UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File No. 1-7909
EMPIRE OF CAROLINA, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-2999480
(State or other jurisdiction of
incorporation or (I.R.S. Employer
organization) Identification Number)
5150 LINTON BOULEVARD, 5TH FLOOR, DELRAY BEACH, FL 33484
(Address of principal executive office)
(Zip Code)
(561) 498-4000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the issuer's Common Stock, $.10 par value,
as of June 30, 1998 was 14,030,070.
<PAGE>
PART I - FINANCIAL INFORMATION
This Form 10-Q contains various forward-looking statements and information that
are based on management's beliefs as well as assumptions made by and information
currently available to management, including statements regarding future
economic performance and financial condition, liquidity and capital resources
and management's plans and objectives. When used in this document, the words
"expect," "anticipate," "estimate," "believe," and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
various risks and uncertainties which could cause actual results to vary
materially from those stated. Should one or more of these risks or uncertainties
materialize or should underlying assumptions prove incorrect, actual results may
vary materially from those anticipated, estimated, expected or projected. Such
risks and uncertainties include the Company's ability to manage inventory,
production and costs, potential increases or decreases in demand, potential
adverse customer impact due to import and delivery delays including effects on
existing and future orders, competitive practices in the toy and golf
accessories industries, changing consumer preferences and risk associated with
consumer acceptance of new product introductions, potential increases in raw
material prices, potential delays or production problems associated with foreign
sourcing of production and the impact of pricing policies including providing
discounts and allowances, reliance on key customers, the seasonality of the
Company's businesses, unanticipated negative results of litigation or
governmental proceedings, the ability of the Company to meet existing financial
obligations in the event of adverse industry or other developments, and the
Company's ability to obtain additional capital to fund future commitments and
operations. Certain of these as well as other risks and uncertainties are
described in more detail in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, the Company's Registration Statement on Form S-3
filed with the Securities and Exchange Commission ("SEC") on April 7, 1998,
Registration No. 333-57963, the Company's Proxy Statement dated April 29, 1998,
the Company's Current Report on Form 8-K filed with the SEC on June 12, 1998 and
the Company's Registration Statement on Form S-3 filed with the SEC on June 29,
1998, Registration No. 333-42391. The Company undertakes no obligation to update
any such factors or to publicly announce the result of any revisions to any of
the forward-looking statements contained herein to reflect future events or
developments.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
EMPIRE OF CAROLINA, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................... $ 1,665 $ 3,483
Accounts receivable, less allowances and other
deductions (1998-$5,140; 1997-$5,487) ..................................... 20,467 14,052
Inventories, net ............................................................ 18,498 9,933
Prepaid expenses and other current assets ................................... 1,680 1,980
--------- ---------
Total current assets ................................................ 42,310 29,448
PROPERTY, PLANT AND EQUIPMENT, NET ............................................ 12,620 14,135
EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET ....................... 13,013 13,491
TRADEMARKS, PATENTS, TRADENAMES AND LICENSES, NET ............................. 5,816 6,066
OTHER NONCURRENT ASSETS ....................................................... 461 436
--------- ---------
$ 74,220 $ 63,576
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt ......................... $ 25,870 $ 16,988
Accounts payable - trade .................................................... 10,016 12,317
Other accrued liabilities ................................................... 11,280 10,751
--------- ---------
Total current liabilities ........................................... 47,166 40,056
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt .............................................................. 7,250 6,425
Other noncurrent liabilities ................................................ 1,667 1,642
--------- ---------
Total long-term liabilities ......................................... 8,917 8,067
--------- ---------
Total liabilities ................................................... 56,083 48,123
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value, 60,000,000 shares authorized, shares
issued and outstanding: 1998 - 14,030,000 and 1997 - 7,849,000 ............ 1,403 785
Preferred stock, $.01 par value, 5,000,000 shares authorized ................
Issued and outstanding: 1998 - 1,952,000 and 1997 - 2,100,000
shares of Series A convertible preferred stock and 1,461 shares
of Series C convertible preferred stock ................................... 20 21
Additional paid-in capital .................................................. 115,828 109,282
Deficit ..................................................................... (99,114) (94,635)
--------- ---------
Total stockholders' equity .......................................... 18,137 15,453
--------- ---------
$ 74,220 $ 63,576
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
EMPIRE OF CAROLINA, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
-------- -------- -------- --------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net Sales .............................................. $ 20,306 $ 27,616 $ 32,202 $ 53,302
Sales distribution settlement .......................... -- 2,400 -- 2,400
Cost of Sales .......................................... 14,832 22,273 24,223 44,151
-------- -------- -------- --------
Gross Profit ........................................... 5,474 7,743 7,979 11,551
Selling and Administrative Expense ..................... 5,885 6,732 10,378 13,225
-------- -------- -------- --------
Operating Income(Loss) ................................. (411) 1,011 (2,399) (1,674)
Interest Expense ....................................... (1,093) (2,081) (2,080) (4,087)
-------- -------- -------- --------
Loss Before Income Taxes ............................... (1,504) (1,070) (4,479) (5,761)
Income Tax Benefit ..................................... -- 309 -- 1,749
-------- -------- -------- --------
Net Loss ............................................... (1,504) (761) (4,479) (4,012)
Accretion of noncash preferred stock
dividend ............................................ -- (19,270) -- (19,270)
-------- -------- -------- --------
Net loss applicable to common stock .................... $ (1,504) $(20,031) $ (4,479) $(23,282)
======== ======== ======== ========
Loss Per Common Share -
Basic and diluted ................................... $ (0.15) $ (2.69) $ (0.50) $ (3.14)
======== ======== ======== ========
Weighted average number of common
shares outstanding -
Basic and diluted ................................... 10,173 7,439 9,017 7,422
======== ======== ======== ========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
EMPIRE OF CAROLINA, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................................... $ (4,479) $ (4,012)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization ........................................................ 2,479 4,712
Other ................................................................................ 1,267 1,566
Changes in assets and liabilities .................................................... (3,917) 16,957
-------- --------
Net cash provided by(used in) operating activities ............................ (4,650) 19,223
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................................. (301) (427)
Acquisition of Apple Companies ....................................................... 917 -
Proceeds from sale of fixed assets ................................................... - 512
Other ................................................................................ - 45
-------- --------
Net cash provided by investing activities .................................... 616 130
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings(repayments) under lines of credit ......................................... 4,032 (30,611)
Repayments of notes payable .......................................................... (1,730) (1,910)
Proceeds from issuance of stock ...................................................... (86) 14,739
-------- --------
Net cash provided by(used in) financing activities ........................... 2,216 (17,782)
-------- --------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS .................................... (1,818) 1,571
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......................................... 3,483 478
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................... $ 1,665 $ 2,049
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ......................................................................... $ 1,415 $ 2,497
Income taxes, (net of refunds) ................................................... 352 (15,784)
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES
On May 28, 1998, the Company acquired all of the common stock of the Apple
Companies for an aggregate purchase price of $7,633,000, including expenses, and
including the issuance of 5,000,000 shares of common stock. The components of
cash used for the acquisition as reflected in the consolidated statements of
cash flows are as follows (in thousands):
Fair value of assets acquired, net of cash acquired ... $ 15,454
Liabilities assumed ................................... (9,063)
Common stock issued (5,000,000 shares) ................ (7,308)
--------
Cash received in acquisition .......................... $ (917)
========
<PAGE>
During June 1997, the Company converted the convertible subordinated debentures
and related discount, accrued interest and expenses into 1,500 shares of Series
C Preferred Stock, thus increasing preferred stock by $15 and additional paid-in
capital by $14,952,584.
Also during June 1997, the Company settled its earnout liability with the
successor to Buddy L, resulting in an increase in common stock of $25,000,
additional paid-in capital of $631,000, goodwill of $1,240,000, and earnout
liability of $993,000 and a decrease in other liabilities of $409,000.
