rate Option applies,
(ii) on the last day of the applicable
Interest Period with respect to Loans to which a Euro-Rate Option applies,
(iii) on the date specified in a notice by
any Lender pursuant to Section 4.4 [Euro-Rate Unascertainable, Etc.] with
respect to any Loan to which a Euro-Rate Option applies.
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Whenever the Borrowers desire to prepay any part of
the Loans, Borrowers shall provide a prepayment notice to the Collateral Agent
by 1:00 p.m. at least one (1) Business Day prior to the date of prepayment of
Loans setting forth the following information:
(x) the date, which shall be a Business Day, on which
the proposed prepayment is to be made;
(y) a statement indicating the application of the
prepayment between the Revolving Credit Loans.
All prepayment notices shall be irrevocable. The
principal amount of the Loans for which a prepayment notice is given, together
with interest on such principal amount except with respect to Loans to which the
Base Rate Option applies, shall be due and payable on the date specified in such
prepayment notice as the date on which the proposed prepayment is to be made.
Except as provided in Section 4.4.3 [Collateral Agent's and Lender's Rights], if
the Borrowers prepay a Loan, the prepayment shall be applied to Revolving Credit
Loans as set forth in Section 5.5.1 of this Agreement. Any prepayment hereunder
shall be subject to the Borrowers' Obligation to indemnify the Lenders under
Section 5.6.2 [Indemnity].
5.4.2 REPLACEMENT OF A LENDER.
In the event any Lender (i) gives notice under
Section 4.4 [Euro-Rate Unascertainable, Etc.] or Section 5.6.1 [Increased Costs,
Etc.], (ii) does not fund Revolving Credit Loans because the making of such
Loans would contravene any Law applicable to such Lender, (iii) OMITTED, or (iv)
becomes subject to the control of an Official Body (other than normal and
customary supervision), then the Borrowers shall have the right at Borrowers'
option, with the consent of the Agent (which consent will not be unreasonably
withheld), to prepay the Loans of such Lender in whole, together with all
interest accrued thereon, and terminate such Lender's Commitment within ninety
(90) days after (w) receipt of such Lender's notice under Section 4.4 [Euro-Rate
Unascertainable, Etc.] or 5.6.1 [Increased Costs, Etc.], (x) the date such
Lender has failed to fund Revolving Credit Loans because the making of such
Loans would contravene Law applicable to such Lender, (y) the date of obtaining
the consent which such Lender has not approved, or (z) the date such Lender
became subject to the control of an Official Body, as applicable; PROVIDED that
the Borrowers shall also pay to such Lender at the time of such prepayment any
amounts required under Section 5.6 [Additional Compensation in Certain
Circumstances] and any accrued interest due on such amount and any related fees;
PROVIDED, however, that the Commitment of such Lender shall be assumed and
provided by one or more of the remaining Lenders or a replacement lender
acceptable to the Agent; PROVIDED, further, the remaining Lenders shall have no
obligation hereunder to increase their Commitments. Notwithstanding the
foregoing, the Agent and the Collateral Agent may only be replaced subject to
the requirements of Section 9.14 [Successor Agent] and PROVIDED that all Letters
of Credit and Bankers' Acceptances have expired or been terminated or replaced.
The assumption by any successor Lender of the Commitment of any other
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Lender shall not release the departing Lender from any liabilities arising prior
to the assignment and assumption.
5.4.3 CHANGE OF LENDING OFFICE.
Each Lender agrees that upon the occurrence of any
event giving rise to increased costs or other special payments under Section
4.4.2 [Illegality, Etc.] or 5.6.1 [Increased Costs, Etc.] with respect to such
Lender, it will if requested by the Borrowers, use reasonable efforts (subject
to overall policy considerations of such Lender) to designate another lending
office for any Loans or Letters of Credit affected by such event, PROVIDED that
such designation is made on such terms that such Lender and its lending office
suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of such
Section. Nothing is this Section 5.4.3 shall affect or postpone any of the
Obligations of the Borrowers or any Borrower or the rights of the Agent or any
Lender provided in this Agreement.
5.4.4 DEBIT OF ACCOUNTS.
Notwithstanding anything herein to the contrary, the
Collateral Agent is hereby irrevocably authorized and directed, on each Business
Day, to apply any funds in any and all Cash Collateral Accounts and Lockbox
Accounts maintained by Borrowers first to the prepayment of Loans to which the
Base Rate Option applies and thereafter to the prepayment of Loans to which the
Euro-Rate Option applies.
5.5 MANDATORY PREPAYMENTS.
5.5.1 APPLICATION AMONG INTEREST RATE OPTIONS.
All prepayments shall first be applied among the
Interest Rate Options to the principal amount of the Loans subject to the Base
Rate Option, then to Loans subject to a Euro-Rate Option. In accordance with
Section 5.6.2 [Indemnity], the Borrowers shall indemnify the Lenders for any
loss or expense, including loss of margin, incurred with respect to any such
prepayments applied against Loans subject to a Euro-Rate Option on any day other
than the last day of the applicable Interest Period.
5.6 ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES.
5.6.1 INCREASED COSTS OR REDUCED RETURN RESULTING
FROM TAXES, RESERVES, CAPITAL ADEQUACY REQUIREMENTS,
EXPENSES, ETC.
If any Law, guideline or interpretation or any change
in any Law, guideline or interpretation or application thereof by any Official
Body charged with the interpretation or administration thereof or compliance
with any request or directive (whether or not having the force of Law) of any
central bank or other Official Body:
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(i) subjects any Lender to any tax or
changes the basis of taxation with respect to this Agreement, the Notes, the
Loans the Letters of Credit, the Bankers' Acceptances or payments by the
Borrowers of principal, interest, Commitment Fees, or other amounts due from the
Borrowers hereunder or under the Notes (except for taxes on the overall net
income of such Lender),
(ii) imposes, modifies or deems applicable
any reserve, special deposit or similar requirement against credits or
commitments to extend credit extended by, or assets (funded or contingent) of,
deposits with or for the account of, or other acquisitions of funds by, any
Lender, or
(iii) imposes, modifies or deems applicable
any capital adequacy or similar requirement (A) against assets (funded or
contingent) of, or letters of credit, other credits or commitments to extend
credit extended by, any Lender, or (B) otherwise applicable to the obligations
of any Lender under this Agreement,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Lender with respect to this Agreement, the Notes or the making, maintenance or
funding of any part of the Loans (or, in the case of any capital adequacy or
similar requirement, to have the effect of reducing the rate of return on any
Lender's capital, taking into consideration such Lender's customary policies
with respect to capital adequacy) by an amount which such Lender in its
reasonable discretion deems to be material, such Lender shall promptly from time
to time notify the Borrowers and the Collateral Agent of the amount determined
in good faith (using any averaging and attribution methods employed in good
faith) by such Lender to be necessary to compensate such Lender for such
increase in cost, reduction of income, additional expense or reduced rate of
return. Such notice shall set forth in reasonable detail the basis for such
determination and such amount shall be due and payable by the Borrowers
immediately upon receipt of such notice.
5.6.2 INDEMNITY.
In addition to the compensation required by Section
5.6.1 [Increased Costs, Etc.], the Borrowers shall indemnify the Agent,
Collateral Agent and each Lender against all liabilities, losses or expenses
(including loss of margin, any loss or expense incurred in liquidating or
employing deposits from third parties and any loss or expense incurred in
connection with funds acquired by a Lender to fund or maintain Loans subject to
a Euro-Rate Option) which such Lender sustains or incurs as a consequence of any
(i) payment, prepayment, conversion or
renewal of any Loan to which a Euro-Rate Option applies on a day other than the
last day of the corresponding Interest Period (whether or not such payment or
prepayment is mandatory, voluntary or automatic and whether or not such payment
or prepayment is then due),
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(ii) attempt by the Borrowers to revoke
(expressly, by later inconsistent notices or otherwise) in whole or part any
Loan Requests under Section 2.4 [Revolving Credit Loan Requests] or Section 4.2
[Interest Periods] or notice relating to prepayments under Section 5.4
[Voluntary Prepayments], or
(iii) default by the Borrowers in the
performance or observance of any covenant or condition contained in this
Agreement or any other Loan Document, including any failure of the Borrowers to
pay when due (by acceleration or otherwise) any principal, interest, Commitment
Fee or any other amount due hereunder.
If any Lender sustains or incurs any such loss or expense, it
shall promptly from time to time notify the Borrowers of the amount determined
in good faith by such Lender (which determination may include such assumptions,
allocations of costs and expenses and averaging or attribution methods as such
Lender shall deem reasonable) to be necessary to indemnify such Lender for such
loss or expense. Such notice shall set forth in reasonable detail the basis for
such determination and such amount shall be due and payable by the Borrowers
immediately upon receipt of such notice.
5.7 REPRESENTATIONS AND WARRANTIES.
The Borrowers, jointly and severally, represent and warrant to
the Agent and each of the Lenders as follows:
5.7.1 ORGANIZATION AND QUALIFICATION.
Each Borrower is a corporation or limited liability
company duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization. Each Borrower has the lawful power to own or
lease its properties and to engage in the business it presently conducts or
proposes to conduct. Each Borrower is duly licensed or qualified and in good
standing in each jurisdiction listed on Schedule 5.7.1 and in all other
jurisdictions where the property owned or leased by it or the nature of the
business transacted by it or both makes such licensing or qualification
necessary.
5.7.2 CAPITALIZATION AND OWNERSHIP.
The pre-Transition and post-Transition authorized
capital stock (the "Shares")of the Borrowers is as indicated on SCHEDULE 5.7.2.
All of the Shares have been validly issued and are fully paid and nonassessable.
There are no options, warrants or other rights outstanding to purchase any such
shares except as indicated on Schedule 5.7.2.
5.7.3 SUBSIDIARIES.
Schedule 5.7.3 states the name of each of the
Borrowers' Subsidiaries, its jurisdiction of incorporation, its authorized
capital stock, the issued and outstanding shares (referred to herein as the
"Subsidiary Shares") and the owners thereof if it is a corporation, its
outstanding
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partnership interests (the "Partnership Interests") if it is a partnership and
its outstanding limited liability company interests, interests assigned to
managers thereof and the voting rights associated therewith (the "LLC
Interests") if it is a limited liability company. The Borrowers have good and
marketable title to all of the Subsidiary Shares, Partnership Interests and LLC
Interests it purports to own, free and clear in each case of any Lien. All
Subsidiary Shares, Partnership Interests and LLC Interests have been validly
issued, and all Subsidiary Shares are fully paid and nonassessable. All capital
contributions and other consideration required to be made or paid in connection
with the issuance of the Partnership Interests and LLC Interests have been made
or paid, as the case may be. There are no options, warrants or other rights
outstanding to purchase any such Subsidiary Shares, Partnership Interests or LLC
Interests except as indicated on Schedule 5.7.3.
5.7.4 POWER AND AUTHORITY.
Each Borrower has full power to enter into, execute,
deliver and carry out this Agreement and the other Loan Documents to which it is
a party, to incur the Indebtedness contemplated by the Loan Documents and to
perform its Obligations under the Loan Documents to which it is a party, and all
such actions have been duly authorized by all necessary proceedings on its part.
5.7.5 VALIDITY AND BINDING EFFECT.
This Agreement has been duly and validly executed and
delivered by each Borrower, and each other Loan Document which any Borrower is
required to execute and deliver on or after the date hereof will have been duly
executed and delivered by such Borrower on the required date of delivery of such
Loan Document. This Agreement and each other Loan Document constitutes, or will
constitute, legal, valid and binding obligations of each Borrower which is or
will be a party thereto on and after its date of delivery thereof, enforceable
against such Borrower in accordance with its terms, except to the extent that
enforceability of any of such Loan Document may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforceability of creditors' rights generally or limiting the right of specific
performance.
5.7.6 NO CONFLICT.
Neither the execution and delivery of this Agreement
or the other Loan Documents by any Borrower nor the consummation of the
transactions herein or therein contemplated or compliance with the terms and
provisions hereof or thereof by any of them will conflict with, constitute a
default under or result in any breach of (i) the terms and conditions of the
certificate of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, limited liability company
agreement or other organizational documents of any Borrower or (ii) any Law or
any material agreement or instrument or order, writ, judgment, injunction or
decree to which any Borrower is a party or by which it is bound or to which it
is subject, or result in the creation or enforcement of any Lien, charge or
encumbrance whatsoever upon any property (now or hereafter acquired) of any
Borrower (other than Liens granted under the Loan Documents).
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5.7.7 LITIGATION.
Except as described in Schedule 5.7.7 attached to
this Agreement, there are no actions, suits, proceedings or investigations
pending or, to the knowledge of any Borrower, threatened against such Borrower
at law or equity before any Official Body which individually or in the aggregate
may result in any Material Adverse Change. None of the Borrowers is in violation
of any order, writ, injunction or any decree of any Official Body which may
result in any Material Adverse Change.
5.7.8 TITLE TO PROPERTIES.
The real property owned or leased by each Borrower is
described on Schedule 5.7.8. Each Borrower has good and marketable title to or
valid leasehold interest in all properties, assets and other rights which it
purports to own or lease or which are reflected as owned or leased on its books
and records, free and clear of all Liens and encumbrances except Permitted
Liens, and subject to the terms and conditions of the applicable leases. All
leases of property are in full force and effect without the necessity for any
consent which has not previously been obtained upon consummation of the
transactions contemplated hereby.
5.7.9 FINANCIAL STATEMENTS.
(i) HISTORICAL STATEMENTS. The Borrowers
have delivered to the Collateral Agent copies of Borrowers' audited consolidated
year-end financial statements for the fiscal year ended December 31, 1997 (the
"Annual Statements"). In addition, the Borrowers have delivered to the Agent
copies of Borrowers' unaudited consolidated interim financial statements for the
fiscal year to date and as of the period ending March 31, 1998 (the "Interim
Statements") (the Annual and Interim Statements being collectively referred to
as the "Historical Statements"). The Historical Statements were compiled from
the books and records maintained by the Borrowers' management, are correct and
complete and fairly represent in all material respects the consolidated
financial condition of the Borrowers as of their dates and the results of
operations for the fiscal periods then ended and have been prepared in
accordance with GAAP consistently applied (with the exception that Interim
Statements do not include cash-flows or footnotes and are subject to normal
year-end audit adjustments).
(ii) FINANCIAL PROJECTIONS. The Borrowers
have delivered to the Collateral Agent financial projections of the Borrowers
for the period ending December 31, 1998 derived from various assumptions of the
Borrowers' management (the "Financial Projections"). The Financial Projections
represent a reasonable range of possible results in light of the history of the
business, present and foreseeable conditions and the intentions of the
Borrowers' management. The Financial Projections accurately reflect the
liabilities of the Borrowers upon consummation of the transactions contemplated
hereby as of the Closing Date. The Lenders recognize, however, that projections
as to future events are not to be viewed as facts and that actual results during
the period or periods covered by the Financial Projections may differ from
projected results.
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(iii) ACCURACY OF FINANCIAL STATEMENTS. None
of the Borrowers has any liabilities, contingent or otherwise, or forward or
long-term commitments that are not disclosed in the Historical Statements or in
the notes thereto, which are required under GAAP to be disclosed, or which have
otherwise been disclosed to Agent by Borrowers in writing, and except as
disclosed therein there are no unrealized or anticipated losses from any
commitments of the Borrowers which may cause a Material Adverse Change. Since
December 31, 1997, no Material Adverse Change has occurred.
5.7.10 USE OF PROCEEDS; MARGIN STOCK; SECTION 20
SUBSIDIARIES.
5.7.10.1 GENERAL. The Borrowers intend to
use the proceeds of the Loans in accordance with Sections 2.7.
5.7.10.2 MARGIN STOCK. None of the Borrowers
or any Subsidiaries of any Borrower engages or intends to engage principally, or
as one of its important activities, in the business of extending credit for the
purpose, immediately, incidentally or ultimately, of purchasing or carrying
margin stock (within the meaning of Regulation U). No part of the proceeds of
any Loan has been or will be used, immediately, incidentally or ultimately, to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock or to refund Indebtedness originally
incurred for such purpose, or for any purpose which entails a violation of or
which is inconsistent with the provisions of the regulations of the Board of
Governors of the Federal Reserve System.
5.7.10.3 SECTION 20 SUBSIDIARIES. The
Borrowers do not intend to use and shall not use any portion of the proceeds of
the Loans, directly or indirectly (i) knowingly to purchase any Ineligible
Securities from a Section 20 Subsidiary during any period in which such Section
20 Subsidiary makes a market in such Ineligible Securities, (ii) knowingly to
purchase during the underwriting or placement period Ineligible Securities being
underwritten or privately placed by a Section 20 Subsidiary, or (iii) to make
payments of principal or interest on Ineligible Securities underwritten or
privately placed by a Section 20 Subsidiary and issued by or for the benefit of
any Borrower or any Affiliate of any Borrower.
5.7.11 FULL DISCLOSURE.
Neither this Agreement nor any other Loan Document,
nor any certificate, statement, agreement or other documents furnished to the
Agent or any Lender in connection herewith or therewith, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein, in light of the
circumstances under which they were made, not misleading. There is no fact known
to any Borrower which materially adversely affects the business, property,
assets, financial condition, results of operations or prospects of any Borrower
which has not been set forth in this Agreement or in the certificates,
statements, agreements or other documents furnished in writing to the Agent and
the Lenders prior to or at the date hereof in connection with the transactions
contemplated hereby.
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5.7.12 TAXES.