Pursuant to Emerging Issues Task Force Announcement No. D-60, the Company during
June 1997 recorded a dividend on its newly-issued Series A Preferred Stock to
reflect the effect of a beneficial conversion feature of such stock and the
concurrent issuance of 7.5 million warrants. The recording of this dividend
resulted in a transfer from deficit to additional paid-in capital of
$19,270,000.
See notes to consolidated condensed financial statements.
<PAGE>
EMPIRE OF CAROLINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1. SUMMARY OF BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
During the second quarter of 1998, Empire of Carolina, Inc. ("Empire" or the
"Company") completed the acquisition of all of the outstanding capital stock of
Apple Sports, Inc. and Apple Golf Shoes, Inc. (See Note 2.) The consolidated
condensed statements of operations include the results of the acquired companies
for the one month from the acquisition date.
The consolidated condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and disclosures
normally included in financial statements have been condensed or omitted
pursuant to such rules and regulations; however, the Company believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these condensed financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company's latest
annual report on Form 10-K.
In the opinion of management, the information contained in this report
reflects all adjustments necessary to present fairly the results for the interim
periods presented.
The consolidated condensed financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. Recurring losses
from operations and operating cash constraints are potential factors which,
among others, may indicate that the Company will be unable to continue as a
going concern for a reasonable period of time. The independent auditors' report
on the December 31, 1997 financial statements stated that "... the Company's
recurring losses from operations and current cash constraints raise substantial
doubt about the Company's ability to continue as a going concern . . .. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty."
The consolidated financial statements do not include adjustments relating
to the recoverability and classification of recorded asset amounts, or the
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. The Company's ability to
continue as a going concern is dependent upon its ability to generate sufficient
cash flow to meet its obligations on a timely basis and ultimately to attain
profitable operations.
On March 30, 1998, the bank lenders under the Company's secured credit
facility agreed to certain amendments to the facility which provide additional
availability during the Company's peak production periods, but which require
that such additional funds be repaid by year end. This amendment to the
Company's secured bank facility reduced the maximum borrowings under the
agreement to $57,000,000 and extended the loan to April 1, 2001. Certain
financial covenants, including tangible net worth and interest coverage, as
defined, were amended.
EARNINGS PER SHARE - For the calculation of earnings per share for the
three and six months ended June 30, 1998 and 1997, all of the Company's options,
warrants, convertible securities and contingently issuable shares are excluded
from diluted earnings per share because they are anti-dilutive.
<PAGE>
STOCK OPTIONS - In the second quarter of 1998, the Company adopted its
1998 Stock Option Plan which makes available 2 million shares for grant to
employees as incentive stock options or non-qualified options, as determined by
the board of directors.
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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
2. APPLE COMPANIES ACQUISITION
On April 10, 1998, the Company executed a definitive Share Purchase
Agreement (the "Share Purchase Agreement") with the shareholders of Apple
Sports, Inc. and the shareholders of Apple Golf Shoes, Inc. (collectively, the
"Apple Company Shareholders" and with respect to the companies, the "Apple
Companies") whereby the Company agreed to purchase from the Apple Company
Shareholders all of their capital stock representing all of the outstanding
capital stock of the Apple Companies (the "Acquisition"), in exchange for the
issuance of 5 million shares of the Company's common stock, reimbursement of
certain transfer and other fees of approximately $325,000 and, under certain
circumstances, the issuance of additional shares of Common Stock. The Apple
Companies have manufactured and distributed Wilson(R) and Staff(R) golf shoes
and other Wilson(R) accessories, including gloves, head covers and practice
aids, since 1986.
At the May 28, 1998 annual meeting, the stockholders of the Company
approved the issuance of stock for the Acquisition. In anticipation of the
consummation of the Acquisition, on May 27, 1998 the Apple Companies' existing
$15 million credit facility with Citibank, N.A. was replaced with a $12 million
facility from LaSalle National Bank on substantially similar terms.
Under the terms of the Share Purchase Agreement, Empire acquired all of
the issued and outstanding shares of capital stock of each of the Apple
Companies, for consideration equal to an aggregate of 5,000,000 shares of the
Company's common stock (the "Initial Payment Shares"), subject to increase as
described below. In the event that during the Adjustment Period (defined below)
the closing daily market price of the Company's common stock trading on the
American Stock Exchange or on any nationally recognized stock exchange
(including The Nasdaq Stock Market or the New York Stock Exchange) (an
"Exchange") shall not be at a price of $2.00 per share or higher for each of 45
consecutive stock trading days, then Empire shall be obligated to pay additional
consideration in the amount of 1,153,846 shares of Empire Common Stock (the
"Additional Payment Shares," and together with the Initial Payment Shares, the
"Payment Shares"), thereby bringing the number of shares of Empire common stock
paid for the Acquisition to an aggregate of 6,153,846. In addition, pursuant to
the Share Purchase Agreement, the Company had agreed to reimburse certain
transfer and other fees of approximately $325,000.
The Adjustment Period is the period of time commencing on the first
trading date after the date on which the Registration Statement under the
Securities Act of 1933 filed June 29, 1998 was declared effective by the
Securities and Exchange Commission and the Payment Shares in question are deemed
fully transferable on an Exchange (the "Effective Date") and ending on the first
calendar anniversary of the Effective Date, provided, however, that if the
Effective Date shall not have occurred within 90 days of the closing date of the
Acquisition (the "Closing Date"), the Adjustment Period shall mean a period of
365 days commencing on the 91st day after the Closing Date.
The consideration payable by Empire described above was determined in
arm's length negotiation by the Board of Directors of Empire and the Apple
Company Shareholders. In determining the consideration, the Board of Directors
and Apple Company Shareholders considered, among other factors, the Apple
Companies' history of growth and profitability, the growth potential of the golf
industry and the prospects of Empire and the Apple Companies on a combined
basis. The funds used to pay for the transfer fees and other fees due at closing
were paid from the Company's working capital.
<PAGE>
The Company has recorded a negative purchase price adjustment to reduce
long-lived assets acquired by approximately $396,000 to reflect the excess of
net values of assets acquired and liabilities assumed in the acquisition over
the consideration given which, for accounting purposes, is the 5,000,000 Initial
Payment Shares plus the 1,153,846 Additional Payment Shares valued in the
aggregate at the average market price of $1.1875 before and after the date that
the Share Purchase Agreement was made public. The negative adjustment of the net
assets acquired is being amortized on a straight-line basis over a period of
twenty years. Such allocation of the purchase price has been based on
preliminary estimates which may be revised at a later date.
The following unaudited pro forma results of operations assume the
transaction described above occurred as of January 1 of the period presented
after giving effect to certain adjustments, including amortization of the
negative excess of net assets purchased over cost:
Six Months Ended June 30,
1998 1997
-------- --------
Net Sales .................................. $ 44,216 $ 68,110
Loss from operations before income taxes ... (2,567) (3,592)
Net Loss applicable to common stock ........ (2,567) (21,113)
Loss per share:
Basic and diluted ....................... (0.18) (1.70)
The pro forma financial information does not purport to be indicative of the
results of operations that would have occurred had the transactions taken place
at the beginning of the periods presented or of future results of operations.
3. INVENTORIES
A summary of inventories, by major classification, at June 30, 1998 and
December 31, 1997 is as follows (in thousands):
June 30 December 31,
1998 1997
-------- --------
Finished goods ............................. $ 16,463 $ 7,336
Raw materials and purchased parts .......... 1,633 1,990
Work-in-process ............................ 402 607
-------- --------
$ 18,498 $ 9,933
======== ========
Inventories are net of writedowns for lower of cost or market reserves of
$6,817,000 and $7,050,000 at June 30, 1998 and December 31, 1997, respectively.
4. COMMITMENTS AND CONTINGENCIES
ROYALTY AGREEMENTS - The Company is obligated to pay certain minimum
royalties under various trademark license agreements which aggregate
approximately $5.9 million through their initial minimum terms expiring through
June 30, 2002.
LETTERS OF CREDIT - The Company had outstanding commitments under letters
of credit totaling approximately $580,000 at June 30, 1998.
INDEMNIFICATIONS - In connection with the sale of the assets used in the
businesses of its wholly-owned subsidiaries, Isaly Klondike Company and Popsicle
Industries Ltd. to Thomas J. Lipton Company and its affiliates in 1993, the
Company agreed to certain indemnification obligations. The Company has
established reserves for all claims known to it and for other contingencies in
connection with the sale. Although there can be no assurance that
<PAGE>
claims and other contingencies related to the sale will not exceed established
reserves, the Company believes that additional exposure related to the
indemnification obligations will not be material to the consolidated financial
statements.
LITIGATION - George Delaney and Rehkemper I.D., Inc. v. Marchon, Inc., is
an action pending in the Circuit Court of Cook County, Illinois, which was
commenced on December 3, 1990, arising from a business arrangement between the
plaintiffs and Marchon, alleging an interest in one of Marchon's product lines.
On November 22, 1991, the trial court judge issued an opinion and dismissed
plaintiff's complaint with prejudice. Plaintiffs appealed and, on September 23,
1993, the Appellate Court reversed the dismissal and remanded the case for
further proceedings. The plaintiffs have filed an amended complaint against the
Company and the case is in discovery. The Company is vigorously contesting the
matters set forth in the complaint and believes that it has meritorious defenses
to the plaintiffs' claims.
The Company's operating subsidiaries and its former operating subsidiaries
are subject to various types of consumer claims for personal injury from their
products. The Company's subsidiaries maintain product liability insurance.
Various product liability claims, each of which management believes is
adequately covered by insurance and/or reserves, are currently pending.
The Company does not believe the outcome of any of this litigation either
individually or in the aggregate would have a material adverse effect on the
Company's consolidated financial statements.
CONTINGENCIES - The Company has been identified as a potentially
responsible party, along with numerous other parties, at various U. S.
Environmental Protection Agency ("EPA") designated superfund sites. The Company
is vigorously contesting these matters. It is the Company's policy to accrue
remediation costs when it is possible that such costs will be incurred and when
they can be reasonably estimated. The Company had reserves for environmental
liabilities of $98,000 as of June 30, 1998 and $125,000 as of December 31, 1997.
The amount accrued for environmental liabilities was determined without
consideration of possible recoveries from third parties. Estimates of costs for
future remediation are necessarily imprecise due to, among other things, the
allocation of costs among potentially responsible parties. Although it is
possible that additional environmental liability related to these matters could
result in amounts that could be material to the Company's consolidated financial
statements, a reasonably possible range of such amounts cannot presently be
estimated. Based upon the facts presently known, the large number of other
potentially responsible parties and potential defenses that exist, the Company
believes that its share of the costs of cleanup for its current remediation
sites will not, in the aggregate, have a material adverse impact on its
consolidated financial statements.
5. NOTE PAYABLE
The Apple Companies have banking facilities providing a line of credit up
to $12,000,000 based on, and secured by, the Apple Companies accounts receivable
and inventory balances as defined. The facilities are for a three-year term at
an interest rate of LIBOR plus 2 1/2% or prime at the Apple Companies' option
and require adherence to certain financial covenants.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On May 28, 1998, the Company acquired all of the stock of each of Apple
Sports, Inc. and Apple Golf Shoes, Inc. (together, the "Apple Companies"),
manufacturers and distributors of golf accessories sold under license from
Wilson Sporting Goods Co., for 5 million shares of the Company's common stock,
subject to adjustment. The Apple Companies continue to operate from their leased
facility in Ronkonkoma, New York. They have manufactured and distributed
Wilson(R) and Staff(R) golf shoes and other Wilson(R) accessories, including
gloves, head covers and practice aids, since 1986. In 1997, the Apple Companies
had revenues in excess of $24 million. See Note 2 of notes to consolidated
condensed financial statements.
<PAGE>
RESULTS OF OPERATIONS
The 1998 amounts in the ensuing discussion include the results of
operations of the Apple Companies for the period May 28, 1998 (date of
acquisition) to June 30, 1998.
THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE AND SIX MONTHS
ENDED JUNE 30, 1997
NET LOSS. The net loss applicable to common stockholders for the three
months ended June 30, 1998 was $1.5 million compared to $20.0 million for the
three months ended June 30, 1997 and was $4.5 million compared to $23.3 million
for the six month periods ended June 30, 1998 and 1997, respectively. In the
prior year quarter, the Company recorded a dividend of $19,720,000 on its then
newly-issued Series A preferred stock to reflect the effect of a beneficial
conversion feature of such stock as well as a discount resulting from the
concurrent issuance of detachable warrants. Also in the prior year quarter, the
Company recognized a settlement benefit of $2.4 million upon termination of an
international sales distribution agreement.
The current year loss reflects improvements in gross margin and lower
selling and administrative expense and interest expense when compared to the
1997 loss of $3.2 million and $6.4 million for the three and six months ended
June 30, 1997, respectively, before the items noted above.
NET SALES. Net sales for the three and six months ended June 30, 1998
decreased by $7.3 million, or 26.5%, to $20.3 million and decreased by $21.1
million, or 39.6%, to $32.2 million, respectively, compared to the three and six
months ended June 30, 1997. Sales of marginally profitable lines were decreased
from 1997, reflecting management's plan to focus on more profitable lines and
items in 1998. Approximately half of the decrease for both the three and six
month periods of 1998 is attributable to the sale of the steel-walled pool
product line (consummated in the fourth quarter of 1997) and sale of products
closed out in 1997 or discontinued thereafter. Decreased sales of Real Bugs(TM)
($5.1 million for the six months) and the overall decrease in sales to a
significant customer ($4.0 million in addition to the above enumerated items),
accounts for the balance of the decrease in sales when comparing the six month
periods, and is indicative of the decrease in sales when comparing the recent
three month period to the corresponding period in the prior year. Sales of the
newly introduced YoYo Balls(R) were approximately $2.5 million during the first
half ($1.6 million during the second quarter) of 1998. Net sales of the Apple
Companies since the acquisition were $2.4 million.
GROSS PROFIT MARGINS. Gross profit margins were higher for the three
months (27.0%) and six months (24.8%) ended June 30, 1998 as compared to the
three months (19.3%) and six months (17.2%) ended June 30, 1997, respectively,
calculated by excluding the sales distribution settlement of $2.4 million that
was recognized in the second quarter of 1997. The dramatic improvement in gross
margins is attributable to lower costs of domestic operations, improved margins
on imported items, the introduction of Apple operations for the month of June
1998, and the reduction in 1998 of sales from 1997 levels lines which were
deemed to be marginally profitable or discontinued.
SELLING AND ADMINISTRATIVE ("S&A"). S & A expenses were $0.8 million and
$2.8 million lower for the three and six months ended June 30, 1998 as compared
to the three and six months ended June 30, 1997. Contributing to the decrease
for the first six months were reductions in advertising, sales commissions and
royalties ($1,129,000), commensurate with the reduction in sales; reductions in
executive, marketing, customer support and administrative staff ($774,000), and
elimination of consulting fees which had been $412,000 during the first half of
1997. Due to the significant decrease in first half sales, however, S & A
expenses as a percentage of net sales were 32.2% for the first six months of
1998 as compared to 24.8% in the first six months of 1997.
INTEREST EXPENSE. Interest expense was $1.1 million and $2.1 million for
the three and six months ended June 30, 1998 as compared to $2.1 million and
$4.1 million for the three and six months ended June 30, 1997, due to the
conversion of debt to equity in the second quarter of 1997 and the use of
proceeds from the sale of Series A convertible preferred stock to reduce debt.
<PAGE>
INCOME TAXES. Due to the Company's expectation of a tax loss for 1998, no
tax benefits were provided at the federal statutory rate during the first six
months of 1998. The benefit of $1,749,000 originally provided during the first
six months of 1997 was reduced to $-0- in the third quarter of 1997.