All federal, state, local and other tax returns
required to have been filed with respect to each Borrower have been filed, and
payment or adequate provision has been made for the payment of all taxes, fees,
assessments and other governmental charges which have or may become due pursuant
to said returns or to assessments received, except to the extent that such
taxes, fees, assessments and other charges are being contested in good faith by
appropriate proceedings diligently conducted and for which such reserves or
other appropriate provisions, if any, as shall be required by GAAP shall have
been made, or where the failure to so file or pay could not result in a Material
Adverse Change. There are no agreements or waivers extending the statutory
period of limitations applicable to any federal income tax return of any
Borrower for any period.
5.7.13 CONSENTS AND APPROVALS.
Except for the filing of financing statements in the
state and county filing offices, and the filing of requisite documents in Hong
Kong in connection with the Debentures, no consent, approval, exemption, order
or authorization of, or a registration or filing with, any Official Body or any
other Person is required by any Law or any agreement in connection with the
execution, delivery and carrying out of this Agreement and the other Loan
Documents by any Borrower, all of which shall have been obtained or made on or
prior to the Closing Date except as otherwise indicated on Schedule 5.7.13.
5.7.14 NO EVENT OF DEFAULT; COMPLIANCE WITH
INSTRUMENTS.
No event has occurred and is continuing and no
condition exists or will exist after giving effect to the borrowings or other
extensions of credit to be made on the Closing Date under or pursuant to the
Loan Documents which constitutes an Event of Default or Potential Default. None
of the Borrowers is in violation of (i) any term of its certificate of
incorporation, bylaws, certificate of limited partnership, partnership
agreement, certificate of formation, limited liability company agreement or
other organizational documents or (ii) any material agreement or instrument to
which it is a party or by which it or any of its properties may be subject or
bound where such violation would constitute a Material Adverse Change.
5.7.15 PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES,
ETC.
Each Borrower owns or possesses or has the right to
use or has applied to register, all the patents, trademarks, service marks,
trade names, copyrights, licenses, registrations, franchises, permits and rights
necessary to own and operate its properties and to carry on its business as
presently conducted and planned to be conducted by such Borrower, without known
possible, alleged or actual conflict with the rights of others, except where the
failure to do so could not result in a Material Adverse Change. All patents,
trademarks, service marks, trade names, copyrights, licenses, registrations,
franchises and permits of each Borrower are listed and described on Schedule
5.7.15.
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5.7.16 SECURITY INTERESTS.
The Liens and security interests granted to the
Collateral Agent in the Collateral for the benefit of the Agent, Collateral
Agent and the Lenders pursuant to the Security Documents constitute and will
continue to constitute Prior Security Interests under the Uniform Commercial
Code as in effect in each applicable jurisdiction (the "Uniform Commercial
Code") or other applicable Law and are entitled to all the rights, benefits and
priorities provided by the Uniform Commercial Code or such Law. Upon the filing
of financing statements relating to said security interests in each office and
in each jurisdiction where required in order to perfect the security interests
described above, taking possession of any stock certificates or other
certificates evidencing the Collateral and recordation of the Patent, Trademark
and Copyright Assignment in the United States Patent and Trademark Office and
United States Copyright Office, as applicable, all such action as is necessary
or advisable to establish such rights of the Collateral Agent will have been
taken, and there will be upon execution and delivery of the Security Documents,
such filings and such taking of possession, no necessity for any further action
in order to preserve, protect and continue such rights, except the filing of
continuation statements with respect to such financing statements within six
months prior to each five-year anniversary of the filing of such financing
statements. All filing fees and other expenses in connection with each such
action have been or will be paid by the Borrowers.
5.7.17 LIENS.
The Liens granted to the Collateral Agent for the
benefit of the Agent, Collateral Agent and the Lenders constitute a valid first
priority Lien under applicable law. All such action as will be necessary or
advisable to establish such Lien of the Collateral Agent and its priority as
described in the preceding sentence will be taken at or prior to the time
required for such purpose.
5.7.18 SOLVENCY.
The Borrowers and each Borrower, individually, hereby
(i) acknowledges receipt of fair consideration and reasonably equivalent value
for the undertaking of its obligations hereunder, in each case for the benefit
of the Agent, the Collateral Agent and the Lenders, (ii) represents and warrants
that, after giving effect to the undertaking of such obligations and the
acquisition of the rights obtained hereunder, the present fair salable value of
the Borrowers' consolidated assets exceeds the Borrowers' consolidated
liabilities and, when each Borrower is given credit for "contribution rights" it
may have with respect to other Borrowers, the present fair salable value of each
Borrower's assets exceeds such Borrower's liabilities and that the Borrowers on
a consolidated basis, and each Borrower, when given credit for "contribution
rights" it may have with respect to other Borrowers, retain sufficient capital
to meet the reasonably anticipated needs and risks of its ongoing business, and
(iii) the Borrowers on a consolidated basis, and each Borrower, when given
credit for "contribution rights" it may have with respect to other Borrowers,
represent and warrant that, after giving effect to the undertaking of such
obligations and the acquisition of such rights, it has not incurred, nor is it
obligated for, debts beyond its ability to pay such debts as
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they mature, and that the present fair salable value of its assets is greater
than that needed to pay its probable existing debts as they become due.
5.7.19 INSURANCE.
Schedule 5.7.19 lists all insurance policies and
other bonds to which any Borrower is a party, all of which are valid and in full
force and effect. No notice has been given or claim made and no grounds exist to
cancel or avoid any of such policies or bonds or to reduce the coverage provided
thereby. Such policies and bonds provide adequate coverage from reputable and
financially sound insurers in accordance with the requirements of Section 7.1.3
and the Security Documents..
5.7.20 COMPLIANCE WITH LAWS.
The Borrowers are in compliance in all material
respects with all applicable Laws (other than Environmental Laws which are
specifically addressed in Section 5.7.25 [Environmental Matters]) in all
jurisdictions in which any Borrower is presently or will be doing business,
except where the failure thereof could not result in a Material Adverse Change.
5.7.21 MATERIAL CONTRACTS; BURDENSOME RESTRICTIONS.
Schedule 5.7.21 lists all Material Contracts relating
to the business operations of each Borrower, including all employee benefit
plans and Labor Contracts. All such material contracts are valid, binding and
enforceable upon such Borrower and each of the other parties thereto in
accordance with their respective terms, and there is no default thereunder, to
the Borrowers' knowledge, with respect to parties other than such Borrower. None
of the Borrowers is bound by any contractual obligation, or subject to any
restriction in any organization document, or any requirement of Law which could
result in a Material Adverse Change.
5.7.22 INVESTMENT COMPANIES; REGULATED ENTITIES.
None of the Borrowers is an "investment company"
registered or required to be registered under the Investment Company Act of 1940
or under the "control" of an "investment company" as such terms are defined in
the Investment Company Act of 1940 and shall not become such an "investment
company" or under such "control." None of the Borrowers is subject to any other
federal or state statute or regulation limiting its ability to incur
Indebtedness for borrowed money.
5.7.23 PLANS AND BENEFIT ARRANGEMENTS.
Except as set forth on Schedule 5.7.23:
(i) The Borrowers and each other member of
the ERISA Group are in compliance in all material respects with any applicable
provisions of ERISA (and as to
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the Borrowers which are Hong Kong Limited Liability Companies, all comparable
laws and statutes under Hong Kong law) with respect to all Benefit Arrangements,
Plans and Multiemployer Plans. There has been no Prohibited Transaction with
respect to any Benefit Arrangement or any Plan or, to the best knowledge of the
Borrowers, with respect to any Multiemployer Plan or Multiple Employer Plan (and
as to the Borrowers which are Hong Kong Limited Liability Companies, all
comparable laws and statutes under Hong Kong law), which could result in any
material liability of the Borrowers or any other member of the ERISA Group. The
Borrowers and all other members of the ERISA Group have made when due any and
all payments required to be made under any agreement relating to a Multiemployer
Plan or a Multiple Employer Plan or any Law pertaining thereto(and as to the
Borrowers which are Hong Kong Limited Liability Companies, all comparable laws
and statutes under Hong Kong law). With respect to each Plan and Multiemployer
Plan (and as to the Borrowers which are Hong Kong Limited Liability Companies,
all comparable plans under Hong Kong law), the Borrowers and each other member
of the ERISA Group (i) have fulfilled in all material respects their obligations
under the minimum funding standards of ERISA, (ii) have not incurred any
liability to the PBGC, and (iii) have not had asserted against them any penalty
for failure to fulfill the minimum funding requirements of ERISA.
(ii) To the best of the Borrowers'
knowledge, each Multiemployer Plan and Multiple Employer Plan (and as to the
Borrowers which are Hong Kong Limited Liability Companies, all comparable plans
under Hong Kong law) is able to pay benefits thereunder when due.
(iii) Neither the Borrowers nor any other
member of the ERISA Group has instituted or intends to institute proceedings to
terminate any Plan (and as to the Borrowers which are Hong Kong Limited
Liability Companies, any comparable plan under Hong Kong law).
(iv) No event requiring notice to the PBGC
under Section 302(f)(4)(A) of ERISA has occurred or is reasonably expected to
occur with respect to any Plan, and no amendment with respect to which security
is required under Section 307 of ERISA has been made or is reasonably expected
to be made to any Plan (and as to the Borrowers which are Hong Kong Limited
Liability Companies, all comparable laws and statutes under Hong Kong law).
(v) The aggregate actuarial present value of
all benefit liabilities (whether or not vested) under each Plan (and as to the
Borrowers which are Hong Kong Limited Liability Companies, any comparable plan
under Hong Kong law), determined on a plan termination basis, as disclosed in,
and as of the date of, the most recent actuarial report for such Plan, does not
exceed the aggregate fair market value of the assets of such Plan.
(vi) Neither the Borrowers nor any other
member of the ERISA Group has incurred or reasonably expects to incur any
material withdrawal liability under ERISA (and as to the Borrowers which are
Hong Kong Limited Liability Companies, all comparable laws and statutes under
Hong Kong law) to any Multiemployer Plan or Multiple Employer Plan (and
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as to the Borrowers which are Hong Kong Limited Liability Companies, any
comparable plan under Hong Kong law). Neither the Borrowers nor any other member
of the ERISA Group has been notified by any Multiemployer Plan or Multiple
Employer Plan that such Multiemployer Plan or Multiple Employer Plan has been
terminated within the meaning of Title IV of ERISA and, to the best knowledge of
the Borrowers, no Multiemployer Plan or Multiple Employer Plan is reasonably
expected to be reorganized or terminated, within the meaning of Title IV of
ERISA.
(vii) To the extent that any Benefit
Arrangement (and as to the Borrowers which are Hong Kong Limited Liability
Companies, any comparable plan under Hong Kong law) is insured, the Borrowers
and all other members of the ERISA Group have paid when due all premiums
required to be paid for all periods through the Closing Date. To the extent that
any Benefit Arrangement (and as to the Borrowers which are Hong Kong Limited
Liability Companies, any comparable plan under Hong Kong law) is funded other
than with insurance, the Borrowers and all other members of the ERISA Group have
made when due all contributions required to be paid for all periods through the
Closing Date.
(viii) All Plans, Benefit Arrangements and
Multiemployer Plans (and as to the Borrowers which are Hong Kong Limited
Liability Companies, any comparable plans under Hong Kong law) have been
administered in accordance with their terms and applicable Law.
5.7.24 EMPLOYMENT MATTERS.
Each of the Borrowers is in compliance with the Labor Contracts and all
applicable federal, state and local labor and employment Laws including those
related to equal employment opportunity and affirmative action, labor relations,
minimum wage, overtime, child labor, medical insurance continuation, worker
adjustment and relocation notices, immigration controls and worker and
unemployment compensation, where the failure to comply would constitute a
Material Adverse Change. There are no outstanding grievances, arbitration awards
or appeals therefrom arising out of the Labor Contracts or current or threatened
strikes, picketing, handbilling or other work stoppages or slowdowns at
facilities of any of the Borrowers which in any case would constitute a Material
Adverse Change. The Borrowers have delivered to the Collateral Agent true and
correct copies of each of the Labor Contracts.
5.7.25 ENVIRONMENTAL MATTERS.
Except as disclosed on Schedule 5.7.25:
(i) None of the Borrowers has received any
Environmental Complaint from any Official Body or private Person alleging that
such Borrower or any prior or subsequent owner of any of the real property
("Property") owned by any Borrower is a potentially responsible party under the
Comprehensive Environmental Response, Cleanup and Liability Act, 42 U.S.C. ss.
9601, ET SEQ., and none of the Borrowers has any reason to believe that such an
Environmental Complaint might be received. There are no pending or, to any
Borrower's knowledge, threatened Environmental Complaints relating to any
Borrower, to any Borrower's
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knowledge, any prior or subsequent owner of any of the Property pertaining to,
or arising out of, any Environmental Conditions.
(ii) There are no circumstances at, on or
under any of the Property that constitute a breach of or non-compliance with any
of the Environmental Laws, and there are no past or present Environmental
Conditions at, on or under any of the Property or, to any Borrower's knowledge,
at, on or under adjacent property, that prevent compliance with the
Environmental Laws at any of the Property.
(iii) Neither any of the Property nor any
structures, improvements, equipment, fixtures, activities or facilities thereon
or thereunder contain or use Regulated Substances except in compliance with
Environmental Laws. There are no processes, facilities, operations, equipment or
other activities at, on or under any of the Property, or, to any Borrower's
knowledge, at, on or under adjacent property, that currently result in the
release or threatened release of Regulated Substances onto any of the Property,
except to the extent that such releases or threatened releases are not a breach
of or otherwise not a violation of the Environmental Laws.
(iv) There are no aboveground storage tanks,
underground storage tanks or underground piping associated with such tanks, used
for the management of Regulated Substances at, on or under any of the Property
that (a) do not have, to the extent required by Environmental Laws, a full
operational secondary containment system in place, and (b) are not otherwise in
compliance with all Environmental Laws. There are no abandoned underground
storage tanks or underground piping associated with such tanks, previously used
for the management of Regulated Substances at, on or under any of the Property
that have not either been closed in place in accordance with Environmental Laws
or removed in compliance with all applicable Environmental Laws and no
contamination associated with the use of such tanks exists on any of the
Property that is not in compliance with Environmental Laws.
(v) Each Borrower has all material permits,
licenses, authorizations, plans and approvals necessary under the Environmental
Laws for the conduct of the business of such Borrower as presently conducted.
Each Borrower has submitted all material notices, reports and other filings
required by the Environmental Laws to be submitted to an Official Body which
pertain to past and current operations on any of the Property.
(vi) All past and present on-site
generation, storage, processing, treatment, recycling, reclamation, disposal or
other use or management of Regulated Substances at, on, or under any of the
Property and all off-site transportation, storage, processing, treatment,
recycling, reclamation, disposal or other use or management of Regulated
Substances have been done in accordance with the Environmental Laws.
5.7.26 SENIOR DEBT STATUS.
The Obligations of each Borrower under this
Agreement, the Notes and each of the other Loan Documents to which it is a party
do rank and will rank senior in priority of
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payment over all other Indebtedness of such Borrower. There is no Lien upon or
with respect to any of the properties or income of any Borrower which secures
indebtedness or other obligations of any Person except for Permitted Liens.
5.8 UPDATES TO SCHEDULES.
Should any of the information or disclosures provided
on any of the Schedules attached hereto become outdated or incorrect in any
material respect, the Borrowers shall promptly provide the Collateral Agent in
writing with such revisions or updates to such Schedule as may be necessary or
appropriate to update or correct same; PROVIDED, however, that no Schedule shall
be deemed to have been amended, modified or superseded by any such correction or
update, nor shall any breach of warranty or representation resulting from the
inaccuracy or incompleteness of any such Schedule be deemed to have been cured
thereby, unless and until the Required Lenders, in their sole and absolute
discretion, shall have accepted in writing such revisions or updates to such
Schedule.
6. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT AND
BANKERS' ACCEPTANCES
The obligation of each Lender to make Loans and of the Agent to issue
Letters of Credit and create Bankers' Acceptances hereunder is subject to the
performance by each of the Borrowers of its Obligations to be performed
hereunder at or prior to the making of any such Loans or issuance of such
Letters of Credit or creation of Bankers' Acceptances and to the satisfaction of
the following further conditions:
6.1 FIRST LOANS, LETTERS OF CREDIT AND BANKERS' ACCEPTANCES.
On the Closing Date:
6.1.1 OFFICER'S CERTIFICATE.
The representations and warranties of each of the
Borrowers contained in Section 5.7 and in each of the other Loan Documents shall
be true and accurate on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date
(except representations and warranties which relate solely to an earlier date or
time, which representations and warranties shall be true and correct on and as
of the specific dates or times referred to therein), and each of the Borrowers
shall have performed and complied with all covenants and conditions hereof and
thereof, no Event of Default or Potential Default shall have occurred and be
continuing or shall exist; and there shall be delivered to the Agent and
Collateral Agent for the benefit of the Agent, Collateral Agent and the Lenders
a certificate of each of the Borrowers, dated the Closing Date and signed by the
Chief Executive Officer, President or Chief Financial Officer (and as to the
Borrowers which are Hong Kong Limited Liability Companies, a Director) of each
of the Borrowers, to each such effect.
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6.1.2 SECRETARY'S CERTIFICATE.