SEASONALITY OF SALES
Sales of many toy products are seasonal in nature. Purchase orders for the
Christmas selling season are typically secured in the months of April, May and
June so that by the end of June, the Company has historically received orders or
order indications for a substantial majority of its full year's toy business.
The Company also offers products sold primarily in the spring and summer months
including Water Works(TM) pools, Crocodile Mile(R) waterslides and other items,
which are shipped principally in the first and second quarters of the year and
counter some of this seasonality. In addition, Big Wheel(R) ride-ons, Grand
Champions(R) horses and Buddy L(R) vehicles ship year-round. Sales of holiday
products are heavily concentrated in the Christmas and Halloween shopping
seasons with substantially all shipments occurring in the third and fourth
quarters of the year. The Company's production of toys generally is heaviest in
the period from June through September. Sales of golf shoes and accessories,
which are approximately equal in each half of the year, will complement toy
sales which are more concentrated in the second half of the year. The Company
expects that its quarterly operating results will vary significantly throughout
the year.
LIQUIDITY AND CAPITAL RESOURCES
The consolidated condensed financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. Recurring losses
from operations and operating cash constraints are potential factors which,
among others, may indicate that the Company will be unable to continue as a
going concern for a reasonable period of time. The independent auditors' report
on the December 31, 1997 financial statements stated that "...the Company's
recurring losses from operations and current cash constraints raise substantial
doubt about the Company's ability to continue as a going concern . . . . The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty."
The consolidated financial statements do not include adjustments relating
to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. The Company's ability to
continue as a going concern is dependent upon its ability to generate sufficient
cash flow to meet its obligations on a timely basis and ultimately to attain
profitable operations.
Due to the seasonality of its revenues, the Company's working capital
requirements fluctuate significantly during the year. The Company's seasonal
financing requirements are highest during the fourth quarter and lowest during
the first quarter. The Company's inventories, accounts receivable, accounts
payable, notes payable and current portion of long-term debt vary significantly
by quarter due to the seasonal nature of the Company's business.
Effective March 30, 1998, the bank lenders under the Company's secured
credit facility agreed to certain amendments to the facility which provide
additional availability, but which require that such additional funds be repaid
by year end. This sixth amendment to the Company's secured bank facility reduced
the maximum borrowings under the agreement from $75,000,000 to $57,000,000 and
extended the loan to April 1, 2001. The reduction in the maximum does not affect
current borrowings which are limited by actual availability under the agreement,
based on and secured by the Company's domestic accounts receivable, inventory,
property, plant and equipment, as defined. Certain financial covenants,
including tangible net worth and interest coverage, as defined, were amended.
<PAGE>
As the Apple Companies were acquired for company stock, the Company has not
committed its capital resources to the acquisition. The Apple Companies will
finance their business with a $12,000,000 credit facility with the lead lender
under the Company's secured credit facility. The loan agreement does not
prohibit intercompany loans with Empire.
Capital expenditures, principally for the purchase of tooling for new
products and equipment, were $301,000 for the first six months of 1998 compared
to $427,000 for the first six months of 1997.
The Company is subject to various actions and proceedings, including those
relating to intellectual property matters, environmental matters and product
liability matters. See notes to consolidated condensed financial statements.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment to recognize and
properly process data fields containing a two digit year is commonly referred to
as the Year 2000 Compliance Issue. As in the case with most companies using
computers, the Company is in the process of addressing the Year 2000 Compliance
Issue.
During the second quarter of 1998, the Company assigned a manager to the
project and engaged consultants to help evaluate the overall business
requirements of its management information systems. The Company anticipates
achieving Year 2000 compliance through the implementation of new software as a
result of this evaluation. The time frame of the overall process, which just
began in the second quarter of 1998, is expected to result in software selection
before the end of 1998, modification and testing by the middle of 1999, and full
implementation is expected in the second half of 1999. Since the process has
just begun, the Company has not yet quantified the potential cost for the new
management information software, or the portion which relates to Year 2000
compliance.
BACKLOG
The Company had open orders for toys of $17.5 million and $20.3 million as
of June 30, 1998 and June 30, 1997, respectively. Open orders at June 30, 1998
reflect a reduction from the prior year primarily due to reductions in orders
for seasonal products. Fulfillment of toy orders is also dependent on timely
receipt of goods manufactured in Asia. Recent shipments from Asia have
experienced delays or backlog caused by lack of marine containers, delays at the
Panama Canal and problems with air shipments from Hong Kong, among other
reasons. This situation may very well escalate with the increased demand for
cargo space for merchandise headed to the United States to fill holiday orders,
adversely affecting the Company. The Company believes that because order
patterns in the retail industry vary from time to time, open orders on any date
in a given year are not a meaningful indication of the future sales. Orders
placed in the first quarter are at the forefront of orders to be received for
fall toy and holiday product sales.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In December 1997, the Company filed a registration statement on Form S-3
under the Securities Act of 1933, Registration No. 333-57963, (the
"Registration") on behalf of the purchasers of the Series A convertible
preferred stock and warrants. In connection with this registration, the Company
filed listing applications with the American Stock Exchange ("AMEX") for the
Series A convertible preferred stock, the warrants, and the common stock
<PAGE>
underlying these securities. The Registration was declared effective on April 7,
1998 and the securities were approved for listing on the AMEX.
On June 29, 1998, the Company filed a registration statement on Form S-3
under the Securities Act of 1933, Registration No. 333-42391, on behalf of the
recipients of the shares of common stock issued or issuable in connection with
the Company's purchase of all of the outstanding capital stock of Apple Sports,
Inc. and Apple Golf Shoes, Inc. This registration was declared effective on July
9, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held May 28, 1998.
The following matters were voted upon at the meeting:
Approval by Series A Holders to elect two members (Charles S. Holmes and James
J. Pinto) to the Board of Directors and the Series A Holders and the holders of
Common Stock (the "Common Holders," and collectively with the Series A Holders,
the "Voting Holders"), voting together, to elect four members to the Board, all
such persons being elected to hold office for a one-year term and until their
respective successors are duly elected and qualified.
For Withheld Authority
--------- ------------------
Charles S. Holmes .............. 1,442,000 15,000
James J. Pinto ................. 1,442,000 15,000
Steven E. Geller ............... 18,638,043 251,455
Frederick W. Rosenbauer, Jr .... 18,637,971 251,527
John J. Doran .................. 18,635,548 253,950
Lenore H. Schupak .............. 18,637,733 251,765
The remaining proposals were voted upon by all Voting Holders.
Approval of a proposal to adopt the 1998 Stock Option Plan pursuant to which an
aggregate of 2,000,000 shares of Common Stock will be available for grant.
For ..................... 13,633,102
Against ................. 1,574,418
Abstain ................. 380,424
Approval of a proposal to issue 5,000,000 shares of the Company's Common Stock,
subject to increase under certain circumstances by up to 1,153,864 shares,
pursuant to the terms of the definitive Share Purchase Agreement with the
shareholders of Apple Sports, Inc. and shareholders of Apple Golf Shoes, Inc.
whereby the Company agreed to purchase from the Apple Company Shareholders all
of their capital stock representing all of the outstanding capital stock of the
Apple Companies.
For ..................... 14,157,778
Against ................. 405,488
Abstain ................. 1,024,718
<PAGE>
Ratification of Deloitte & Touche LLP as the Company's independent certified
public accountants to audit the books of account of the Company for the year
ending December 31, 1998.
For ..................... 18,697,531
Against ................. 55,554
Abstain ................. 125,313
ITEM 5. OTHER INFORMATION
At the annual meeting of stockholders on May 28, 1998, Mr. Steven E. Geller
resigned as Chief Executive Officer. He continues as a director and consultant
to the Company.
Mr. Timothy Moran was named as Chief Executive Officer in addition to his
position as President. Mr. Moran was also elected to the Company's board of
directors.