There shall be delivered to the Agent for the benefit
of the Agent, Collateral Agent and the Lenders a certificate dated the Closing
Date and signed by the Secretary or an Assistant Secretary (or as to the
Borrowers which are Hong Kong Limited Liability Companies, a Director) of each
of the Borrowers, certifying as appropriate as to:
(i) all action taken by each Borrower in
connection with this Agreement and the other Loan Documents;
(ii) the names of the officer or officers
authorized to sign this Agreement and the other Loan Documents and the true
signatures of such officer or officers and specifying the Authorized Officers
permitted to act on behalf of each Borrower for purposes of this Agreement and
the true signatures of such officers, on which the Agent and each Lender may
conclusively rely; and
(iii) copies of its organizational
documents, including its certificate of incorporation, bylaws, certificate of
limited partnership, partnership agreement, certificate of formation, and
limited liability company agreement as in effect on the Closing Date certified
by the appropriate state or other governmental official where such documents are
filed in a state or other governmental office together with certificates from
the appropriate state officials as to the continued existence and good standing
of each Borrower in each state or other jurisdiction where organized or
qualified to do business and as to NEII, a bring-down certificate by facsimile
dated the Closing Date.
6.1.3 DELIVERY OF LOAN DOCUMENTS.
The Loan Documents, including without limitation, the
Notes, the Security Documents, the Subordination Agreement, the Cash Collateral
Agreements and the Lockbox Agreements shall have been duly executed and
delivered to the Agent for the benefit of the Agent, Collateral Agent and the
Lenders, together with all appropriate financing statements and perfection
documents required under applicable U.S. and Hong Kong law.
6.1.4 OPINIONS OF COUNSEL.
There shall be delivered to the Agent for the benefit
of the Agent, Collateral Agent and the Lenders:
(i) a favorable written opinion (addressed
to the Agent and Collateral Agent and the Lenders) of Greenberg Traurig Hoffman
Lipoff Rosen & Quentel, P.A., Miami, Florida, counsel for the Borrowers, dated
the Closing Date and covering such matters as the Agent or any Lender may
request; and
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(ii) a favorable written opinion (addressed
to the Agent and Collateral Agent and the Lenders) of Coudert Brothers, Hong
Kong, counsel for Agent and Collateral Agent and the Lenders, dated the Closing
Date and covering such matters as the Agent or Collateral Agent or any Lender
may request (including perfection of the Security Interests in Hong Kong
Collateral).
(iii) an appointment by each of the
Borrowers and Joel Newman of CT Corporation System, as agent to receive service
of process on his and its behalf in any State or Federal court located in the
State of New York and an acceptance by CT Corporation System of each such
appointment;
All legal details and proceedings in connection with
the transactions contemplated by this Agreement and the other Loan Documents
shall be in form and substance satisfactory to the Agent and the Collateral
Agent and counsel for the Agent and the Collateral Agent, and the Agent and
Collateral Agent shall have received all such other counterpart originals or
certified or other copies of such documents and proceedings in connection with
such transactions, in form and substance satisfactory to the Agent and the
Collateral Agent and said counsel, as the Agent and the Collateral Agent or said
counsel may reasonably request.
6.1.5 PAYMENT OF FEES.
Each Borrower shall have paid or caused to be paid to
the Agent and the Collateral Agent, as applicable, for itself and for the
account of the Lenders to the extent not previously paid all commitment,
administration and other fees accrued through the Closing Date and the costs and
expenses for which the Agent, the Collateral Agent and the Lenders are entitled
to be reimbursed.
6.1.6 ELIGIBLE SECURITIES.
Borrowers shall have furnished to the Collateral
Agent a duly executed counterpart of whatever agreement with Merrill Lynch
Pierce Fenner & Smith the Collateral Agent requests to establish the Collateral
Agent's control over the account in which the Eligible Securities are contained
and confirmation that there exist Eligible Securities having an Eligible
Securities Value of at least $1,250,000.00.
6.1.7 SOLVENCY.
The Lenders shall have received evidence
satisfactory to them that, after giving effect to the indebtedness represented
by the Loans outstanding and to be incurred, and the transactions contemplated
by this Agreement, including the issuance of Letters of Credit and Bankers'
Acceptances, the Borrowers on a consolidated basis, and each Borrower, when
given credit for "contribution rights" it may have with respect to other
Borrowers are solvent, having assets of a fair salable value which exceed the
amount required to pay its debts as they become absolute and unmatured
(including contingent, subordinated, unmatured and unliquidated liabilities),
and that the
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Borrowers on a consolidated basis, and each Borrower, when given credit for
"contribution rights" it may have with respect to other Borrowers are able to
and anticipates that it will be able to meet its debts as they mature and has
adequate capital to conduct the business in which it is or proposes to be
engaged. The Lenders shall have received an executed copy of the contribution
agreement among the Borrowers with respect to the Loan.
6.1.8 CONSENTS.
All consents required to effectuate the transactions
contemplated hereby as set forth on Schedule 5.7.13 shall have been obtained.
6.1.9 OFFICER'S CERTIFICATE REGARDING MACS.
Since December 31, 1997, no Material Adverse Change
shall have occurred; prior to the Closing Date, there shall have been no
material change in the management of any Borrower (except for the replacement of
Directors of the Hong Kong Limited Liability Companies, as set forth in Schedule
6.1.9 attached hereto and made a part hereof); and there shall have been
delivered to the Agent for the benefit of the Agent, Collateral Agent and the
Lenders a certificate dated the Closing Date and signed by the Chief Executive
Officer, President or Chief Financial Officer (or as to the Borrowers which are
Hong Kong Limited Liability Companies, a Director) of each Borrower to each such
effect.
6.1.10 NO VIOLATION OF LAWS.
The making of the Loans and the issuance of the
Letters of Credit shall not contravene any Law applicable to any Borrower or any
of the Lenders.
6.1.11 NO ACTIONS OR PROCEEDINGS.
No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, this Agreement, the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby or which, in the
Agent's reasonable discretion, would make it inadvisable to consummate the
transactions contemplated by this Agreement or any of the other Loan Documents.
6.1.12 INSURANCE POLICIES; CERTIFICATES OF INSURANCE;
ENDORSEMENTS.
The Borrowers shall have delivered evidence
acceptable to the Collateral Agent that adequate insurance in compliance with
Section 7.1.3 [Maintenance of Insurance] is in full force and effect and that
all premiums then due thereon have been paid, together with a certified copy of
each Borrower's casualty insurance policy or policies evidencing such coverage
satisfactory to the Agent and the Collateral Agent, with additional insured,
mortgagee and lender loss payable special endorsements attached thereto in form
and substance satisfactory to the Agent and the
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Collateral Agent and its counsel naming the Agent and the Collateral Agent, for
the benefit of the Agent, Collateral Agent and the Lenders, as additional
insured, mortgagee and lender loss payee.
6.1.13 OMITTED.
6.1.14 FILING RECEIPTS.
The Collateral Agent shall have received (1) executed
originals of all documents required to be executed or filed, in proper form for
filing or recording, in order to perfect the Lien of the Lenders on the
Collateral or other satisfactory evidence of such recordation and filing and (2)
evidence in a form acceptable to the Collateral Agent that such Lien constitutes
a Prior Security Interest in favor of the Lenders and a valid and perfected
first priority Lien.
6.1.15 LANDLORD'S WAIVERS.
The Borrowers shall have delivered an executed
Landlord's Lien Waiver and Warehousemen's Lien Waiver in substantially the forms
of Exhibit "I" from the lessor for each leased Collateral location and from each
public warehouse as listed in the Security Documents.
6.1.16 ADMINISTRATIVE QUESTIONNAIRE.
Each of the Lenders and the Borrowers shall have
completed and delivered to the Collateral Agent the Collateral Agent's
administrative details reply form.
6.2 EACH ADDITIONAL LOAN, LETTER OF CREDIT OR BANKERS'
ACCEPTANCE.
At the time of making any Loans or issuing any Letters of
Credit or creating any Bankers' Acceptances, other than Loans made or Letters of
Credit issued or Bankers' Acceptances created on the Closing Date and after
giving effect to the proposed extensions of credit: the representations and
warranties of the Borrowers contained in Section 5.7 and in the other Loan
Documents shall be true on and as of the date of such additional Loan or Letter
of Credit or Bankers' Acceptances, with the same effect as though such
representations and warranties had been made on and as of such date (except
representations and warranties which expressly relate solely to an earlier date
or time, which representations and warranties shall be true and correct on and
as of the specific dates or times referred to therein) and the Borrowers shall
have performed and complied with all covenants and conditions hereof; no Event
of Default or Potential Default shall have occurred and be continuing or shall
exist; the making of the Loans or issuance of such Letter of Credit or creation
of Bankers' Acceptances shall not contravene any Law applicable to any Borrower
or any of the Lenders; and the Borrowers shall have delivered to the Collateral
Agent a duly executed and completed Loan Request or application for a Letter of
Credit or Bankers' Acceptances as the case may be.
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7. COVENANTS
7.1 AFFIRMATIVE COVENANTS.
The Borrowers, jointly and severally, covenant and agree that
until payment in full of the Loans, Reimbursement Obligations, Letter of Credit
Outstandings and Bankers' Acceptance Obligations, and interest thereon,
expiration or termination of all Letters of Credit and Bankers' Acceptances,
satisfaction of all of the Borrowers' other Obligations under the Loan Documents
and termination of the Revolving Credit Commitments, the Borrowers shall comply
at all times with the following affirmative covenants:
7.1.1 PRESERVATION OF EXISTENCE, ETC.
Each Borrower shall maintain its legal existence as a
corporation, limited partnership or limited liability company and its license or
qualification and good standing in each jurisdiction in which its ownership or
lease of property or the nature of its business makes such license or
qualification necessary, except as otherwise expressly permitted in Section
7.2.6 [Liquidations, Mergers, Etc.].
7.1.2 PAYMENT OF LIABILITIES, INCLUDING TAXES, ETC.
Each Borrower shall duly pay and discharge all
liabilities to which it is subject or which are asserted against it, promptly as
and when the same shall become due and payable, including all taxes, assessments
and governmental charges upon it or any of its properties, assets, income or
profits, prior to the date on which penalties attach thereto, except to the
extent that such liabilities, including taxes, assessments or charges, are being
contested in good faith and by appropriate and lawful proceedings diligently
conducted and for which such reserve or other appropriate provisions, if any, as
shall be required by GAAP shall have been made, but only to the extent that
failure to discharge any such liabilities would not result in any additional
liability which would adversely affect to a material extent the financial
condition of any Borrower or which would affect the Collateral, PROVIDED that
the Borrowers will pay all such liabilities forthwith upon the commencement of
proceedings to foreclose any Lien which may have attached as security therefor.
7.1.3 MAINTENANCE OF INSURANCE.
Subject to the provisions below with respect to
DEIL's insurance, each Borrower shall insure its properties and assets against
loss or damage by fire and such other insurable hazards as such assets are
commonly insured (including fire, extended coverage, property damage, workers'
compensation, public liability and business interruption insurance) and against
other risks (including errors and omissions) in such amounts as similar
properties and assets are insured according to industry practices for companies
in similar circumstances carrying on similar businesses, and with reputable and
financially sound insurers, including self-insurance to the extent customary,
all as reasonably determined by the Collateral Agent. At the request of the
Collateral Agent, the Borrowers shall deliver to the Collateral Agent and each
of the Lenders (x) on the Closing Date and annually thereafter an original
certificate of insurance signed by the Borrowers'
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independent insurance broker describing and certifying as to the existence of
the insurance on the Collateral required to be maintained by this Agreement and
the other Loan Documents, together with a copy of the endorsement described in
the next sentence attached to such certificate and (y) from time to time a
summary schedule indicating all insurance then in force with respect to each of
the Borrowers. Such policies of insurance shall contain special endorsements, in
form and substance acceptable to the Collateral Agent, which shall (i) specify
the Agent and the Collateral Agent, for the benefit of the Agent, Collateral
Agent and the Lenders, as an additional insured, mortgagee and lender loss payee
as its interests may appear, with the understanding that any obligation imposed
upon the insured (including the liability to pay premiums) shall be the sole
obligation of the Borrowers and not that of the insured, (ii) provide that the
interest of the Agent and the Collateral Agent, for the benefit of the Agent,
Collateral Agent and the Lenders, shall be insured regardless of any breach or
violation by the applicable Borrowers of any warranties, declarations or
conditions contained in such policies or any action or inaction of the Borrowers
or others insured under such policies, (iii) provide a waiver of any right of
the insurers to set off or counterclaim or any other deduction, whether by
attachment or otherwise, (iv) provide that any and all rights of subrogation
which the insurers may have or acquire shall be, at all times and in all
respects, junior and subordinate to the prior payment in full of the
Indebtedness hereunder and that no insurer shall exercise or assert any right of
subrogation until such time as the Indebtedness hereunder has been paid in full
and the Revolving Credit Commitments have terminated, (v) provide, except in the
case of public liability insurance and workmen's compensation insurance, that
all insurance proceeds for losses of less than $25,000.00, in the aggregate
shall, so long as no Potential Default or Event of Default has occurred, be
adjusted with and payable to the Borrowers and that all insurance proceeds for
losses of $25,000.00 or more, in the aggregate shall be adjusted with and
payable to the Collateral Agent, (vi) include effective waivers by the insurer
of all claims for insurance premiums against the Agent and Collateral Agent,
(vii) provide that no cancellation of such policies for any reason (including
non-payment of premium) nor any change therein shall be effective until at least
thirty (30) days after receipt by the Collateral Agent of written notice of such
cancellation or change, (viii) be primary without right of contribution of any
other insurance carried by or on behalf of any additional insureds with respect
to their respective interests in the Collateral, and (ix) provide that inasmuch
as the policy covers more than one insured, all terms, conditions, insuring
agreements and endorsements (except limits of liability) shall operate as if
there were a separate policy covering each insured. The Borrowers shall notify
the Collateral Agent promptly of any occurrence causing a material loss or
decline in value of the Collateral and the estimated (or actual, if available)
amount of such loss or decline. Any monies received by the Collateral Agent
constituting insurance proceeds or condemnation proceeds may, at the option of
the Required Lenders, (i) be applied by the Collateral Agent to the payment of
the Loans in such manner as the Required Lenders may reasonably determine, or
(ii) be disbursed to the Borrowers on such terms as are deemed appropriate by
the Required Lenders for the repair, restoration and/or replacement of property
in respect of which such proceeds were received, provided that, so long as no
Potential Default or Event of Default has occurred, proceeds up to $25,000.00
may, at the Borrower's election, be used for the repair, restoration and/or
replacement of property in respect of which such proceeds were received.
Notwithstanding the preceding paragraph, DEIL shall
have until September 1, 1998, to fully comply with all of the insurance
requirements set forth herein and in the Security Documents, provided that,
until DEIL is in full compliance with such insurance requirements, DEIL
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shall keep in full force and effect its agreements with Windmere and DEML
relating to the insuring of DEIL's plant, equipment and Inventory and shall
cause DEML and/or Windmere, as appropriate, to immediately pay over to the
Agent, any and all insurance proceeds received by DEML or Windmere arising from
DEIL's plant, equipment and Inventory.
7.1.4 MAINTENANCE OF PROPERTIES AND LEASES.
Each Borrower shall maintain in good repair, working
order and condition (ordinary wear and tear excepted) in accordance with the
general practice of other businesses of similar character and size in the
Borrowers' industry, all of those properties useful or necessary to its
business, and from time to time, such Borrower will make or cause to be made all
appropriate repairs, renewals or replacements thereof.
7.1.5 MAINTENANCE OF PATENTS, TRADEMARKS, ETC.
Each Borrower shall maintain in full force and effect
all patents, trademarks, service marks, trade names, copyrights, licenses,
franchises, permits and other authorizations necessary for the ownership and
operation of its properties and business.
7.1.6 VISITATION RIGHTS.
Every four (4) months and from time to time as often
as may be reasonably requested by the Agent, Collateral Agent or any Lender, and
at any time and as often as Agent, Collateral Agent or any of the Lenders may
require following the occurrence of a Potential Default or Event of Default,
each Borrower shall permit representatives (whether or not officers or
employees) of the Collateral Agent, Agent or any of the Lenders , during normal
business hours, to (i) visit and inspect any properties of such Borrower, (ii)
inspect and make extracts from their books and records, including but not
limited to management letters prepared by such Borrower's independent
accountants, (iii) discuss with their principal officers and their independent
accountants their respective businesses, assets, liabilities, financial
conditions, results of operations and business prospects and (iv) inspect and
audit the Collateral and the premises upon which any of the Collateral is
located, and verify the amount, quality, quantity, value and condition of, or
any other matter relating to, the Collateral. In the event that any of the
Collateral is under the exclusive control of any third party, such Borrower
shall cause such parties to make such inspection rights available to the
Collateral Agent. In connection with each field audit of the Borrowers or the
Collateral, Borrowers shall pay the Collateral Agent a fee of Four Hundred
Dollars ($400.00) per day, plus all out of pocket expenses incurred in
connection therewith.
7.1.7 KEEPING OF RECORDS AND BOOKS OF ACCOUNT.
The Borrowers shall maintain and keep proper books of
record and account which enable the Borrowers to issue financial statements in
accordance with GAAP and as otherwise required by applicable Laws of any
Official Body having jurisdiction over the Borrowers, and in
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which full, true and correct entries shall be made in all material respects of
all its dealings and business and financial affairs.
7.1.8 PLANS AND BENEFIT ARRANGEMENTS.
The Borrowers shall, and shall cause each other
member of the ERISA Group to, comply in all material respects, with ERISA, the
Internal Revenue Code and other applicable Laws applicable to Plans and Benefit
Arrangements (and as to the Borrowers which are Hong Kong Limited Liability
Companies, all comparable laws and statutes under Hong Kong law). Without
limiting the generality of the foregoing, each Borrower shall cause all of its
Plans and all Plans maintained by any member of the ERISA Group to be funded in
accordance with the minimum funding requirements of ERISA and shall make, and
cause each member of the ERISA Group to make, in a timely manner, all
contributions due to Plans, Benefit Arrangements and Multiemployer Plans.
7.1.9 COMPLIANCE WITH LAWS.
Each Borrower shall comply with all applicable Laws,
including all Environmental Laws (and as to the Borrowers which are Hong Kong
Limited Liability Companies, all comparable laws and statutes under Hong Kong
law), in all respects.
7.1.10 USE OF PROCEEDS
The Borrowers will use the Letters of Credit,
Bankers' Acceptances and the proceeds of the Loans only in accordance with
Section 2.7 of this Agreement.
7.1.11 FURTHER ASSURANCES.
Each Borrower shall, from time to time, at its
expense, faithfully preserve and protect the Collateral Agent's Lien on and
Prior Security Interest in the Collateral as a continuing first priority
perfected Lien, subject only to Permitted Liens, and shall do such other acts
and things as the Agent in its sole discretion may deem necessary or advisable
from time to time in order to preserve, perfect and protect the Liens granted
under the Loan Documents and to exercise and enforce its rights and remedies
thereunder with respect to the Collateral.
7.1.12 WINDMERE SUBORDINATION.
Borrowers shall cause Windmere to enter into a
subordination and no offset agreement in form satisfactory to the Collateral
Agent, regarding Borrowers' Inventory in Arkansas.
7.1.13 YEAR 2000 COMPLIANCE.
The Borrowers shall conduct a comprehensive review
and assessment of their computer applications to evaluate the risk that their
computer applications will not be able to
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properly perform date-sensitive functions after December 31, 1999 (the "Y2K
Problem"). Borrowers shall use commercially reasonable best efforts to prevent
the Y2K Problem from resulting in a Material adverse change on Borrowers.
Borrowers will work diligently to develop a program to address on a timely
basis, the risk associated with the Y2K Problem, including the impact the Y2K
Problem could have on Borrowers' account debtors, vendors and suppliers. The
Borrowers will promptly notify the Collateral Agent in the event any Borrower
discovers or determines that any computer application (including those of
suppliers and vendors) that is material to its business and operations will have
a Y2K Problem, except to the extent such failure could not reasonably be
expected to result in a Material Adverse Change.
7.1.14 LOCKBOX ACCOUNTS.
NEII and NL shall establish lockbox accounts (the
"Lockbox Accounts") with the Collateral Agent and cause all receipts to be
deposited directly into the Lockbox Accounts, including all domestic and foreign
receipts, other than an amount (not to exceed $250,000 at any time) required
from time to time to operate Borrowers' Hong Kong office.
7.2 NEGATIVE COVENANTS.
The Borrowers, jointly and severally, covenant and agree that
until payment in full of the Loans, Reimbursement Obligations, Letters of Credit
Outstandings and Bankers' Acceptance Obligations and interest thereon,
expiration or termination of all Letters of Credit and Bankers' Acceptances,
satisfaction of all of the Borrowers' other Obligations hereunder and
termination of the Commitments, the Borrowers shall comply with the following
negative covenants:
7.2.1 INDEBTEDNESS.
No Borrower shall at any time create, incur, assume
or suffer to exist any Indebtedness, except:
(i) Indebtedness under the Loan Documents;
(ii) Existing DEML Debt as set forth on
Schedule 7.2.1, including any extensions or renewals thereof, and any increase
in the principal amount thereof as permitted in Section 7.2.4; and
(iii) Capitalized and operating leases as
and to the extent permitted under Section 7.2.15 [Capital Expenditures and
Leases].
7.2.2 LIENS.
No Borrower shall at any time create, incur, assume
or suffer to exist any Lien on any of its property or assets, tangible or
intangible, now owned or hereafter acquired, or agree or become liable to do so,
except Permitted Liens.
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7.2.3 GUARANTIES.
No Borrower shall at any time, directly or
indirectly, become or be liable in respect of any Guaranty, or assume,
guarantee, become surety for, endorse or otherwise agree, become or remain
directly or contingently liable upon or with respect to any obligation or
liability of any other Person, other than (i) NEII's guaranty of the DEML Debt
and (ii) endorsements of items for deposit in the ordinary course of business.
7.2.4 LOANS AND INVESTMENTS.
No Borrower shall at any time make or suffer to
remain outstanding any loan or advance to, or purchase, acquire or own any
stock, bonds, notes or securities of, or any partnership interest (whether
general or limited) or limited liability company interest in, or any other
investment or interest in, or make any capital contribution to, any other
Person, or agree, become or remain liable to do any of the foregoing, except for
(i) existing Indebtedness owed by NEIL and DEIL to DURABLE ELECTRICAL METAL
FACTORY LIMITED, a Hong Kong Limited Liability Company ("DEML"), in an amount
not to exceed Ten Million Seven Hundred Thousand Dollars ($10,700,000.00) from
the Closing Date through the completion of the initial public offering (the
"IPO") of NEII, Nine Million Seven Hundred Thousand Dollars ($9,700,000.00) from
and after July 31, 1998 if the IPO has not yet occurred, and Eight Million Seven
Hundred Thousand Dollars ($8,700,000.00) from and after the IPO (the "DEML
Debt");(ii) trade credit extended on usual and customary terms in the ordinary
course of business;(iii) advances to employees to meet expenses incurred by such
employees in the ordinary course of business; and (iv) Permitted Investments.
7.2.5 DIVIDENDS AND RELATED DISTRIBUTIONS.
Prior to the Transition Date, no Borrower shall make
or pay or agree to become or remain liable to make or pay, and subsequent to the
Transition Date, NEII shall not make or pay, or agree to become or remain liable
to make or pay, any dividend or other distribution of any nature (whether in
cash, property, securities or otherwise) on account of or in respect of its
shares of capital stock, partnership interests or limited liability company
interests on account of the purchase, redemption, retirement or acquisition of
its shares of capital stock (or warrants, options or rights therefor),
partnership interests or limited liability company interests.
7.2.6 LIQUIDATIONS, MERGERS, CONSOLIDATIONS,
ACQUISITIONS.
No Borrower shall dissolve, liquidate or wind-up its
affairs, or become a party to any merger or consolidation, or acquire by
purchase, lease or otherwise all or substantially all of the assets or capital
stock of any other Person.
7.2.7 DISPOSITIONS OF ASSETS.
No Borrower shall sell, convey, assign, lease,
abandon or otherwise transfer or dispose of, voluntarily or involuntarily, any
of its properties or assets, tangible or intangible (including sale, assignment,
discount or other disposition of accounts, contract rights, chattel paper,
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equipment or general intangibles with or without recourse or of capital stock,
shares of beneficial interest, partnership interests or limited liability
company interests of a Subsidiary of such Borrower), except:
(i) transactions involving the sale of
Inventory in the ordinary course of business;
(ii) any sale, transfer or lease of assets
in the ordinary course of business which are no longer necessary or required in
the conduct of such Borrower's business;
(iii) any sale, transfer or lease of assets
by any wholly owned Subsidiary of such Borrower to a Borrower;
(iv) any sale, transfer or lease of assets
in the ordinary course of business which are replaced by substitute assets
acquired or leased within the parameters of Section 7.2.15 [Capital Expenditures
and Leases], PROVIDED such substitute assets are subject to the Lenders' Prior
Security Interest; or
(v) any sale, transfer or lease of assets,
other than those specifically excepted pursuant to clauses (i) through (iv)
above, which is approved by the Required Lenders.
7.2.8 AFFILIATE TRANSACTIONS.
No Borrower shall enter into or carry out any transaction (including purchasing
property or services from or selling property or services to any Affiliate of
any Borrower or other Person) unless such transaction is expressly permitted by
this Agreement, is entered into in the ordinary course of business upon fair and
reasonable arm's-length terms and conditions which are fully disclosed to the
Collateral Agent and is in accordance with all applicable Law. Notwithstanding
the foregoing, the following shall be permitted:
(i) Borrowers shall be entitled to incur
administrative commitments with Windmere to an amount not to exceed Two Hundred
Fifty Thousand Dollars ($250,000.00) per annum;
(ii) the Windmere Notes;
(iii) the DEML Debt and the security
interest in the fixed assets and inventory of DEIL granted to DEML to secure
DEIL's obligations under the DEML Debt;
(iv) NEII's guarantee of the DEML Debt;
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(v) DEML's agreement (a) not to compete in
the design, research, development or manufacture of music centers and video
compact disc players in the PRC prior to September 30, 2003 and (b) to make
available to NEIL without charge its general manufacturing software program
until October 31, 2003;
(vi) Windmere's provision to the Borrowers
of certain administrative services with respect to NEIL's PRC manufacturing
facility, including the payment by Windmere or its affiliates of certain
accounts payable and the collection by Windmere or its affiliates of certain
accounts receivable on behalf of the Borrowers.;
(vii) that certain Lease Agreement between
NEII and F Fifty Holdings, Inc. ("F Fifty") pursuant to which F Fifty leases an
aircraft (the "Aircraft") to NEII;
(viii) loans to Joel Newman in an amount not
to exceed $300,000.00 in the aggregate at any one time outstanding.
(ix) that certain Indemnification Agreement
among White Consolidated Industries, Inc., Kmart Corporation and Windmere; and
(x) employment agreements entered into from
time to time with Joel Newman, so long as he remains an Affiliate of NEII.
7.2.9 SUBSIDIARIES, PARTNERSHIPS AND JOINT VENTURES.
No Borrower shall own or create directly or
indirectly any Subsidiaries other than any Subsidiary which has joined this
Agreement as a Borrower on the Closing Date. No Borrower shall become or agree
to (i) become a general or limited partner in any general or limited
partnership, except that the Borrowers may be general or limited partners in
other Borrowers ;(ii) become a member or manager of, or hold a limited liability
company interest in, a limited liability company, except that the Borrowers may
be members or managers of, or hold limited liability company interests in, other
Borrowers; or (iii) become a joint venturer or hold a joint venture interest in
any joint venture.
7.2.10 CONTINUATION OF OR CHANGE IN BUSINESS.
No Borrower shall engage in any business other than
substantially as conducted and operated by such Borrower on the date hereof, and
no such Borrower shall permit any material change in such business.
7.2.11 PLANS AND BENEFIT ARRANGEMENTS.
No Borrower shall :
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(i) fail to satisfy the minimum funding
requirements of ERISA and the Internal Revenue Code with respect to any Plan;
(ii) request a minimum funding waiver from
the Internal Revenue Service with respect to any Plan;
(iii) engage in a Prohibited Transaction
with any Plan, Benefit Arrangement or Multiemployer Plan which, alone or in
conjunction with any other circumstances or set of circumstances resulting in
liability under ERISA, would constitute a Material Adverse Change;
(iv) permit the aggregate actuarial present
value of all benefit liabilities (whether or not vested) under each Plan,
determined on a plan termination basis, as disclosed in the most recent
actuarial report completed with respect to such Plan, to exceed, as of any
actuarial valuation date, the fair market value of the assets of such Plan;
(v) fail to make when due any contribution
to any Multiemployer Plan that the Borrowers or any member of the ERISA Group
may be required to make under any agreement relating to such Multiemployer Plan,
or any Law pertaining thereto;
(vi) withdraw (completely or partially) from
any Multiemployer Plan or withdraw (or be deemed under Section 4062(e) of ERISA
to withdraw) from any Multiple Employer Plan, where any such withdrawal is
likely to result in a material liability of the Borrowers or any member of the
ERISA Group;
(vii) terminate, or institute proceedings to
terminate, any Plan, where such termination is likely to result in a material
liability to the Borrowers or any member of the ERISA Group;
(viii) make any amendment to any Plan with
respect to which security is required under Section 307 of ERISA; or
(ix) fail to give any and all notices and
make all disclosures and governmental filings required under ERISA or the
Internal Revenue Code, where such failure is likely to result in a Material
Adverse Change.
[As to Borrowers which are Hong Kong Limited Liability Companies, no Borrower
shall fail to comply with all comparable laws and statutes under Hong Kong law]
7.2.12 FISCAL YEAR.
DEIL shall not change its fiscal year from the
twelve-month period ending November 30, and the remaining Borrowers shall not
change their respective fiscal year from the twelve-month period ending December
31.
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7.2.13 ISSUANCE OF STOCK.
Except for the IPO, no Borrower shall issue any
additional shares of its capital stock or any options, warrants or other rights
in respect thereof.
7.2.14 CHANGES IN ORGANIZATIONAL DOCUMENTS.
No Borrower shall amend in any respect its
certificate of incorporation (including any provisions or resolutions relating
to capital stock), by-laws, certificate of limited partnership, partnership
agreement, certificate of formation, limited liability company agreement or
other organizational documents without providing at least thirty (30) calendar
days' prior written notice to the Collateral Agent and, in the event such change
would be adverse to the Lenders as determined by the Agent in its reasonable
discretion, obtaining the prior written consent of the Required Lenders.
7.2.15 CAPITAL EXPENDITURES AND LEASES.
The Borrowers shall not make any payments (net of
tooling expenses) exceeding $500,000.00 in the aggregate in fiscal year ending
December 31, 1998, nor exceeding $1,000,000.00 in the aggregate in fiscal years
ending December 31, 1999 and 2000, respectively, on account of the purchase or
lease of any assets which if purchased would constitute fixed assets or which if
leased would constitute a capitalized lease, or any payments exceeding
$500,000.00 in the aggregate in any fiscal year on account of the rental or
lease of real or personal property of any other Person which does not constitute
a capitalized lease, and all such capital expenditures and leases shall be made
under usual and customary terms and in the ordinary course of business.
7.2.16 CONSOLIDATED TOTAL LIABILITIES TO CONSOLIDATED
TANGIBLE NET WORTH RATIO.
The Borrowers shall not permit the ratio of
Consolidated Total Liabilities of the Borrowers less Subordinated Debt to
Consolidated Tangible Net Worth to be more than 2.0 to 1.0 from December 1
through April 30 of each year nor more than 3.2 to 1.0, from May 1 through
November 30 of each year, calculated as of the end of each fiscal quarter.
7.2.17 MAXIMUM LEVERAGE RATIO.
The Borrowers shall not at any time permit the ratio
of Consolidated Total Liabilities of the Borrowers less Subordinated Debt, plus
the amount of Letters of Credit Outstanding and Bankers Acceptance Obligations
to Consolidated Tangible Net Worth to exceed 3.0 to 1.0 from December 1 through
April 30 of each year nor more than 4.7 to 1.0, from May 1 through November 30
of each year, calculated as of the end of each fiscal quarter.
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7.2.18 MINIMUM INTEREST COVERAGE RATIO.
The Borrowers shall not permit the ratio of
Consolidated Cash Flow from Operations to consolidated interest expense of the
Borrowers to be less than 3.0 to 1.0, determined at the end of each fiscal
quarter, on a rolling basis utilizing the quarterly financial reporting for the
immediately preceding four (4) fiscal quarters.
7.2.19 MINIMUM TANGIBLE NET WORTH.
The Borrowers shall not at any time permit
Consolidated Tangible Net Worth to be less than the following amounts as of the
periods indicated:
- --------------------------------------------------------------------------------
PERIODS AMOUNTS
------- -------
From the Closing Date through June 29, 1998 $16,000,000.00
From June 30, 1998 through September 29, 1998 $19,000,000.00
From September 30, 1998 through December 30, 1998 $23,000,000.00
From December 31, 1998 through September 29, 1999 $25,000,000.00
From September 30, 1999 through December 30, 1999 $28,750,000.00
From December 31, 1999 through September 29, 2000 $32,500,000.00
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
From September 30, 2000 through December 30, 2000 $36,250,000.00
From December 31, 2000 through the Expiration Date $40,000,000.00
All of the above Minimum Consolidated Tangible Net
Worth Requirements shall be increased by an amount
equal to ninety percent (90%) of the aggregate net
proceeds of any Subordinated Debt or equity offering
of the Borrowers.
- --------------------------------------------------------------------------------
7.2.20 MINIMUM CURRENT RATIO.
The Borrowers shall not at any time permit the ratio
of consolidated current assets of the Borrowers to consolidated current
liabilities of the Borrowers to be less than 1.0 to 1.0, calculated as of the
end of each fiscal quarter.
7.3 REPORTING REQUIREMENTS.
The Borrowers, jointly and severally, covenant and agree that
until payment in full of the Loans, Reimbursement Obligations, Letters of Credit
Outstandings and Bankers' Acceptance Obligations and interest thereon,
expiration or termination of all Letters of Credit and Bankers' Acceptances,
satisfaction of all of the Borrowers' other Obligations hereunder and under the
other Loan Documents and termination of the Commitments, the Borrowers will
furnish or cause to be furnished to the Agent, Collateral Agent and each of the
Lenders, as applicable, the following:
7.3.1 MONTHLY FINANCIAL STATEMENTS.
To the Collateral Agent, as soon as available and in
any event within thirty (30) calendar days after the end of each calendar month,
the financial statements of each Borrower and consolidated financial statements
for the Borrowers, consisting of a management prepared balance sheet as of the
end of such month and related individual statements of income, shareholders'
equity and retained earnings for the month then ended and the fiscal year
through that date, all in reasonable detail and certified (subject to normal
year-end adjustments) by the Chief Executive
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Officer, President or Chief Financial Officer of the Borrowers as having been
prepared in accordance with GAAP, consistently applied.