On May 27, 1998, just prior to this acquisition by the Company, each of the
Apple Companies (Apple Golf Shoes, Inc. and Apple Sports, Inc. and its
subsidiary, Dorson Sports, Inc.) entered into loan and security agreements with
a bank. Copies of those agreements are filed as exhibits to this Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index and Exhibits
EXHIBIT NO. DESCRIPTION
2.1 Stock Purchase Agreement dated July 29, 1988, by and among Clabir,
Clabir Corporation (California), HMW Industries, Inc. and Olin
Corporation. (1)
2.2 Agreement and Plan of Merger, dated as of November 14, 1989, between
AmBrit, Inc. ("AmBrit") and Empire of Carolina, Inc. (the
"Company"), including amendment thereto, dated as of December 4,
1989. (2)
2.3 Agreement and Plan of Merger, dated as of November 14, 1989, by and
among the Company, Clabir Corporation ("Clabir") and CLR
Corporation, including amendment thereto, dated as of December 4,
1989. (2)
2.4 Sale and Purchase Agreement between the Company and Cargill,
Incorporated, dated September 30, 1992.(3)
2.5 Purchase Agreement among Conopco, Inc., the Company, The Isaly
Klondike Company, Inc., The Isaly Company, Popsicle Industries,
Ltd., Ice Cream Novelties, Inc. and Smith & O'Flaherty Limited,
dated as of January 27, 1993.(4)
2.6 Agreement and Plan of Reorganization, dated October 13, 1994, by and
among the Company, Marchon, Inc. ("Marchon") and the stockholders of
Marchon.(5)
2.7 Agreement dated August 31, 1995, among the Company, CLR Corporation,
Clabir Corporation, Olin Corporation and General Defense
Corporation.(7)
3.1 Restated Certificate of Incorporation of the Company.(6)
3.2 First Amendment to Restated Certificate of Incorporation of the
Company.(8)
3.3 Amended and Restated By-Laws of the Company.(9)
3.4 Certificate of Designation of the Series B Junior Participating
Preferred Stock.(10)
3.5 Certificate of Designation Relating to Series A Preferred Stock.(11)
3.6 Certificate of Designation Relating to Series C Preferred Stock.(11)
4.1 Form of specimen certificate representing the Company's Common
Stock.(12)
<PAGE>
EXHIBIT NO. DESCRIPTION
4.2 Excerpts from the Company's amended By-Laws and the Company's
Restated Certificate of Incorporation relating to rights of holders
of the Company's Common Stock.(6)
4.3 Rights Agreement, dated as of September 11, 1996, between Empire of
Carolina, Inc. and American Stock Transfer & Trust Company as Rights
Agent, which includes (i) as Exhibit A thereto the form of
Certificate of Designation of the Series B Junior Participating
Preferred Stock, (ii) as Exhibit B thereto the form of Right
certificate (separate certificates for the Rights will not be issued
until after the Distribution Date) and (iii) as Exhibit C thereto
the Summary of Stockholder Rights Agreement.(10)
4.4 Warrant Agreement dated as of June 17, 1997 between the Company and
the holders from time to time of the warrants.(11)
4.5 Second Amendment dated as of June 12, 1997 to Rights Agreement,
dated as of September 11, 1996 between Empire of Carolina, Inc. and
American Stock Transfer & Trust Company as Rights Agent.(11)
4.6 Promissory Note from the Company to Smedley Industries, Inc.
Liquidating Trust in the amount of $2,500,000.(11)
4.7 First Amendment dated as of May 5, 1997 to Rights Agreement of
September 11, 1996, between Empire of Carolina, Inc. and American
Stock Transfer and Trust Company as Rights Agent.(13)
9.1 Voting Agreement, dated September 30, 1994, by and between Halco
Industries, Inc. ("Halco") and Steve Geller.(5)
10.1 Amended and Restated 1994 Stock Option Plan of the Company.(9)
10.2 Empire of Carolina, Inc. 1996 Outside Directors Stock Option
Plan.(14)
10.3 Empire of Carolina, Inc. 1996 Employee Stock Purchase Plan.(14)
10.4 Employment Agreement, dated July 15, 1994, by and among the Company,
Empire Industries, Inc. ("EII") and Steven Geller.(15)
10.5 Employment Agreement, dated July 15, 1994, by and among the Company,
EII and Neil Saul.(15)
10.6 Settlement and Termination Agreement with Neil Saul.(7)
10.7 Stock Purchase Agreement, dated July 15, 1994, among Steven Geller,
Maurice A. Halperin, individually and as custodian for the benefit
of Lauren Halperin and Heather Halperin, Carol A. Minkin,
individually and as custodian for the benefit of Joshua Minkin and
Rebecca Minkin, and Halco (the Halperins and Minkins, collectively,
the "Halperin Group").(5)
10.8 Redemption Agreement, dated September 30, 1994, by and between the
Company and the Halperin Group.(5)
10.9 Omnibus Agreement, dated September 30, 1994, by and among the
Halperin Group, Steven Geller, the Company and EII.(5)
10.10 Stockholders' Agreement, dated October 13, 1994, by and among Steven
Geller, Marvin Smollar and Neil Saul.(5)
10.11 Investor's Rights Agreement, dated October 13, 1994, by and among
the Company, Marvin Smollar, Kar Ye Yeung, Tyler Bulkley and Harvey
Katz.(5)
10.12 Stockholders' Agreement dated October 13, 1994, among Steven Geller,
Marvin Smollar and Neil Saul.(5)
10.13 Debenture Purchase Agreement, dated as of December 2, 1994, among
the Company, WPG Corporate Development Associates IV (Overseas),
Ltd., Westpool Investment Trust PLC, Glenbrook Partners, L.P.,
Eugene Matalene, Jr., Richard Hockman, Weiss, Peck & Greer, as
Trustee under Nora E. Kerppola IRA, Peter B. Pfister and Weiss, Peck
& Greer, as Trustee under Craig S. Whiting IRA and WPG Corporate
Development Associates IV, L.P. (all of such parties, other than the
Company, collectively, the "WPG Group").(16)
<PAGE>
EXHIBIT NO. DESCRIPTION
10.14 Registration Rights Agreement, dated as of December 22, 1994, by and
between the Company, and the WPG Group.(16)
10.15 Shareholders' Agreement, dated December 22, 1994, by and among the
WPG Group, Steven Geller, Neil Saul, Marvin Smollar and Champ
Enterprises Limited Partnership.(16)
10.16 Stock Purchase Agreement, dated as of December 22, 1994, between WPG
Corporate Development Associates IV (Overseas), Ltd. and Steven
Geller.(16)
10.17 Assignment and Assumption Agreement dated as of June 21, 1995
between the Company and EAC.(6)
10.18 Assignment dated as of May 22, 1995 between the Company and Carnichi
Limited.(6)
10.19 Lease dated July 7, 1995 between Buddy L Inc. Debtor-in-Possession
("Buddy L") and Empire Acquisition Corp., Inc. ("EAC").(6)
10.20 Form of Subscription Agreement executed in connection with
subscription of Common Stock and Preferred Stock by WPG Corporate
Development Associates IV (Overseas), L.P., Westpool Investment
Trust PLC, Glenbrook Partners, L.P., and WPG Corporate Development
Associates IV, L.P.(6)
10.21 Shareholders' Agreement ("Shareholders' Agreement") dated December
22, 1994 among WPG Corporate Development Associates IV, L.P., WPG
Corporate Development Associates IV (Overseas), Ltd., Weiss, Peck &
Greer, as Trustee under Craig S. Whiting IRA, Peter Pfister, Weiss,
Peck & Greer, as Trustee under Nora E. Kerppola IRA Westpool
Investment Trust, PLC, Glenbrook Partners, L.P., Steve Geller, Neil
Saul, Marvin Smollar and Champ Enterprises Limited Partnership.(17)
10.22 Amendment No. 2 to Shareholders' Agreement dated as of June 29, 1995
among WPG Corporate Development Associates IV, L.P., WPG Corporate
Development Associates IV (Overseas), Ltd., as the exempt transferee
of WPG Corporate Development Associates IV (Overseas), Ltd., certain
persons identified on Schedule I of Amendment No. 2 to the
Shareholders' Agreement, Geller, Saul and the Trust as the permitted
transferee of Champ Enterprises Limited Partnership.(6)
10.23 Registration Rights Agreement ("Registration Rights Agreement")