7.3.2 ADDITIONAL MATERIALS.
7.3.2.1 To the Collateral Agent, promptly
upon any Borrower becoming aware thereof, notice of each federal statutory Lien,
tax or other state or local government Lien or other Lien (other than the
Security Interests) filed against the property of any Borrower;
7.3.2.2 To the Collateral Agent, within
twenty (20) calendar days after the end of every month, a schedule of each
Borrower's Inventory certified by an authorized officer of the applicable
Borrower and indicating, with respect to any such Inventory, the location
thereof (whether in a warehouse specified in the schedule, or in transit);
7.3.2.3 To the Collateral Agent, within
twenty (20) calendar days after the end of every month, a report of each
Borrower's receivable agings and within thirty (30) calendar days after the end
of every month, a report of each Borrower's accounts payable agings, certified
in each case by an authorized officer of such Borrower;
7.3.2.4 To the Collateral Agent, within
twenty (20) calendar days after the end of each month (or, if the Collateral
Agent or the Required Lenders so request, on a more frequent basis) a Borrowing
Base Certificate;
7.3.2.5 To the Collateral Agent, promptly,
with the financial statements referred to in Section 7.3.3, consolidated
projections for Borrowers' balance sheet and profit and loss statement and cash
flows for the next fiscal year, with monthly details;
7.3.2.6 From time to time and within a
reasonable time after request of the Agent, Collateral Agent or any Lender, such
data, certificates, reports, statements, opinions of counsel, documents or
further information regarding this Agreement, any extension of credit or any
Loan Document or any transaction contemplated thereby, or the business, assets,
liabilities, financial condition, results of operations or business prospects of
the Borrowers as the Agent, Collateral Agent or the Required Lenders may
reasonably request, in each case in form and substance and certified in a manner
reasonably satisfactory to the Required Lenders .
7.3.3 ANNUAL FINANCIAL STATEMENTS.
To the Collateral Agent, as soon as available and in
any event within one hundred twenty (120) days after the end of each fiscal year
of the Borrowers, financial statements of the Borrowers, consisting of a
consolidated and consolidating balance sheet as of the end of such fiscal year,
and related consolidated and consolidating statements of income, shareholders'
equity, retained earnings and cash flows for the fiscal year then ended, all in
reasonable detail
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and setting forth in comparative form the financial statements as of the end of
and for the preceding fiscal year, and certified by independent certified public
accountants of nationally recognized standing satisfactory to the Agent,
provided, however, that the certificate or report of accountants shall not be
required to apply to consolidating statements of income shareholders' equity,
retained earnings and cash flows. The certificate or report of accountants shall
be free of qualifications (other than any consistency qualification that may
result from a change in the method used to prepare the financial statements as
to which such accountants concur) and shall not indicate the occurrence or
existence of any event, condition or contingency which would materially impair
the prospect of payment or performance of any covenant, agreement or duty of any
Borrower under any of the Loan Documents. The Borrowers shall deliver with such
financial statements and certification by their accountants a letter of such
accountants to the Collateral Agent and the Lenders substantially (i) to the
effect that, based upon their ordinary and customary examination of the affairs
of the Borrowers, performed in connection with the preparation of such
consolidated financial statements, and in accordance with generally accepted
auditing standards, they are not aware of the existence of any condition or
event which constitutes an Event of Default or Potential Default or, if they are
aware of such condition or event, stating the nature thereof and confirming the
Borrowers' calculations with respect to the certificate to be delivered pursuant
to Section 7.3.4 [Certificate of the Borrower] with respect to such financial
statements and (ii) to the effect that the Lenders are intended to rely upon
such accountant's certification of the annual financial statements and that such
accountants authorize the Borrowers to deliver such reports and certificate to
the Lenders on such accountants' behalf.
7.3.4 CERTIFICATE OF THE BORROWER.
Concurrently with the financial statements of the
Borrowers furnished to the Collateral Agent, pursuant to Section 7.3.1 [Monthly
Financial Statements] and Section 7.3.3 [Annual Financial Statements], a
certificate of each Borrower signed by the Chief Executive Officer, President or
Chief Financial Officer of the Borrower, in the form of Exhibit "J", to the
effect that, except as described pursuant to Section 7.3.5 [Notice of Default],
(i) the representations and warranties of the Borrower contained in Section 5.7
and in the other Loan Documents are true on and as of the date of such
certificate with the same effect as though such representations and warranties
had been made on and as of such date (except representations and warranties
which expressly relate solely to an earlier date or time) and the Borrowers have
performed and complied with all covenants and conditions hereof, (ii) no Event
of Default or Potential Default exists and is continuing on the date of such
certificate and (iii) containing calculations in sufficient detail to
demonstrate compliance as of the date of such financial statements with all
financial covenants contained in Section 7.2 [Negative Covenants].
7.3.5 NOTICE OF DEFAULT.
Promptly after any officer of any Borrower has
learned of the occurrence of an Event of Default or Potential Default, or a
default or termination of the Kmart Contract or the WCI License Agreements or
any other Material Contract, a certificate signed by the Chief
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Executive Officer, President or Chief Financial Officer of such Borrower (and as
to the Borrowers which are Hong Kong Limited Liability Companies from the
Directors) setting forth the details of such Event of Default or Potential
Default and the action which the such Borrower proposes to take with respect
thereto.
7.3.6 NOTICE OF LITIGATION.
Promptly after any Borrower becomes aware of the
commencement thereof, notice of all actions, suits, proceedings or
investigations before or by any Official Body or any other Person against any
Borrower which relate to the Collateral, involve a claim or series of claims in
excess of $100,000.00 or which if adversely determined would constitute a
Material Adverse Change.
7.3.7 CERTAIN EVENTS.
Written notice to the Collateral Agent:
(i) at least sixty (60) calendar days prior
thereto, with respect to any proposed sale or transfer of assets pursuant to
Section 7.2.7, other than pursuant to clause (i) thereof;
(ii) within the time limits set forth in
Section 7.2.14 [Changes in Organizational Documents], any amendment to the
organizational documents of any Borrower; and
(iii) at least thirty (30) calendar days
prior thereto, with respect to any change in any Borrower's locations from the
locations set forth in schedule A to the SecurityAgreements.
7.3.8 BUDGETS, FORECASTS, OTHER REPORTS AND
INFORMATION.
Promptly upon their becoming available to the
Borrowers, furnish to the Collateral Agent:
(i) Omitted;
(ii) any reports including management
letters submitted to the Borrowers by independent accountants in connection with
any annual, interim or special audit;
(iii) any reports, notices or proxy
statements generally distributed by NEII to its shareholders on a date no later
than the date supplied to such shareholders;
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(iv) regular or periodic reports, including
Forms 10-K, 10-Q and 8-K, registration statements and prospectuses, filed by the
Borrowers with the Securities and Exchange Commission;
(v) a copy of any order in any proceeding to
which the Borrowers is a party issued by any Official Body; and
(vi) such other reports and information as
any of the Lenders may from time to time reasonably request. The Borrowers shall
also notify the Lenders promptly of the enactment or adoption of any Law which
may result in a Material Adverse Change.
7.3.9 NOTICES REGARDING PLANS AND BENEFIT
ARRANGEMENTS.
7.3.9.1 CERTAIN EVENTS. Promptly upon
becoming aware of the occurrence thereof, notice (including the nature of the
event and, when known, any action taken or threatened by the Internal Revenue
Service or the PBGC with respect thereto) to the Collateral Agent of:
(i) any Reportable Event with respect to the
Borrowers or any other member of the ERISA Group (regardless of whether the
obligation to report said Reportable Event to the PBGC has been waived),
(ii) any Prohibited Transaction which could
subject the Borrowers or any other member of the ERISA Group to a civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of
the Internal Revenue Code in connection with any Plan, any Benefit Arrangement
or any trust created thereunder,
(iii) any assertion of material withdrawal
liability with respect to any Multiemployer Plan,
(iv) any partial or complete withdrawal from
a Multiemployer Plan by the Borrowers or any other member of the ERISA Group
under Title IV of ERISA (or assertion thereof), where such withdrawal is likely
to result in material withdrawal liability,
(v) any cessation of operations (by any
Borrower or any other member of the ERISA Group) at a facility in the
circumstances described in Section 4062(e) of ERISA,
(vi) withdrawal by any Borrower or any other
member of the ERISA Group from a Multiple Employer Plan,
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(vii) a failure by any Borrower or any other
member of the ERISA Group to make a payment to a Plan required to avoid
imposition of a Lien under Section 302(f) of ERISA,
(viii) the adoption of an amendment to a
Plan requiring the provision of security to such Plan pursuant to Section 307 of
ERISA, or
(ix) any change in the actuarial assumptions
or funding methods used for any Plan, where the effect of such change is to
materially increase or materially reduce the unfunded benefit liability or
obligation to make periodic contributions.
7.3.9.2 NOTICES OF INVOLUNTARY TERMINATION
AND ANNUAL REPORTS. Promptly after receipt thereof, copies to the Collateral
Agent of (a) all notices received by the Borrowers or any other member of the
ERISA Group of the PBGC's intent to terminate any Plan administered or
maintained by the Borrowers or any member of the ERISA Group, or to have a
trustee appointed to administer any such Plan; and (b) at the request of the
Agent or any Lender each annual report (IRS Form 5500 series) and all
accompanying schedules, the most recent actuarial reports, the most recent
financial information concerning the financial status of each Plan administered
or maintained by the Borrowers or any other member of the ERISA Group, and
schedules showing the amounts contributed to each such Plan by or on behalf of
the Borrowers or any other member of the ERISA Group in which any of their
personnel participate or from which such personnel may derive a benefit, and
each schedule B (Actuarial Information) to the annual report filed by the
Borrowers or any other member of the ERISA Group with the Internal Revenue
Service with respect to each such Plan.
7.3.9.3 NOTICE OF VOLUNTARY TERMINATION.
Promptly upon the filing thereof, copies to the Collateral Agent of any Form
5310, or any successor or equivalent form to Form 5310, filed with the PBGC in
connection with the termination of any Plan.
8. DEFAULT
8.1 EVENTS OF DEFAULT.
An Event of Default shall mean the occurrence or existence of
any one or more of the following events or conditions (whatever the reason
therefor and whether voluntary, involuntary or effected by operation of Law), as
determined by the Agent in its sole discretion or by the Required Lenders:
8.1.1 PAYMENTS UNDER LOAN DOCUMENTS.
Any Borrower shall fail to pay any principal of any
Loan (including scheduled installments, prepayments or the payment due at
maturity), Reimbursement
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Obligation, Letter of Credit Borrowing, Bankers' Acceptance Obligation, Bankers'
Acceptance Borrowing or shall fail to pay any interest on any Loan, Bankers'
Acceptance Obligation, Bankers' Acceptance Borrowing, Reimbursement Obligation
or Letter of Credit Borrowing for a period of three (3) days following the date
such payment becomes due in accordance with the terms hereof or thereof; or any
Borrower shall fail to pay any other amount owing hereunder or under the other
Loan Documents for a period of five (5) days after such other amount becomes due
in accordance with the terms hereof or thereof;
8.1.2 BREACH OF WARRANTY.
Any representation or warranty made at any time by
any of the Borrowers herein or by any of the Borrowers in any other Loan
Document, or in any certificate, other instrument or statement furnished
pursuant to the provisions hereof or thereof, shall prove to have been false or
misleading in any material respect as of the time it was made or furnished or
deemed made or furnished;
8.1.3 BREACH OF COVENANTS.
Any of the Borrowers shall default in the observance
or performance of any covenant, condition or provision hereof or of any other
Loan Document;
8.1.4 DEFAULTS IN OTHER AGREEMENTS OR INDEBTEDNESS.
A default or event of default shall occur at any time
under the terms of any other agreement involving borrowed money or the extension
of credit or any other Indebtedness under which any Borrower may be obligated as
a borrower or guarantor in excess of $250,000.00 in the aggregate, and such
breach, default or event of default consists of the failure to pay (beyond any
period of grace permitted with respect thereto, whether waived or not) any
indebtedness when due (whether at stated maturity, by acceleration or otherwise)
or if such breach or default permits or causes the acceleration of any
indebtedness (whether or not such right shall have been waived) or the
termination of any commitment to lend;
8.1.5 FINAL JUDGMENTS OR ORDERS.
Any final judgments or orders for the payment of
money in excess of $250,000.00 in the aggregate shall be entered against the
Borrowers or any Borrower by a court having jurisdiction in the premises, which
judgment is not discharged, vacated, bonded or stayed pending appeal within a
period of thirty (30) days from the date of entry;
8.1.6 LOAN DOCUMENT UNENFORCEABLE.
Any of the Loan Documents shall cease to be legal,
valid and binding agreements enforceable against the party executing the same or
such party's successors and assigns (as permitted under the Loan Documents) in
accordance with the respective terms thereof
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or shall in any way be terminated (except in accordance with its terms) or
become or be declared ineffective or inoperative or shall in any way be
challenged or contested or cease to give or provide the respective Liens,
security interests, rights, titles, interests, remedies, powers or privileges
intended to be created thereby;
8.1.7 UNINSURED LOSSES; PROCEEDINGS AGAINST ASSETS.
There shall occur any material uninsured damage to or
loss, theft or destruction of any of the Collateral in excess of $150,000.00 or
the Collateral or any other of the Borrowers' assets are attached, seized,
levied upon or subjected to a writ or distress warrant; or such come within the
possession of any receiver, trustee, custodian or assignee for the benefit of
creditors and the same is not cured within thirty (30) days thereafter;
8.1.8 NOTICE OF LIEN OR ASSESSMENT.
A notice of Lien or assessment which is not a
Permitted Lien is filed of record with respect to all or any part of any of the
Borrower's assets by the United States, or any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental agency, including the PBGC, or any taxes or debts owing at any time
or times hereafter to any one of these becomes payable and the same is not paid
within thirty (30) days after the same becomes payable;
8.1.9 INSOLVENCY.
Any Borrower ceases to be solvent or admits in
writing its inability to pay its debts as they mature;
8.1.10 EVENTS RELATING TO PLANS AND BENEFIT
ARRANGEMENTS.
Any of the following occurs: (i) any Reportable
Event, which the Agent determines in good faith constitutes grounds for the
termination of any Plan by the PBGC or the appointment of a trustee to
administer or liquidate any Plan, shall have occurred and be continuing; (ii)
proceedings shall have been instituted or other action taken to terminate any
Plan, or a termination notice shall have been filed with respect to any Plan;
(iii) a trustee shall be appointed to administer or liquidate any Plan; (iv) the
PBGC shall give notice of its intent to institute proceedings to terminate any
Plan or Plans or to appoint a trustee to administer or liquidate any Plan; and,
in the case of the occurrence of (i), (ii), (iii) or (iv) above, the Agent
determines in good faith that the amount of any Borrower's liability is likely
to exceed 10% of its Consolidated Tangible Net Worth; (v) any Borrower or any
member of the ERISA Group shall fail to make any contributions when due to a
Plan or a Multiemployer Plan; (vi) any Borrower or any other member of the ERISA
Group shall make any amendment to a Plan with respect to which security is
required under Section 307 of ERISA; (vii) any Borrower or any other member
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of the ERISA Group shall withdraw completely or partially from a Multiemployer
Plan; (viii) any Borrower or any other member of the ERISA Group shall withdraw
(or shall be deemed under Section 4062(e) of ERISA to withdraw) from a Multiple
Employer Plan; or (ix) any applicable Law is adopted, changed or interpreted by
any Official Body with respect to or otherwise affecting one or more Plans,
Multiemployer Plans or Benefit Arrangements and, with respect to any of the
events specified in (v), (vi), (vii), (viii) or (ix), the Agent determines in
good faith that any such occurrence would be reasonably likely to materially and
adversely affect the total enterprise represented by any Borrower and the other
members of the ERISA Group[as to Borrowers which are Hong Kong Limited Liability
Companies, if any Borrower fails to comply with all comparable laws and statutes
under Hong Kong law];
8.1.11 CESSATION OF BUSINESS.
Any Borrower ceases to conduct its business as
contemplated, except as expressly permitted under Section 7.2.6 [Liquidations,
Mergers, Etc.] or 7.2.7, or any Borrower is enjoined, restrained or in any way
prevented by court order from conducting all or any material part of its
business;
8.1.12 CHANGE OF CONTROL.
After the Transition Date, any Change in Control or
Change in Management shall occur with respect to any Borrower, or the failure of
Borrowers to complete the Transition on or before June 30, 1998 (the "Transition
Date");
8.1.13 INVOLUNTARY PROCEEDINGS.
A proceeding shall have been instituted in a court
having jurisdiction in the premises seeking a decree or order for relief in
respect of any Borrower in an involuntary case under any applicable bankruptcy,
insolvency, reorganization or other similar law now or hereafter in effect, or
for the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or similar official) of any Borrower or Subsidiary of
a Borrower for any substantial part of its property, or for the winding-up or
liquidation of its affairs, and such proceeding shall remain undismissed or
unstayed and in effect for a period of sixty (60) consecutive days or such court
shall enter a decree or order granting any of the relief sought in such
proceeding; or
8.1.14 VOLUNTARY PROCEEDINGS.
Any Borrower shall commence a voluntary case under
any applicable bankruptcy, insolvency, reorganization or other similar law now
or hereafter in effect, shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the appointment or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or other similar official) of itself or for any
substantial part of its property or shall make a general assignment for the
benefit of creditors, or shall fail generally
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to pay its debts as they become due, or shall take any action in furtherance of
any of the foregoing.
8.1.15 MATERIAL CONTRACTS.
The Kmart Contract or any WCI License Agreement or
any other Material Contract, or the Pledge Agreement or any appointment of
process agent required herein, shall fail or cease to be in full force and
effect, or a default or an event of default by any party shall exist thereunder,
or the Borrowers shall be prevented from using the White-Westinghouse or Double
W trademarks.
8.1.16 EVENTS OF DEFAULT OTHER THAN BANKRUPTCY,
INSOLVENCY OR REORGANIZATION PROCEEDINGS.
If an Event of Default specified under Sections 8.1.1
through 8.1.12 or Section 8.1.15 shall occur and be continuing, the Lenders and
the Agent and the Collateral Agent shall be under no further obligation to make
Loans or issue Letters of Credit or create Bankers' Acceptances, as the case may
be, the Agent may, and upon the request of the Required Lenders, shall (i) by
written notice to the Borrowers, declare the unpaid principal amount of the
Notes then outstanding and all interest accrued thereon, any unpaid fees and all
other Indebtedness of the Borrowers to the Lenders hereunder and thereunder to
be forthwith due and payable, and the same shall thereupon become and be
immediately due and payable to the Collateral Agent for the benefit of the
Agent, Collateral Agent and the Lenders without presentment, demand, protest or
any other notice of any kind, all of which are hereby expressly waived, and (ii)
require the Borrowers to, and the Borrowers shall thereupon, deposit in an
interest-bearing account with the Collateral Agent, as cash collateral for
Borrowers' Obligations under the Loan Documents, an amount equal to the maximum
amount currently or at any time thereafter available to be drawn on all
outstanding Letters of Credit and Bankers' Acceptances, and the Borrowers hereby
pledge to the Collateral Agent and the Lenders, and grant to the Collateral
Agent and the Lenders a security interest in, all such cash as security for such
Obligations. Upon the curing of all existing Events of Default to the
satisfaction of the Agent or the Required Lenders, the Collateral Agent shall
return such cash collateral to the Borrowers; and
8.1.17 BANKRUPTCY, INSOLVENCY OR REORGANIZATION
PROCEEDINGS.
If an Event of Default specified under Section 8.1.13
[Involuntary Proceedings] or 8.1.14 [Voluntary Proceedings] shall occur, the
Lenders shall be under no further obligations to make Loans hereunder and the
unpaid principal amount of the Loans then outstanding and all interest accrued
thereon, any unpaid fees and all other Indebtedness of the Borrowers to the
Lenders hereunder and thereunder shall be immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived; and
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8.1.18 SET-OFF.
If a Potential Default or an Event of Default shall
occur and be continuing, any Lender to whom any Obligation is owed by any
Borrower hereunder or under any other Loan Document or any participant of such
Lender which has agreed in writing to be bound by the provisions of Section 9.13
[Equalization of Lenders] and any branch, Subsidiary or Affiliate of such Lender
or participant anywhere in the world shall have the right, in addition to all
other rights and remedies available to it, without notice to such Borrower, to
set-off against and apply to the then unpaid balance of all the Loans and all
other Obligations of any Borrower and the other Borrowers hereunder or under any
other Loan Document any debt owing to, and any other funds held in any manner
for the account of, any Borrower by such Lender or participant or by such
branch, Subsidiary or Affiliate, including all funds in all deposit accounts
(whether time or demand, general or special, provisionally credited or finally
credited, or otherwise) now or hereafter maintained by any Borrower for its own
account (but not including funds held in custodian or trust accounts) with such
Lender or participant or such branch, Subsidiary or Affiliate. Such right shall
exist following a Potential Default or an Event of Default whether or not any
Lender or the Agent shall have made any demand under this Agreement or any other
Loan Document, whether or not such debt owing to or funds held for the account
of any Borrower is or are matured or unmatured and regardless of the existence
or adequacy of any Collateral, Guaranty or any other security, right or remedy
available to the Agent, Collateral Agent or any Lender; and
8.1.19 SUITS, ACTIONS, PROCEEDINGS.
If an Event of Default shall occur and be continuing,
and whether or not the Agent or Collateral Agent shall have accelerated the
maturity of Loans pursuant to any of the foregoing provisions of Section 8, the
Agent or with the consent of the Agent or the Required Lenders, the Collateral
Agent or any Lender, if owed any amount with respect to the Loans, may proceed
to protect and enforce its rights by suit in equity, action at law and/or other
appropriate proceeding, whether for the specific performance of any covenant or
agreement contained in this Agreement or the other Loan Documents, including as
permitted by applicable Law the obtaining of the EX PARTE appointment of a
receiver, and, if such amount shall have become due, by declaration or
otherwise, proceed to enforce the payment thereof or any other legal or
equitable right of the Agent or Collateral Agent or such Lender; and
8.1.20 APPLICATION OF PROCEEDS.
From and after the date on which the Agent or
Collateral Agent has taken any action pursuant to Section 8 and until all
Obligations of the Borrowers have been paid in full, any and all proceeds
received by the Agent or Collateral Agent from any sale or other disposition
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of the Collateral, or any part thereof, or the exercise of any other remedy by
the Agent or Collateral Agent, shall be applied as follows:
(i) first, to reimburse the Agent and the
Collateral Agent to pay principal, interest fees and other sums due which may
have been advanced by the Agent or the Collateral Agent and for which the Agent
or Collateral Agent, as applicable, has not been reimbursed by the Borrowers or
the Lenders;
(ii) second, to reimburse the Agent, the
Collateral Agent, and the Lenders for out-of-pocket costs, expenses and
disbursements, including reasonable attorneys' and paralegals' fees and legal
expenses, incurred by the Agent, the Collateral Agent or the Lenders in
connection with realizing on the Collateral or collection of any Obligations of
any of the Borrowers under any of the Loan Documents, including advances made by
the Lenders or any one of them or the Agent or the Collateral Agent for the
reasonable maintenance, preservation, protection or enforcement of, or
realization upon, the Collateral, including advances for taxes, insurance,
repairs and the like and reasonable expenses incurred to sell or otherwise
realize on, or prepare for sale or other realization on, any of the Collateral;
(iii) third, to the repayment of all
Indebtedness then due and unpaid of the Borrowers to the Lenders incurred under
this Agreement or any of the other Loan Documents, whether of principal,
interest, fees, expenses or otherwise, in such manner as the Agent may determine
in its discretion; and
(iv) the balance, if any, as required by
Law.
8.1.21 OTHER RIGHTS AND REMEDIES.
In addition to all of the rights and remedies
contained in this Agreement or in any of the other Loan Documents, the Agent and
Collateral Agent shall have all of the rights and remedies of a secured party
under the Uniform Commercial Code or other applicable Law, all of which rights
and remedies shall be cumulative and non-exclusive, to the extent permitted by
Law. The Agent and the Collateral Agent may, as applicable, and upon the request
of the Required Lenders shall, exercise all post-default rights granted to the
Agent or Collateral Agent and the Lenders under the Loan Documents or applicable
Law.
8.2 NOTICE OF SALE.
Any notice required to be given by the Agent or Collateral
Agent of a sale, lease, or other disposition of the Collateral or any other
intended action by the Agent or Collateral
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Agent, if given ten (10) days prior to such proposed action, shall constitute
commercially reasonable and fair notice thereof to the Borrowers.
9. THE AGENT AND COLLATERAL AGENT
9.1 APPOINTMENT.
Each Lender hereby irrevocably, subject to the provisions of
Section 9.14, designates, appoints and authorizes NATIONAL BANK OF CANADA to act
as syndication and documentation Agent and NATIONSBANK, N.A. to act as
Collateral Agent and administrative agent for such Lender under this Agreement
and to execute and deliver or accept on behalf of each of the Lenders the other
Loan Documents. Each Lender hereby irrevocably authorizes, and each holder of
any Note by the acceptance of a Note shall be deemed irrevocably to authorize,
the Agent or the Collateral Agent, to take such action on its behalf under the
provisions of this Agreement and the other Loan Documents and any other
instruments and agreements referred to herein, and to exercise such powers and
to perform such duties hereunder as are specifically delegated to or required of
the Agent or Collateral Agent by the terms hereof, together with such powers as
are reasonably incidental thereto. NATIONAL BANK OF CANADA and NATIONSBANK, N.A.
agree to act as the Agent and Collateral Agent, respectively, on behalf of the
Lenders to the extent provided in this Agreement.
9.2 DELEGATION OF DUTIES.
The Agent and the Collateral Agent may perform any of their
respective duties hereunder by or through agents or employees (PROVIDED such
delegation does not constitute a relinquishment of its duties as Agent or
Collateral Agent) and, subject to Sections 9.5 [Reimbursement of Agent by
Borrowers, Etc.] and 9.6, shall be entitled to engage and pay for the advice or
services of any attorneys, accountants or other experts concerning all matters
pertaining to its duties hereunder and to rely upon any advice so obtained.
9.3 NATURE OF DUTIES; INDEPENDENT CREDIT INVESTIGATION.
The Agent and the Collateral Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and no
implied covenants, functions, responsibilities, duties, obligations, or
liabilities shall be read into this Agreement or otherwise exist. The duties
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of the Agent and the Collateral Agent shall be mechanical and administrative in
nature; the Agent and the Collateral Agent shall not have by reason of this
Agreement a fiduciary or trust relationship in respect of any Lender; and
nothing in this Agreement, expressed or implied, is intended to or shall be so
construed as to impose upon the Agent or the Collateral Agent any obligations in
respect of this Agreement except as expressly set forth herein. Without limiting
the generality of the foregoing, the use of the term "agent" in this Agreement
with reference to the Agent and the Collateral Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable Law. Instead, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties. Each Lender expressly
acknowledges (i) that neither the Agent nor the Collateral Agent have made any
representations or warranties to the Lenders and that no act by the Agent or the
Collateral Agent hereafter taken, including any review of the affairs of any of
the Borrowers, shall be deemed to constitute any representation or warranty by
the Agent or the Collateral Agent to any Lender; (ii) that it has made and will
continue to make, without reliance upon the Agent or the Collateral Agent, its
own independent investigation of the financial condition and affairs and its own
appraisal of the creditworthiness of each of the Borrowers in connection with
this Agreement and the making and continuance of the Loans hereunder; and (iii)
except as expressly provided herein, that neither the Agent nor the Collateral
Agent shall have any duty or responsibility, either initially or on a continuing
basis, to provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before the making of any Loan or at
any time or times thereafter.
9.4 ACTIONS IN DISCRETION OF AGENT AND COLLATERAL AGENT;
INSTRUCTIONS FROM THE LENDERS.
The Agent and the Collateral Agent agree, upon the written
request of the Required Lenders, to take or refrain from taking any action of
the type specified as being within the rights, powers or discretion of the Agent
or the Collateral Agent herein, PROVIDED that the Agent and the Collateral Agent
shall not be required to take any action which exposes the Agent or the
Collateral Agent to personal liability or which is contrary to this Agreement or
any other Loan Document or applicable Law. In the absence of a request by the
Required Lenders, the Agent and the Collateral Agent shall have authority, in
their sole discretion, to take or not to take any such action, unless this
Agreement specifically requires the consent of the Required Lenders or all of
the Lenders. Any action taken or failure to act pursuant to such instructions or
discretion shall be binding on the Lenders, subject to Section 9.6 [Exculpatory
Provisions, Etc.]. Subject to the provisions of Section 9.6, no Lender shall
have any right of action whatsoever against the Agent or the Collateral Agent as
a result of the Agent or the Collateral Agent acting or refraining from acting
hereunder in accordance with the instructions of the Required Lenders, or in the
absence of such instructions, in the absolute discretion of the Agent and the
Collateral Agent.
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9.5 REIMBURSEMENT AND INDEMNIFICATION OF AGENT AND COLLATERAL
AGENT BY THE BORROWERS
The Borrowers unconditionally agree to pay or reimburse the
Agent and hold the Agent harmless against any and all liability for the payment
of all reasonable out-of-pocket costs, expenses and disbursements, including
fees and expenses of counsel (including the allocated costs of staff counsel),
appraisers and environmental consultants, incurred by the Agent (i) in
connection with the development, negotiation, preparation, printing, execution,
administration, syndication, interpretation and performance of this Agreement
and the other Loan Documents, and (ii) relating to any requested amendments,
waivers or consents pursuant to the provisions hereof. Additionally, the
Borrowers unconditionally agree to pay or reimburse the Agent and the Collateral
Agent and hold the Agent and Collateral Agent harmless against (a) any and all
liability for the payment of all reasonable out-of-pocket costs, expenses and
disbursements, including fees and expenses of counsel (including the allocated
costs of staff counsel), appraisers and environmental consultants, incurred by
the Agent or the Collateral Agent (i) in connection with the enforcement of this
Agreement or any other Loan Document or collection of amounts due hereunder or
thereunder or the proof and allowability of any claim arising under this
Agreement or any other Loan Document, whether in bankruptcy or receivership
proceedings or otherwise, and (ii) in any workout or restructuring or in
connection with the protection, preservation, exercise or enforcement of any of
the terms hereof or of any rights hereunder or under any other Loan Document or
in connection with any foreclosure, collection or bankruptcy proceedings, and
(b) all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever, including without limitation all documentary stamp taxes, intangible
taxes and recording fees and expenses and all interest and penalties thereon,
which may be imposed on, incurred by or asserted against the Agent or the
Collateral Agent, in its capacity as such, in any way relating to or arising out
of this Agreement or any other Loan Documents or, except in the case of Agent's
or Collateral Agent's gross negligence or willful misconduct (as found in a
final, non-appealable judgment by a court of competent jurisdiction) (however
the gross negligence or willful misconduct of the Agent shall not result in
liability to the Collateral Agent and vice versa), any action taken or omitted
by the Agent or the Collateral Agent hereunder. In addition, the Borrowers agree
to reimburse and pay all reasonable out-of-pocket expenses of the Agent and the
Collateral Agent and the Agent's and Collateral Agent's regular employees and
agents engaged periodically to perform audits of the Borrowers' books, records
and business properties.
9.6 EXCULPATORY PROVISIONS; LIMITATION OF LIABILITY.
Except in the case of Agent's or Collateral Agent's gross
negligence or willful misconduct (as found in a final, non-appealable judgment
by a court of competent jurisdiction) (however the gross negligence or willful
misconduct of the Agent shall not result in liability to the Collateral Agent
and vice versa) neither the Agent or the Collateral Agent nor any of their
respective directors, officers, employees, agents, attorneys or Affiliates shall
(a) be liable to any Lender for any action taken or omitted to be taken by it or
them hereunder, or in connection
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herewith including pursuant to any Loan Document, (b) be responsible in any
manner to any of the Lenders for the effectiveness, enforceability, genuineness,
validity or the due execution of this Agreement or any other Loan Documents or
for any recital, representation, warranty, document, certificate, report or
statement herein or made or furnished under or in connection with this Agreement
or any other Loan Documents, or (c) be under any obligation to any of the
Lenders to ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions hereof or thereof on the part of the
Borrowers, or the financial condition of the Borrowers, or the existence or
possible existence of any Event of Default or Potential Default. No claim may be
made by any of the Borrowers, any Lender, the Agent or the Collateral Agent or
any of their respective Subsidiaries against the Agent or the Collateral Agent,
any Lender or any of their respective directors, officers, employees, agents,
attorneys or Affiliates, or any of them, for any special, indirect or
consequential damages or, to the fullest extent permitted by Law, for any
punitive damages in respect of any claim or cause of action (whether based on
contract, tort, statutory liability, or any other ground) based on, arising out
of or related to any Loan Document or the transactions contemplated hereby or
any act, omission or event occurring in connection therewith, including the
negotiation, documentation, administration or collection of the Loans, and each
of the Borrowers, the Agent and the Collateral Agent and each Lender hereby
waive, release and agree never to sue upon any claim for any such damages,
whether such claim now exists or hereafter arises and whether or not it is now
known or suspected to exist in its favor. Each Lender agrees that, except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Agent or the Collateral Agent hereunder or given to the Agent or
the Collateral Agent for the account of or with copies for the Lenders, the
Agent and the Collateral Agent and each of their respective directors, officers,
employees, agents, attorneys or Affiliates shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrowers which may come into
the possession of the Agent or the Collateral Agent or any of their respective
directors, officers, employees, agents, attorneys or Affiliates.
9.7 REIMBURSEMENT AND INDEMNIFICATION OF AGENT AND COLLATERAL
AGENT BY LENDERS.
Each Lender agrees to reimburse and indemnify the Agent and
the Collateral Agent (to the extent not reimbursed by the Borrowers and without
limiting the obligation of the Borrowers to do so) in proportion to its Ratable
Share from and against all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements, including
attorneys' fees and disbursements (including the allocated costs of staff
counsel), and costs of appraisers and environmental consultants, of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent or the Collateral Agent, in its capacity as such, in any way relating to
or arising out of this Agreement or any other Loan Documents or any action taken
or omitted by the Agent or the Collateral Agent hereunder or under any other
Loan Document, except in the case of Agent's or Collateral Agent's gross
negligence or willful misconduct (as found in a final, non-appealable judgment
by a court of competent jurisdiction)
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(however the gross negligence or willful misconduct of the Agent shall not
result in liability to the Collateral Agent and vice versa). In addition, each
Lender agrees promptly upon demand to reimburse the Agent and the Collateral
Agent (to the extent not reimbursed by the Borrowers and without limiting the
obligation of the Borrowers to do so) in proportion to its Ratable Share for all
amounts due and payable by the Borrowers to the Agent and the Collateral Agent
in connection with the Agent's and Collateral Agent's periodic audit of the
Borrowers' books, records and business properties.
9.8 RELIANCE BY AGENT.
The Agent and the Collateral Agent shall be entitled to rely
upon any writing, telegram, telex or teletype message, resolution, notice,
consent, certificate, letter, cablegram, statement, order or other document or
conversation by telephone or otherwise believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person or Persons, and upon
the advice and opinions of counsel and other professional advisers selected by
the Agent or the Collateral Agent. The Agent and the Collateral Agent shall be
fully justified in failing or refusing to take any action hereunder unless it
shall first be indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
9.9 NOTICE OF DEFAULT.
The Agent and the Collateral Agent shall not be deemed to have
knowledge or notice of the occurrence of any Potential Default or Event of
Default unless the Agent or the Collateral Agent has received written notice
from a Lender or the Borrowers referring to this Agreement, describing such
Potential Default or Event of Default and stating that such notice is a "notice
of default."