dated as of December 22, 1994 by and among Empire of Carolina, Inc.,
WPG Corporate Development Associates IV, L.P., WPG Corporate
Development Associates IV (Overseas), Ltd., Weiss Peck & Greer, as
Trustee under Craig Whiting IRA, Peter B. Pfister, Weiss, Peck &
Greer, as Trustee under Nora Kerppola IRA, Westpool Investment Trust
PLC and Glenbrook Partners, L.P.(17)
10.24 Amendment No. 1 to Registration Rights Agreement.(6)
10.25 Loan and Security Agreement dated May 29, 1996 among LaSalle
National Bank ("LaSalle"), BT Commercial Corporation ("BTCC") and
EII, with exhibits and security instruments.(18)
10.26 First Amendment to Amended and Restated Loan and Security Agreement
among LaSalle, BTCC, Congress Financial Corporation (Central)
("Congress") and EII, with exhibits.(19)
10.27 Consent and Second Amendment to Loan and Security Agreement among
LaSalle, BTCC, Congress, the CIT Group/Credit Finance, Inc. ("CIT"),
Finova Capital Corporation ("Finova") and EII.(20)
10.28 Third Amendment to Loan and Security Agreement among LaSalle, BTCC,
Congress, CIT, Finova and EII.(21)
10.29 Securities Purchase Agreement dated as of May 5, 1997 among the
Company, HPA Associates, LLC and EMP Associates, LLC.(22)
10.30 Amendment No. 1 dated as of June 5, 1997 to Securities Purchase
Agreement dated as of May 5, 1997 among the Company, HPA Associates,
LLC and EMP Associates, LLC.(11)
10.31 Buddy L Settlement Agreement, dated as of June 17, 1997 between the
Company and Smedley Industries Inc. Liquidating Trusts ("SLM").(11)
<PAGE>
EXHIBIT NO. DESCRIPTION
10.32 Letter of the Company to Pellinore Securities Corp., Axiom Capital
Management, Inc. and Commonwealth Associates, Inc. regarding the
registration rights provisions affecting the Series A Preferred
Stock.(11)
10.33 Buddy L Registration Rights Agreement dated as of June 17, 1997
between the Company and SLM.(11)
10.34 WPG Registration Rights Agreement dated as of June 17, 1997 among
the Company and WPG Corporate Development Associates IV, L.P., WPG
Corporate Development Associates IV (Overseas), Ltd., Weiss, Peck &
Greer, as trustee under Craig Whiting IRA, Peter B. Pfister, Weiss,
Peck & Greer as Trustee under Nora Kerppola IRA, Westpool Investment
Trust, PLC, Eugene M. Matalene, Jr., Richard Hochman, and Glenbrook
Partners, L.P. (collectively the "WPG Affiliated Entities").(11)
10.35 WPG Release Agreement dated as of June 17, 1997 between the Company
and the WPG Affiliated Entities.(11)
10.36 Fourth Amendment to Loan and Security Agreement among LaSalle, BTCC,
Congress, CIT, Finova and EII.(23)
10.37 Fifth Amendment to Loan and Security Agreement among LaSalle, BTCC,
Congress, CIT, Finova and EII.(24)
10.38 Sixth Amendment to Loan and Security Agreement amount LaSalle,
Congress, CIT, Finova and EII.(25)
10.39 First Amendment dated January 22, 1998 to the Warrant Agreement
dated June 17, 1997 between Empire of Carolina, Inc. and the holders
from time to time of the Warrants.(23)
10.40 Share Purchase Agreement by and between the Shareholders of Apple
Sports, Inc. and the Shareholders of Apple Golf Shoes, Inc. as
Sellers and Empire of Carolina, Inc. as Purchaser, dated April 10,
1997. (26)
10.41 Empire of Carolina, Inc. 1998 Stock Option Plan. (26)
10.42 Loan and Security Agreement dated May 27, 1998 among LaSalle
National Bank and Apple Sports, Inc.
10.43 Loan and Security Agreement dated May 27, 1998 among LaSalle
National Bank and Apple Golf Shoes, Inc.
10.44 Loan and Security Agreement dated May 27, 1998 among LaSalle
National bank and Dorson Sports, Inc.
21 Subsidiaries of the Company.
27 Financial Data Schedule.
(1) Previously filed as an exhibit to Clabir's Current Report on Form 8-K,
dated December 23, 1988 (File No.1-7769) and incorporated by reference.
(2) Previously filed as an exhibit to the Company's Registration Statement on
Form S-4 (File No. 33-32186, dated November 17, 1989 and incorporated by
reference.
(3) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated October 6, 1992 and incorporated by reference.
(4) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated February 1, 1993 and incorporated by reference.
(5) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated September 30, 1994 and incorporated by reference.
(6) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated July 21, 1995 and incorporated by reference.
<PAGE>
(7) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and incorporated by reference.
(8) Previously filed as an exhibit to the Company's Annual Report on Form
10-K/A for the year ended December 31, 1996 and incorporated by
reference.
(9) Previously filed as an exhibit to Amendment No. 1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994 and incorporated
by reference.
(10) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated September 12, 1996 and incorporated by reference.
(11) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated June 17, 1997 and incorporated by reference.
(12) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 2-73208), dated July 13, 1981 and incorporated by
reference.
(13) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated May 8, 1997 and incorporated by reference.
(14) Previously filed as an appendix to the Company's definitive Proxy
Statement filed with the Commission on August 27, 1996 and incorporated
by reference.
(15) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994 and incorporated by reference.
(16) Previously filed as an exhibit to Amendment No. 1 to Schedule 13D filed
by the WPG Group, dated December 23, 1994 and incorporated by reference.
(17) Previously filed as an exhibit to Amendment No. 1 to Schedule 13D filed
by WPG Corporate Development Associates IV., L.P., WPG Private Equity
Partners, L. P., WPG Corporate Development Associates IV (Overseas),
L.P., WPG Private Equity Partners (Overseas), L.P., Steven Hutchinson,
Wesley Lang, Peter Pfister, Craig Whiting, Nora Kerppola, Glenbrook
Partners, L.P., Prim Ventures, Inc., Westpool Investment Trust PLC and
Weiss, Peck & Greer with the Securities and Exchange Commission on
December 23, 1994, and incorporated by reference.
(18) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 for (Reg. No.333-4440) declared effective by the Commission on
June 25, 1996 and incorporated by reference.
(19) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated December 11, 1996 and incorporated by reference.
(20) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated February 5, 1997 and incorporated by reference.
(21) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated May 1, 1997 and incorporated by reference.
<PAGE>
(22) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 and incorporated by reference.
(23) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated March 30, 1998 and incorporated by reference.
(24) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated August 25, 1997 and incorporated by reference.
(25) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated March 31, 1998.
(26) Previously filed as an exhibit to the Company's Proxy Statement pursuant
to Section 14(A) of the Securities Exchange Act of 1934 as filed with the
Securities and Exchange Commission on April 28, 1998.
(b) The following reports on Form 8-K have been filed by the Company during
the last quarter of the period covered by this report:
Form 8-K filed June 12, 1998 (relating to the Company's acquisition
of the stock of the Apple Companies.)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMPIRE OF CAROLINA, INC.