9.10 NOTICES.
The Agent and the Collateral Agent shall promptly send to each
Lender a copy of all notices received from the Borrowers pursuant to the
provisions of this Agreement or the other Loan Documents promptly upon receipt
thereof. The Collateral Agent shall promptly notify the Borrowers and the other
Lenders of each change in the Base Rate and the effective date thereof.
9.11 LENDERS IN THEIR INDIVIDUAL CAPACITIES.
With respect to its Revolving Credit Commitment and the
Revolving Credit Loans made by it and any other rights and powers given to it as
a Lender hereunder or under any of the other Loan Documents, the Agent and the
Collateral Agent shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not the Agent or the
Collateral Agent, and the term "Lenders" shall, unless the context otherwise
indicates, include the Agent and the Collateral Agent in their respective
individual capacities. NATIONAL BANK OF CANADA and NATIONSBANK, N.A. and their
respective Affiliates and each of the
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Lenders and their respective Affiliates may, without liability to account,
except as prohibited herein, make loans to, accept deposits from, discount
drafts for, act as trustee under indentures of, and generally engage in any kind
of banking or trust business with, the Borrowers, in the case of the Agent or
the Collateral Agent, as though it were not acting as Agent or the Collateral
Agent hereunder and in the case of each Lender, as though such Lender were not a
Lender hereunder. The Lenders acknowledge that, pursuant to such activities, the
Agent or the Collateral Agent or their respective Affiliates may (i) receive
information regarding the Borrowers (including information that may be subject
to confidentiality obligations in favor of the Borrowers) and acknowledge that
the Agent and the Collateral Agent shall be under no obligation to provide such
information to them, and (ii) accept fees and other consideration from the
Borrowers for services in connection with this Agreement and otherwise without
having to account for the same to the Lenders.
9.12 HOLDERS OF NOTES.
The Agent and the Collateral Agent may deem and treat any
payee of any Note as the owner thereof for all purposes hereof unless and until
written notice of the assignment or transfer thereof shall have been filed with
the Agent and the Collateral Agent. Any request, authority or consent of any
Person who at the time of making such request or giving such authority or
consent is the holder of any Note shall be conclusive and binding on any
subsequent holder, transferee or assignee of such Note or of any Note or Notes
issued in exchange therefor.
9.13 EQUALIZATION OF LENDERS.
The Lenders and the holders of any participations in any Notes
agree among themselves that, with respect to all amounts received by any Lender
or any such holder for application on any Obligation hereunder or under any Note
or under any such participation, whether received by voluntary payment, by
realization upon security, by the exercise of the right of set-off or banker's
lien, by counterclaim or by any other non-pro rata source, equitable adjustment
will be made in the manner stated in the following sentence so that, in effect,
all such excess amounts will be shared ratably among the Lenders and such
holders in proportion to their interests in payments under the Notes, except as
otherwise provided with respect to fees due to the Agent for its own account in
connection with Letters of Credit and Bankers' Acceptances, and as set forth in
Section 4.4.3 [Agent's and Lender's Rights], 5.4.2 [Replacement of a Lender] or
5.6 [Additional Compensation in Certain Circumstances]. The Lenders or any such
holder receiving any such amount shall purchase for cash from each of the other
Lenders an interest in such Lender's Loans and its obligations under Letters of
Credit and Bankers' Acceptances in such amount as shall result in a ratable
participation by the Lenders and each such holder in the aggregate unpaid amount
under the Notes, Letters of Credit and Bankers' Acceptances, PROVIDED that if
all or any portion of such excess amount is thereafter recovered from the Lender
or the holder making such purchase, such purchase shall be rescinded and the
purchase price restored to
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the extent of such recovery, together with interest or other amounts, if any,
required by law (including court order) to be paid by the Lender or the holder
making such purchase.
9.14 SUCCESSOR AGENT AND COLLATERAL AGENT.
The Agent and the Collateral Agent (i) may resign as Agent and
Collateral Agent or (ii) shall resign if such resignation is required by Section
5.4.2 [Replacement of a Lender], in either case of (i) or (ii) by giving not
less than thirty (30) days' prior written notice to the Borrowers and the
Lenders. If the Agent or the Collateral Agent shall resign under this Agreement,
then either (a) the Required Lenders shall appoint from among the Lenders a
successor agent for the Lenders, subject to the consent of the Borrowers, such
consent not to be unreasonably withheld and such consent not to be requested or
required if an Event of Default exists, or (b) if a successor agent shall not be
so appointed and approved within the thirty (30) day period following the
Agent's or the Collateral Agent's notice to the Lenders of its resignation, then
the Agent or the Collateral Agent , as applicable shall appoint, with the
consent of the Borrowers, such consent not to be unreasonably withheld, and such
consent not to be requested or required if an Event of Default exists, a
successor agent who shall serve as Agent or Collateral Agent until such time as
the Required Lenders appoint and the Borrowers consent to the appointment of a
successor agent. Upon its appointment pursuant to either clause (a) or (b)
above, such successor agent shall succeed to the rights, powers and duties of
the Agent or the Collateral Agent, and the term "Agent" or "Collateral Agent"
shall mean such successor agent, effective upon its appointment, and the former
Agent or Collateral Agent's rights, powers and duties as Agent or Collateral
Agent shall be terminated without any other or further act or deed on the part
of such former Agent or Collateral Agent or any of the parties to this
Agreement. After the resignation of any agent hereunder, the provisions of
Section 9 shall inure to the benefit of such former agent and such former agent
shall not by reason of such resignation be deemed to be released from liability
for any actions taken or not taken by it while it was Agent or Collateral Agent
under this Agreement.
9.15 ALLOCATION OF FACILITY.
As of the Closing Date each of the Lenders shall be deemed to
have purchased a risk participation equal to their respective Ratable Shares in
all loans, letters of credit ("Existing Letters of Credit") and bankers'
acceptances ("Existing BA's) which were created under the Facility, which remain
outstanding as of the Closing Date and which are assigned pursuant to the
Irrevocable Assignment. On the Closing Date the all sums which may be required
to be paid in order to reallocate the Facility, Existing Letters of Credit and
Existing BA's among the Lenders in accordance with their Ratable Shares shall be
allocated and paid among the Lenders in
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accordance with their Ratable Shares. Borrowers shall pay to Agent on the
Closing Date any additional fees and charges which may be due as of the Closing
Date in connection with the Existing Letters of Credit and Existing BA's. The
Existing Letters of Credit and Existing BA's which are assigned pursuant to the
Irrevocable Assignment shall, for all purposes under this Agreement, be treated
as Letters of Credit and Bankers' Acceptances created hereunder, and shall be
subject to sublimits, fees and charges due with respect to Letters of Credit and
Bankers' Acceptances created hereunder. Any and all documents held by the
Collateral Agent with respect to the Facility, including such Existing Letters
of Credit and Existing BA's shall be held by the Collateral Agent for the
ratable interest of each Lender. It is the intent of the parties that this
Agreement and the credit facilities set forth herein shall not constitute a
novation, but rather a continuation and amendment of the Facility which is being
assigned pursuant to the Irrevocable Assignment.
9.16 AVAILABILITY OF FUNDS.
The Collateral Agent may assume that each Lender has made or
will make the proceeds of a Loan available to the Collateral Agent unless the
Collateral Agent shall have been notified by such Lender on or before the close
of Business two (2) Business Days preceding the Borrowing Date with respect to
such Loan . The Collateral Agent may, in reliance upon such assumption (but
shall not be required to), make available to the Borrowers a corresponding
amount. If such corresponding amount is not in fact made available to the
Collateral Agent by such Lender, or if the Collateral Agent fails to timely
remit payments to another Lender, the Collateral Agent and the other Lenders, as
the case may be, shall be entitled to recover such amount on demand from such
Lender or the Collateral Agent, as the case may be together with interest
thereon, in respect of each day during the period commencing on the date such
amount was made available to the Borrowers and ending on the date the Collateral
Agent or Lender recovers such amount, at a rate per annum equal to (i) the
Federal Funds Effective Rate during the first three (3) days after such interest
shall begin to accrue and (ii) the applicable interest rate in respect of such
Loan after the end of such three-day period.
9.17 CALCULATIONS.
Neither the Agent nor the Collateral Agent shall be liable for
any error in computing the amount payable to any Lender whether in respect of
the Loans, fees or any other amounts due to the Lenders under this Agreement. In
the event an error in computing any amount payable to any Lender is made, the
Agent and the Collateral Agent, the Borrowers and each affected Lender shall,
forthwith upon discovery of such error, make such adjustments as shall be
required to correct such error, and any compensation therefor will be calculated
at the Federal Funds Effective Rate.
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9.18 BENEFICIARIES.
Except as expressly provided herein, the provisions of Section
9 are solely for the benefit of the Agent and the Collateral Agent and the
Lenders, and the Borrowers shall not have any rights to rely on or enforce any
of the provisions hereof. In performing its functions and duties under this
Agreement, the Agent and the Collateral Agent shall act solely as agent of the
Lenders and do not assume and shall not be deemed to have assumed any obligation
toward or relationship of agency or trust with or for any of the Borrowers.
10. MISCELLANEOUS
10.1 MODIFICATIONS, AMENDMENTS OR WAIVERS.
With the written consent of the Required Lenders, the Agent,
or at the direction of the Agent or Required Lenders, the Collateral Agent,
acting on behalf of all the Lenders, and the Borrowers, may from time to time
enter into written agreements amending or changing any provision of this
Agreement or any other Loan Document or the rights of the Lenders or the
Borrowers hereunder or thereunder, or may grant written waivers or consents to a
departure from the due performance of the Obligations of the Borrowers hereunder
or thereunder. Any such agreement, waiver or consent made with such written
consent shall be effective to bind all the Lenders and the Borrowers; PROVIDED,
that, without the written consent of ALL the Lenders, no such agreement, waiver
or consent may be made which will:
10.1.1 INCREASE OF COMMITMENT; EXTENSION OR
EXPIRATION DATE.
Increase the amount of the Revolving Credit
Commitment of any Lender hereunder or extend the Expiration Date;
10.1.2 EXTENSION OF PAYMENT; REDUCTION OF PRINCIPAL
INTEREST OR FEES; MODIFICATION OF TERMS OF PAYMENT.
Whether or not any Loans are outstanding, extend the
time for payment of principal or interest of any Loan (excluding the due date of
any mandatory prepayment of a Loan or any mandatory Commitment reduction in
connection with such a mandatory prepayment hereunder except for mandatory
reductions of the Commitments on the Expiration Date), the
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Commitment Fee or any other fee payable to any Lender, or reduce the principal
amount of or the rate of interest borne by any Loan or reduce the Commitment
Fee, or any other fee payable to any Lender, or otherwise affect the terms of
payment of the principal of or interest of any Loan, the Commitment Fee or any
other fee payable to any Lender;
10.1.3 RELEASE OF COLLATERAL OR GUARANTOR.
Except for sales of assets permitted by Section 7.2.7
[Disposition of Assets or Subsidiaries], release any Collateral consisting of
capital stock or other ownership interests of any Borrower or the assets of any
Borrower or any guarantor from its Obligations under any security for any of the
Borrowers' Obligations; or
10.1.4 MISCELLANEOUS
Amend Section 5.2 [Pro Rata Treatment of Lenders],
9.6 [Exculpatory Provisions, Etc.] or 9.13 [Equalization of Lenders] or this
Section 10.1 [Modifications, Amendments or Waivers], or change or waive any
default under any financial covenant, or alter any provision regarding the pro
rata treatment of the Lenders or the advance rates set forth in the Borrowing
Base, or change the definition of Required Lenders, or change any requirement
providing for the Lenders or the Required Lenders to authorize the taking of any
action hereunder;
PROVIDED, further, that no agreement, waiver or consent which would modify the
interests, rights or obligations of the Agent or the Collateral Agent in its
capacity as Agent or Collateral Agent or as the issuer of Letters of Credit or
Bankers' Acceptances shall be effective without the written consent of the Agent
and the Collateral Agent, as applicable.
10.2 NO IMPLIED WAIVERS; CUMULATIVE REMEDIES; WRITING
REQUIRED.
No course of dealing and no delay or failure of the Agent or
the Collateral Agent or any Lender in exercising any right, power, remedy or
privilege under this Agreement or any other Loan Document shall affect any other
or future exercise thereof or operate as a waiver thereof, nor shall any single
or partial exercise thereof or any abandonment or discontinuance of steps to
enforce such a right, power, remedy or privilege preclude any further exercise
thereof or of any other right, power, remedy or privilege. The rights and
remedies of the Agent and the
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Collateral Agent and the Lenders under this Agreement and any other Loan
Documents are cumulative and not exclusive of any rights or remedies which they
would otherwise have. Any waiver, permit, consent or approval of any kind or
character on the part of any Lender of any breach or default under this
Agreement or any such waiver of any provision or condition of this Agreement
must be in writing and shall be effective only to the extent specifically set
forth in such writing.
10.3 REIMBURSEMENT AND INDEMNIFICATION OF LENDERS BY THE
BORROWERS; TAXES.
The Borrowers agree unconditionally to pay all stamp,
document, transfer, recording or filing taxes or fees and similar impositions
now or hereafter determined by the Agent or any Lender to be payable in
connection with this Agreement or any other Loan Document, and the Borrowers
agree unconditionally to save the Agent, the Collateral Agent and the Lenders
harmless from and against any and all present or future claims, liabilities or
losses with respect to or resulting from any omission to pay or delay in paying
any such taxes, fees or impositions. All indemnifications in this Agreement of
the Borrowers in favor of the Agent, Collateral Agent and Lenders shall remain
in full force and effect and survive repayment of the Loans and termination of
the Revolving Credit Commitments.
10.4 HOLIDAYS.
Whenever payment of a Loan to be made or taken hereunder shall
be due on a day which is not a Business Day such payment shall be due on the
next Business Day and such extension of time shall be included in computing
interest and fees, except that the Loans shall be due on the Business Day
preceding the Expiration Date if the Expiration Date is not a Business Day.
Whenever any payment or action to be made or taken hereunder (other than payment
of the Loans) shall be stated to be due on a day which is not a Business Day,
such payment or action shall be made or taken on the next following Business Day
(except as provided in Section 4.2 [Interest Periods] with respect to Interest
Periods under the Euro-Rate Option), and such extension of time shall not be
included in computing interest or fees, if any, in connection with such payment
or action.
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10.5 FUNDING BY BRANCH, SUBSIDIARY OR AFFILIATE.
10.5.1 NOTIONAL FUNDING.
Each Lender shall have the right from time to time,
without notice to the Borrowers, to deem any branch, Subsidiary or Affiliate
(which for the purposes of this Section 10.5 shall mean any corporation or
association which is directly or indirectly controlled by or is under direct or
indirect common control with any corporation or association which directly or
indirectly controls such Lender) of such Lender to have made, maintained or
funded any Loan to which the Euro-Rate Option applies at any time, PROVIDED that
immediately following (on the assumption that a payment were then due from the
Borrowers to such other office), and as a result of such change, the Borrowers
would not be under any greater financial obligation pursuant to Section 5.6
[Additional Compensation in Certain Circumstances] than it would have been in
the absence of such change. Notional funding offices may be selected by each
Lender without regard to such Lender's actual methods of making, maintaining or
funding the Loans or any sources of funding actually used by or available to
such Lender.
10.5.2 ACTUAL FUNDING.
Each Lender shall have the right from time to time to
make or maintain any Loan by arranging for a branch, Subsidiary or Affiliate of
such Lender to make or maintain such Loan subject to the last sentence of this
Section 10.5.2. If any Lender causes a branch, Subsidiary or Affiliate to make
or maintain any part of the Loans hereunder, all terms and conditions of this
Agreement shall, except where the context clearly requires otherwise, be
applicable to such part of the Loans to the same extent as if such Loans were
made or maintained by such Lender, but in no event shall any Lender's use of
such a branch, Subsidiary or Affiliate to make or maintain any part of the Loans
hereunder cause such Lender or such branch, Subsidiary or Affiliate to incur any
cost or expenses payable by the Borrowers hereunder or require the Borrowers to
pay any other compensation to any Lender (including any expenses incurred or
payable pursuant to Section 5.6 [Additional Compensation in Certain
Circumstances]) which would otherwise not be incurred.
10.6 NOTICES.
All notices, requests, demands, directions and other
communications (as used in this Section 10.6, collectively referred to as
"notices") given to or made upon any party hereto
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under the provisions of this Agreement shall be in writing (including telex or
facsimile communication) unless otherwise expressly permitted hereunder and
shall be delivered or sent by telex or facsimile to the respective parties at
the addresses and numbers set forth under their respective names on Schedule
1.1(B) hereof or in accordance with any subsequent unrevoked written direction
from any party to the others. All notices shall, except as otherwise expressly
herein provided, be effective (a) in the case of telex or facsimile, when
received, (b) in the case of hand-delivered notice, when hand-delivered, (c) if
given by mail, four (4) days after such communication is deposited in the mail
with first-class postage prepaid, return receipt requested, and (d) if given by
any other means (including by air courier), when delivered; PROVIDED, that
notices to the Agent or the Collateral Agent shall not be effective until
received. Any Lender giving any notice to any Borrower shall simultaneously send
a copy thereof to the Agent and Collateral Agent, and the Agent and Collateral
Agent shall promptly notify the other Lenders of the receipt by it of any such
notice.
10.7 SEVERABILITY.
The provisions of this Agreement are intended to be severable.