/s/William H. Craig
----------------------------------
William H. Craig
Executive Vice President and
Chief Financial Officer
Dated: August 11, 1998
---------------
EXHIBIT 10.42
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "AGREEMENT") made this 27th
------
day of May, 1998 by and between LASALLE NATIONAL BANK, a national banking
--- ----
association ("BANK"), 135 South LaSalle Street, Chicago, Illinois 60603-4105,
and
Apple Sports, Inc.,
- -------------------------------------------------------------------------------
One Roebling Court,
- -------------------------------------------------------------------------------
Ronkonkoma, New York 11779 ("BORROWER")
- -------------------------------------------------------------------------------
[INSERT ENTITY DESIGNATION(S) AND ADDRESS(ES) OF PRINCIPAL PLACE OF BUSINESS].
WITNESSETH:
WHEREAS, Borrower may, from time to time, request Loans from Bank, and the
parties wish to provide for the terms and conditions upon which such Loans, if
made by Bank, shall be made;
NOW, THEREFORE, in consideration of any Loan (including any Loan by
renewal or extension) hereafter made to Borrower by Bank, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by Borrower, the parties agree as follows:
1. DEFINITIONS.
(a) "ACCOUNT," "ACCOUNT DEBTOR," "CHATTEL PAPER," "DOCUMENTS,"
"EQUIPMENT," "GENERAL INTANGIBLES," "GOODS," "INSTRUMENTS," "INVENTORY," and
"INVESTMENT PROPERTY" shall have the respective meanings assigned to such terms,
as of the date of this Agreement, in the Illinois Uniform Commercial Code.
(b) "AFFILIATE" shall mean any Person directly or indirectly
controlling, controlled by or under common control with Borrower.
(c) "COLLATERAL" shall mean all of the property of Borrower
described in paragraph 4 hereof, together with all other real or personal
property of any Obligor or any other Person now or hereafter pledged to Bank to
secure, either directly or indirectly, repayment of any of the Liabilities.
(d) "ELIGIBLE ACCOUNT" shall mean an Account owing to Borrower which
is acceptable to Bank in its sole discretion determined in good faith on a basis
consistent with the credit procedures of its Asset Based Lending Division for
lending purposes. Without limiting Bank's discretion, Bank shall, in general,
consider an Account to be an Eligible Account if it meets, and so long as it
continues to meet, the following requirements:
(i) it is genuine and in all respects what it
purports to be;
(ii) it is owned by Borrower, Borrower has the right to
subject it to a security interest in favor of Bank or assign it to Bank
and it is subject to a first priority perfected security interest in favor
of Bank and to no other claim, lien, security interest or encumbrance
whatsoever, other than Permitted Liens;
(iii) it arises from (A) the performance of services by
Borrower and such services have been fully performed and acknowledged and
accepted by the Account Debtor thereunder; or (B) the sale or lease of
Goods by Borrower, and such Goods have been completed in accordance with
the Account Debtor's specifications (if any) and delivered to and accepted
by the Account Debtor, such Account Debtor has not refused to accept any
of the Goods, returned or offered to return any of the Goods which are the
subject of such Account, and Borrower has possession of, or Borrower has
delivered to Bank (at Bank's request) shipping and delivery receipts
evidencing delivery of such Goods;
(iv) it is evidenced by an invoice rendered to the Account
Debtor thereunder, is due and payable within ninety (90) days after the
------- --
date of the invoice and does not remain unpaid ninety (90) days past the
------ --
invoice date thereof; provided, however, that if more than twenty-five
-----------
percent (25%) of the aggregate dollar amount of invoices owing by a
particular Account Debtor remain unpaid ninety (90) days after the
------ --
respective invoice dates thereof, then all Accounts owing by that Account
Debtor shall be deemed ineligible;
(v) it is a valid, legally enforceable and unconditional
obligation of the Account Debtor thereunder, and is not subject to setoff,
counterclaim, credit, allowance or adjustment by such Account Debtor, or
to any claim by such Account Debtor denying liability thereunder in whole
or in part;
(vi) it does not arise out of a contract or order which fails
in any material respect to comply with the requirements of applicable law;
(vii) the Account Debtor thereunder is not a director,
officer, employee or agent of Borrower, or a Subsidiary, Parent or
Affiliate;
(viii) it is not an Account with respect to which the Account
Debtor is the United States of America or any department, agency or
instrumentality thereof, unless Borrower assigns its right to payment of
such Account to Bank pursuant to, and in full compliance with, the
Assignment of Claims Act of 1940, as amended;
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<PAGE>
(ix) it is not an Account with respect to which the Account
Debtor is located in a state which requires Borrower, as a precondition to
commencing or maintaining an action in the courts of that state, either to
(A) receive a certificate of authority to do business and be in good
standing in such state; or (B) file a notice of business activities report
or similar report with such state's taxing authority, unless (x) Borrower
has taken one of the actions described in clauses (A) or (B); (y) the
failure to take one of the actions described in either clause (A) or (B)
may be cured retroactively by Borrower at its election; or (z) Borrower
has proven, to Bank's satisfaction, that it is exempt from any such
requirements under any such state's laws;
(x) it is an Account which arises out of a sale made in the
ordinary course of Borrower's business;
(xi) the Account Debtor is a resident or citizen of,
and is located within, the United States of America or the
following Provinces of Canada: British Columbia, Alberta,
Saskatchewan, Manitoba, Ontario or New Brunswick;
(xii) it is not an Account with respect to which the Account
Debtor's obligation to pay is conditional upon the Account Debtor's
approval of the Goods or services or is otherwise subject to any
repurchase obligation or return right, as with sales made on a
bill-and-hold, guaranteed sale, sale on approval, sale or return or
consignment basis;
(xiii) it is not an Account (A) with respect to which any
representation or warranty contained in this Agreement is untrue; or (B)
which violates any of the covenants of Borrower contained in this
Agreement;
(xiv) it is not an Account which, when added to a particular
Account Debtor's other indebtedness to Borrower, exceeds a credit limit
determined by Bank, in its sole discretion determined in good faith on a
basis consistent with the credit procedures of its Asset Based Lending
Division, for that Account Debtor (except that Accounts excluded from
Eligible Accounts solely by reason of this subparagraph 1(d)(xiv) shall be
Eligible Accounts to the extent of such credit limit); and
(xv) it is not an Account with respect to which the prospect
of payment or performance by the Account Debtor is or will be impaired, as
determined by Bank in its sole discretion determined in good faith on a
basis consistent with the credit procedures of its Asset Based Lending
Division.
(e) "ELIGIBLE INVENTORY" shall mean Inventory of Borrower which is
acceptable to Bank in its sole discretion determined in good faith on a basis
consistent with the credit procedures of its Asset Based Lending Division for
lending purposes. Without limiting Bank's discretion, Bank shall, in general,
consider Inventory to be Eligible Inventory if it meets, and so long as it
continues to meet, the following requirements:
(i) it is owned by Borrower, Borrower has the right to subject
it to a security interest in favor of Bank and it is subject to a first
priority perfected security interest in favor of Bank and to no other
claim, lien, security interest or encumbrance whatsoever, other than
Permitted Liens;
(ii) it is located on the premises listed on Exhibit B and is
not in transit;
(iii) if held for sale or lease or furnishing under contracts
of service, it is (except as Bank may otherwise consent in writing) new
and unused and free from defects which would, in Bank's sole
determination, determined in good faith on a basis consistent with the
credit procedures of its Asset Based Lending Division, affect its market
value;
(iv) it is not stored with a bailee, consignee, warehouseman,
processor or similar party unless Bank has given its prior written
approval and Borrower has caused any such bailee, consignee, warehouseman,
processor or similar party to issue and deliver to Bank, in form and
substance acceptable to Bank, such Uniform Commercial Code financing
statements, warehouse receipts, waivers and other documents as Bank shall
require;
(v) Bank has determined in good faith on a basis consistent
with the credit procedures of its Asset Based Lending Division that it is
not unacceptable due to age, type, category or quantity; and
(vi) it is not Inventory (A) with respect to which any of the
representations and warranties contained in this Agreement are untrue; or
(B) which violates any of the covenants of Borrower contained in this
Agreement.
(f) "ENVIRONMENTAL LAWS" shall mean all federal, state, district,
local and foreign laws, rules, regulations, ordinances, and consent decrees
relating to health, safety, hazardous substances, pollution and environmental
matters, as now or at any time hereafter in effect, applicable to the Borrower's
business or facilities owned or operated by Borrower, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contamination, chemicals, or hazardous, toxic or dangerous substances, materials
or wastes into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata) or otherwise
relating to the generation, manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials.
(g) "EVENT OF DEFAULT" shall have the meaning specified in paragraph
12 hereof.
(h) "EXHIBIT A" shall mean the exhibit entitled Exhibit A Special
Provisions which is attached hereto and made a part hereof.
(i) "EXHIBIT B" shall mean the exhibit entitled Exhibit B Business
and Collateral Locations which is attached hereto and made a part hereof.
(j) "HAZARDOUS MATERIALS" shall mean any hazardous, toxic or
dangerous substance, materials and wastes, including, without limitation,
hydrocarbons (including naturally occurring or man-made petroleum and
hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation,
radioactive materials, biological substances, polychlorinated biphenyls,
pesticides, herbicides and any other kind and/or type of pollutants or
contaminants (including, without limitation, materials which include hazardous
constituents), sewage, sludge, industrial slag, solvents and/or any other
similar substances, materials, or wastes and including any other substances,
materials or wastes that are or become regulated under any Environmental Law
(including, without limitation, any that are or become classified as hazardous
or toxic under any
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<PAGE>
Environmental Law).
(k) "INDEMNIFIED PARTY" shall have the meaning specified in
paragraph 14 hereof.
(l) "LETTER OF CREDIT" shall mean any letter of credit issued by
Bank on behalf of Borrower.
(m) "LIABILITIES" shall mean any and all obligations, liabilities
and indebtedness of Borrower to Bank or to any parent, affiliate or subsidiary
of Bank of any and every kind and nature, howsoever created, arising or
evidenced and howsoever owned, held or acquired, whether now or hereafter
existing, whether now due or to become due, whether primary, secondary, direct,
indirect, absolute, contingent or otherwise (including, without limitation,
obligations of performance), whether several, joint or joint and several, and
whether arising or existing under written or oral agreement or by operation of
law.
(n) "LOANS" shall mean all loans and advances made by Bank to or on
behalf of Borrower hereunder.
(o) "LOAN LIMIT" shall have the meaning specified in paragraph 1 of
Exhibit A.
(p) "LOCK BOX" and "LOCK BOX ACCOUNT" shall have the meanings
specified in paragraph 7 hereof.
(q) "OBLIGOR" shall mean Borrower and each other Person who is or
shall become primarily or secondarily liable for any of the Liabilities.
(r) "ORIGINAL TERM" shall have the meaning specified in paragraph 9
hereof.
(s) "OTHER AGREEMENTS" shall mean all agreements, instruments and
documents, other than this Agreement, including, without limitation, guaranties,
mortgages, trust deeds, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, leases, financing statements and all
other writings heretofore, now or from time to time hereafter executed by or on
behalf of Borrower or any other Person and delivered to Bank or to any parent,
affiliate or subsidiary of Bank in connection with the Liabilities or the
transactions contemplated hereby.
(t) "PARENT" shall mean any Person now or at any time or times
hereafter owning or controlling (alone or with any other Person) at least a
majority of the issued and outstanding equity of Borrower and, if Borrower is a
partnership, the general partner of Borrower.
(u) "PERMITTED LIENS" shall mean (i) statutory liens of landlords,
carriers, warehousemen, processors, mechanics, materialmen or suppliers incurred
in the ordinary course of business and securing amounts not yet due or declared
to be due by the claimant thereunder, or amounts which are being contested in
good faith and by appropriate proceedings and for which Borrower has maintained
adequate reserves; (ii) liens or security interests in favor of Bank; (iii)
zoning restrictions and easements, licenses, covenants and other restrictions
affecting the use of real property that do not individually or in the aggregate
have a material adverse effect on Borrower's ability to use such real property
for its intended purpose in connection with Borrower's business; (iv) liens
specifically permitted by Bank in writing; and (v) liens arising in connection
with the financing or refinancing of the acquisition of Equipment, provided that
such borrowings are permitted by this Agreement and further provided that such
liens are limited to the Equipment being financed or refinanced.
(v) "PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party or foreign or United States government
(whether federal, state, county, city, municipal or otherwise), including,
without limitation, any instrumentality, division, agency, body or department
thereof.
(w) "RENEWAL TERM" shall have the meaning specified in paragraph 9
hereof.
(x) "SUBSIDIARY" shall mean any corporation of which more than fifty
percent (50%) of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective of
whether at the time stock of any other class of such corporation shall have or
might have voting power by reason of the happening of any contingency) is at the
time, directly or indirectly, owned by Borrower or any partnership or joint
venture or limited liability company of which more than fifty percent (50%) of
the outstanding equity interests are at the time, directly or indirectly, owned
by Borrower or of which Borrower is a general partner.
(y) "TANGIBLE NET WORTH" shall have the meaning specified in
subparagraph 11(o) hereof.
(Z) "BUSINESS DAY" shall mean any day other than a Saturday, a
Sunday or (i) with respect to all matters, determinations, fundings and payments
in connection with LIBOR Rate Loans, any day on which banks in London, England
or Chicago, Illinois are required or permitted to close, and (ii) with respect
to all other matters, any day that banks in Chicago, Illinois are permitted or
required to close.
(AA) "INTEREST PERIOD" shall have the meaning specified in Paragraph
(4)(b) of Exhibit A of the Agreement hereto.
(BB) "LIBOR RATE LOANS" shall mean the Loans bearing interest at the
rate set forth in Paragraph (4)(b) of Exhibit A of the Agreement.
(cc) "PRIME RATE LOANS" shall mean the Loans bearing interest at the
rates set forth in Paragraph (4)(a) of Exhibit A of the Agreement.
2. LOANS. Subject to the terms and conditions of this Agreement
(including Exhibit A) and the Other Agreements, during the Original Term and any
Renewal Term, Bank may, in its sole discretion, make such Loans to Borrower as
Borrower shall from time to time request. The aggregate unpaid principal of all
Loans outstanding at any one time shall not exceed the Loan Limit set forth in
Exhibit A and shall bear interest at the rates set forth in Exhibit A. ALL LOANS
SHALL BE REPAID BY BORROWER UPON DEMAND BY BANK. Prior to Bank making such
demand, Loans shall be repaid as provided elsewhere in this Agreement. If at any
time the outstanding principal balance of the Loans exceeds the Loan Limit, or
any portion of the Loans exceeds any applicable sublimit set forth in Exhibit A,
Borrower shall immediately, and without the necessity of a demand by Bank, pay
to Bank such amount as may be necessary to eliminate such excess and Bank shall
apply such payment to the Liabilities in such order as Bank shall determine in
its sole discretion. Borrower hereby authorizes Bank, in its sole discretion, to
charge any of Borrower's accounts or advance Loans to make any payments of
principal, interest or fees, costs and expenses required by this Agreement. All
Loans shall, in Bank's sole discretion, be evidenced by one or more promissory
notes in form and substance satisfactory to Bank. However, if such Loans are not
so evidenced, such Loans may be evidenced solely by entries upon the books and
records maintained by Bank.
3. FEES AND CHARGES. Borrower shall pay to Bank, in addition to all
other amounts payable hereunder, the fees and charges set forth in Exhibit A. It
is the intent of the parties that the rate of interest and the other charges to
Borrower under this Agreement shall be lawful;
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<PAGE>
therefore, if for any reason the interest or other charges payable under this
Agreement are found by a court of competent jurisdiction, in a final
determination, to exceed the limit which Bank may lawfully charge Borrower, then
the obligation to pay interest and other charges shall automatically be reduced
to such limit and, if any amount in excess of such limit shall have been paid,
then such amount shall be refunded to Borrower.
4. GRANT OF SECURITY INTEREST TO BANK. As security for the payment
of all