If any provision of this Agreement shall be held invalid or unenforceable in
whole or in part in any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
10.8 GOVERNING LAW.
Each Letter of Credit and Section 2.8 [Letter of Credit
Subfacility] shall be subject to the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be revised or amended from time to time,
and to the extent not inconsistent therewith, the internal laws of the State of
New York without regard to its conflict of laws principles and the balance of
this Agreement shall be deemed to be a contract under the Laws of the State of
New York and for all purposes shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without regard to its
conflict of laws principles
10.9 PRIOR UNDERSTANDING.
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This Agreement and the other Loan Documents supersede all
prior understandings and agreements, whether written or oral, between the
parties hereto and thereto relating to the transactions provided for herein and
therein, including any prior confidentiality agreements and commitments.
10.10 DURATION; SURVIVAL.
All representations and warranties and indemnities of the
Borrowers contained herein or made in connection herewith shall survive the
making of Loans and issuance of Letters of Credit and creation of Bankers'
Acceptances, and the repayment of all Borrowers' Obligations thereunder and
shall not be waived by the execution and delivery of this Agreement, any
investigation by the Agent, Collateral Agent or the Lenders, the making of
Loans, issuance of Letters of Credit, creation of Bankers' Acceptances or
payment in full of the Loans, Letters of Credit and Bankers' Acceptances. All
covenants and agreements of the Borrowers contained in Sections 7.1 [Affirmative
Covenants], 7.2 [Negative Covenants] and 7.3 [Reporting Requirements] herein
shall continue in full force and effect from and after the date hereof so long
as the Borrowers may borrow or request Letters of Credit or Bankers' Acceptances
hereunder and until termination of the Commitments and payment in full of the
Loans and expiration or termination of all Letters of Credit and Bankers'
Acceptances. All covenants and agreements of the Borrowers contained herein
relating to the payment of principal, interest, premiums, additional
compensation or expenses and indemnification, including those set forth in the
Notes, Section 5 [Payments] and Sections 9.5 [Reimbursement of Agent by
Borrower, Etc.], 9.7 [Reimbursement of Agent by Lenders, Etc.] and 10.3
[Reimbursement of Lenders by Borrower; Etc.], shall survive payment in full of
the Loans, expiration or termination of the Letters of Credit and termination of
the Commitments.
10.11 SUCCESSORS AND ASSIGNS.
(i) This Agreement shall be binding upon and
shall inure to the benefit of the Lenders, the Agent, the Collateral Agent, the
Borrowers and their respective successors and assigns, except that none of the
Borrowers may assign or transfer any of its rights and Obligations hereunder or
any interest herein. Each Lender may, at its own cost, make assignments of or
sell participations in all or any part of its Commitments and the Loans made by
it to one or more banks or other entities, subject to the consent of the
Borrowers and the Agent with respect to any assignee, such consent not to be
unreasonably withheld, PROVIDED that (1) no consent of the Borrowers shall be
required (A) if an Event of Default exists and is continuing, or (B) in the case
of an assignment by a Lender to an Affiliate of such Lender, and (2) no
assignment by a Lender to a Person other than an Affiliate of such Lender may be
made
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in amounts less than the lesser of $5,000,000.00 or the amount of the assigning
Lender's Commitment. In the case of an assignment, upon receipt by the Agent of
the Assignment and Assumption Agreement, the assignee shall have, to the extent
of such assignment (unless otherwise provided therein), the same rights,
benefits and obligations as it would have if it had been a signatory Lender
hereunder, the Commitments shall be adjusted accordingly, and upon surrender of
any Note subject to such assignment, the Borrowers shall execute and deliver a
new Note to the assignee in an amount equal to the amount of the Revolving
Credit assumed by it and a new Revolving Credit Note to the assigning Lender in
an amount equal to the Revolving Credit Commitment retained by it hereunder. Any
Lender which assigns any or all of its Commitment or Loans to a Person other
than an Affiliate of such Lender shall pay to the Collateral Agent a service fee
in the amount of $3,500.00 for each assignment. In the case of a participation,
the participant shall only have the rights specified in Section 8.1.18 [Set-off]
(the participant's rights against such Lender in respect of such participation
to be those set forth in the agreement executed by such Lender in favor of the
participant relating thereto and not to include any voting rights except with
respect to changes of the type referenced in Sections 10.1.1) [Increase of
Commitment, Etc.], 10.1.2 [Extension of Payment, Etc.], or 10.1.3 [Release of
Collateral or Guarantor], all of such Lender's obligations under this Agreement
or any other Loan Document shall remain unchanged, and all amounts payable by
any Borrower hereunder or thereunder shall be determined as if such Lender had
not sold such participation.
(ii) Any assignee or participant which is
not incorporated under the Laws of the United States of America or a state
thereof shall deliver to the Borrowers and the Agent the form of certificate
described in Section 10.18 [Tax Withholding Clause] relating to federal income
tax withholding. Each Lender may furnish any publicly available information
concerning any Borrower and any other information concerning any Borrower in the
possession of such Lender from time to time to assignees and participants
(including prospective assignees or participants), PROVIDED that such assignees
and participants agree to be bound by the provisions of Section 10.12
[Confidentiality].
(iii) Notwithstanding any other provision in
this Agreement, any Lender may at any time pledge or grant a security interest
in all or any portion of its rights under this Agreement, its Note and the other
Loan Documents to any Federal Reserve Lender in accordance with Regulation A of
the FRB or U.S. Treasury Regulation 31 CFR Section 203.14 without notice to or
consent of the Borrowers or the Agent. No such pledge or grant of a security
interest shall release the transferor Lender of its obligations hereunder or
under any other Loan Document.
10.12 CONFIDENTIALITY.
10.12.1 GENERAL.
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The Agent, the Collateral Agent and the Lenders each
agree to keep confidential all information obtained from any Borrower which is
nonpublic and confidential or proprietary in nature (including any information
the Borrowers specifically designate as confidential), except as provided below,
and to use such information only in connection with their respective capacities
under this Agreement and for the purposes contemplated hereby. The Agent, the
Collateral Agent and the Lenders shall be permitted to disclose such information
(i) to outside legal counsel, accountants and other professional advisors who
need to know such information in connection with the administration and
enforcement of this Agreement, subject to agreement of such Persons to maintain
the confidentiality, (ii) to assignees and participants as contemplated by
Section 10.11, (iii) to the extent requested by any bank regulatory authority
or, with notice to the Borrowers, as otherwise required by applicable Law or by
any subpoena or similar legal process, or in connection with any investigation
or proceeding arising out of the transactions contemplated by this Agreement,
(iv) if it becomes publicly available other than as a result of a breach of this
Agreement or becomes available from a source not known to be subject to
confidentiality restrictions, or (v) if the Borrowers shall have consented to
such disclosure.
10.12.2 SHARING INFORMATION WITH AFFILIATES OF THE
LENDERS.
Each Borrower acknowledges that from time to time
financial advisory, investment banking and other services may be offered or
provided to the Borrowers or one or more of any Borrower's Affiliates (in
connection with this Agreement or otherwise) by any Lender or by one or more
Subsidiaries or Affiliates of such Lender and each of the Borrowers hereby
authorizes each Lender to share any information delivered to such Lender by such
Borrower pursuant to this Agreement, or in connection with the decision of such
Lender to enter into this Agreement, to any such Subsidiary or Affiliate of such
Lender, it being understood that any such Subsidiary or affiliate of any Lender
receiving such information shall be bound by the provisions of Section 10.12.1
as if it were a Lender hereunder. Such authorization shall survive the repayment
of the Loans and other Obligations and the termination of the Commitments.
10.13 COUNTERPARTS.
This Agreement may be executed by different parties hereto on
any number of separate counterparts, each of which, when so executed and
delivered, shall be an original, and all such counterparts shall together
constitute one and the same instrument.
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10.14 AGENT'S OR LENDER'S CONSENT.
Whenever the Agent's or the Collateral Agent's or any Lender's
consent is required to be obtained under this Agreement or any of the other Loan
Documents as a condition to any action, inaction, condition or event, the Agent,
the Collateral Agent and each Lender shall be authorized to give or withhold
such consent in its sole and absolute discretion and to condition its consent
upon the giving of additional collateral, the payment of money or any other
matter.
10.15 EXCEPTIONS.
The representations, warranties and covenants contained herein
shall be independent of each other, and no exception to any representation,
warranty or covenant shall be deemed to be an exception to any other
representation, warranty or covenant contained herein unless expressly provided,
nor shall any such exceptions be deemed to permit any action or omission that
would be in contravention of applicable Law.
10.16 JOINT AND SEVERAL LIABILITY OF BORROWERS.
(i) Each of the Borrowers is accepting joint
and several liability hereunder and under the other Loan Documents in
consideration of the financial accommodations to be provided by the Lenders
under this Agreement, for the mutual benefit, directly and indirectly, of each
of the Borrowers and in consideration of the undertakings of each Borrower to
accept joint and several liability for the Obligations.
(ii) Each Borrower, jointly and severally,
hereby irrevocably and unconditionally accepts, not merely as a surety but also
as a co-debtor, joint and several liability with the other Borrowers with
respect to the payment and performance of all the Obligations, it being the
intention of the parties hereto that all of the Obligations shall be joint and
several Obligations of the Borrowers without preferences or distinction among
them.
(iii) If and to the extent that any Borrower
shall fail to make any payment with respect to any of the Obligations as and
when due or to perform any of the Obligations in accordance with the terms
thereof, then in each such event the other Borrowers will make such payment with
respect to, or perform, such Obligation.
(iv) The Obligations of each of the
Borrowers hereunder and under the other Loan Documents constitute full recourse
Obligations of such Borrower enforceable against it to the full extent of its
properties and assets, irrespective of the validity, regularity or
enforceability of this Agreement or any other circumstances whatsoever.
(v) Except as otherwise expressly provided
in this Agreement, each of the Borrowers hereby waives notice of acceptance of
its joint and several liability, notice of any extensions of credit made under
this Agreement, notice of any action at any
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time taken or omitted by the Agent, the Collateral Agent or the Lenders under or
in respect of any of the Obligations, and, generally, to the extent permitted by
applicable law, all demands, notices and other formalities of every kind in
connection with this Agreement. Each of the Borrowers hereby assents to, and
waives notice of any extension or postponement of the time for the payment of
any of the Obligations, the acceptance of any payment of any of the Obligations,
the acceptance of any partial payment thereon, any waiver, consent or other
action or acquiescence by the Lenders at any time or times in respect of any
default by any of the Borrowers in the performance or satisfaction of any term,
covenant, condition or provision of this Agreement, any and all other
indulgences whatsoever by the Lenders in respect of any of the Obligations, and
the taking, addition, substitution or release, in whole or in part, at any time
or times, of any security for any of the Obligations or the addition,
substitution or release, in whole or in part, of any of the Borrowers. Without
limiting the generality of the foregoing, each of the Borrowers assents to any
other action or delay in acting or failure to act on the part of the Lenders
with respect to the failure by any of the Borrowers to comply with any of its
respective Obligations including, without limitation, any failure strictly or
diligently to assert any right or to pursue any remedy or to comply with any
applicable law which might, but for the provisions of this Section, afford
grounds for terminating, discharging or relieving any Borrower, in whole or in
part, from any of its Obligations, it being the intent of each Borrower that so
long as any of its Obligations remain unsatisfied, the Obligations of such
Borrower shall not be discharged except by performance and then only to the
extent of such performance. The Obligations of each of the Borrowers shall not
be diminished or rendered unenforceable by any winding up, reorganization,
arrangement, liquidation, re-construction or similar proceeding with respect to
any of the Borrowers or the Lenders. The joint and several liability of the
Borrowers hereunder shall continue in full force and effect notwithstanding any
absorption, merger, amalgamation or any other change whatsoever in the name,
membership, constitution or place of formation of any of the Borrowers or the
Lenders.
(vi) The provisions of this Section are made
for the benefit of the Agent, Collateral Agent and the Lenders and their
successors and assigns, and may be enforced in good faith by them (or by the
Agent or the Collateral Agent on their behalf) from time to time against each
Borrower as often as the occasion therefor may arise and without requirement on
the part of the Lenders first to marshall any of their claims or to exercise any
of their rights against the other Borrower or to exhaust any remedies available
to them against any other Borrower or to resort to any other source or means of
obtaining payment of any of the Obligations hereunder or to elect any other
remedy. The provisions of this Section shall remain in effect until all of the
If at any time, any payment, or any part thereof, made in respect of any of the
Obligations, is rescinded or must otherwise be restored or returned by the
Lenders upon insolvency, bankruptcy or reorganization of any of the Borrowers,
or otherwise, the provisions of this Section will forthwith be reinstated in
effect, as though such payment had not been made.
10.17 CONSENT TO FORUM; WAIVER OF JURY TRIAL.
EACH BORROWER AND LENDER HEREBY IRREVOCABLY CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT
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OF NEW YORK, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED
MAIL DIRECTED TO SUCH BORROWER OR LENDER AT THE ADDRESSES PROVIDED FOR IN THIS
AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL
RECEIPT THEREOF. EACH BORROWER AND LENDER WAIVES ANY OBJECTION TO JURISDICTION
AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT
TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE. EACH BORROWER, THE
COLLATERAL AGENT, THE AGENT AND THE LENDERS HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED
TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE COLLATERAL TO THE FULL EXTENT
PERMITTED BY LAW.
10.18 TAX WITHHOLDING CLAUSE.
Each Lender or assignee or participant of a Lender that is not incorporated
under the Laws of the United States of America or a state thereof agrees that it
will deliver to each of the Borrowers and the Collateral Agent two (2) duly
completed copies of the following: (i) Internal Revenue Service Form W-9, 4224
or 1001, or other applicable form prescribed by the Internal Revenue Service,
certifying that such Lender, assignee or participant is entitled to receive
payments under this Agreement and the other Loan Documents without deduction or
withholding of any United States federal income taxes, or is subject to such tax
at a reduced rate under an applicable tax treaty, or (ii) Internal Revenue
Service Form W-8 or other applicable form or a certificate of such Lender,
assignee or participant indicating that no such exemption or reduced rate is
allowable with respect to such payments. Each Lender, assignee or participant
required to deliver to the Borrowers and the Agent a form or certificate
pursuant to the preceding
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sentence shall deliver such form or certificate as follows: (A) each Lender
which is a party hereto on the Closing Date shall deliver such form or
certificate at least five (5) Business Days prior to the first date on which any
interest or fees are payable by the Borrowers hereunder for the account of such
Lender; (B) each assignee or participant shall deliver such form or certificate
at least five (5) Business Days before the effective date of such assignment or
participation (unless the Collateral Agent in its sole discretion shall permit
such assignee or participant to deliver such form or certificate less than five
(5) Business Days before such date in which case it shall be due on the date
specified by the Collateral Agent). Each Lender, assignee or participant which
so delivers a Form W-8, W-9, 4224 or 1001 further undertakes to deliver to each
of the Borrowers and the Collateral Agent two (2) additional copies of such form
(or a successor form) on or before the date that such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by a Borrower or the Agent,
either certifying that such Lender, assignee or participant is entitled to
receive payments under this Agreement and the other Loan Documents without
deduction or withholding of any United States federal income taxes or is subject
to such tax at a reduced rate under an applicable tax treaty or stating that no
such exemption or reduced rate is allowable. The Collateral Agent shall be
entitled to withhold United States federal income taxes at the full withholding
rate unless the Lender, assignee or participant establishes an exemption or that
it is subject to a reduced rate as established pursuant to the above provisions.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Agreement as of the day and year first above
written.
[BORROWERS]
NEWTECH ELECTRONICS
INDUSTRIES, INC., (formerly known as
NEW M-TECH CORPORATION), a
Florida corporation
By: /s/ LEONOR E. SCHUCK
-----------------------------------------
Leonor E. Schuck, Vice President,
Finance and Chief Financial Officer
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NEWTECH (HONG KONG)
LIMITED, a Hong Kong limited liability
company
By: /s/ LEONOR E. SCHUCK
------------------------------------
Leonor E. Schuck, Director
DURABLE ELECTRONICS INDUSTRIES
LIMITED, a Hong Kong limited liability
company
By: /s/ LEONOR E. SCHUCK
------------------------------------
Leonor E. Schuck, Director
NEWTECH ELECTRONICS
INDUSTRIES LIMITED, (formerly known
as Pomillo Limited),a Hong Kong limited
liability company
By: /s/ LEONOR E. SCHUCK
------------------------------------
Leonor E. Schuck, Director
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[AGENT]
NATIONAL BANK OF CANADA,
individually as a Lender and as Agent
By: /s/ [Illegible]
-----------------------------------
Title:________________________________
[COLLATERAL AGENT]
NATIONSBANK, N. A., individually as a
Lender and as Collateral Agent
By: /s/ [Illegible]
------------------------------------
Title:________________________________
[OTHER LENDERS]
COMERICA BANK
By: /s/ [Illegible]
------------------------------------
Title:________________________________
MERCANTILE BUSINESS CREDIT, INC.
By: /s/ [Illegible]
------------------------------------
Title:________________________________
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EXHIBIT 23.1
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our reports dated April
3, 1998, except for the last paragraph of Note 1, as to which the date is April
10, 1998, in Amendment No. 1 to the Registration Statement (Form S-1 No.
333-52607) and related Prospectus of Newtech Electronics Industries, Inc. and
subsidiaries for the registration of 000,000 shares of its common stock.
/S/ ERNST & YOUNG LLP
Miami, Florida
July 6, 1998
EXHIBIT 23.2
Consent of Independent Certified Public Accountants
We have issued our report dated April 2, 1998, accompanying the financial
statements of Durable Electronics Industries Limited not presented separately in
the Registration Statement and Prospectus of Newtech Electronics Industries,
Inc. We consent to the use of the aforementioned report in the Registration
Statement and Prospectus, and to the use of our name as it appears under the
caption "Experts."
/S/ GRANT THORNTON
Hong Kong
July 6, 1998
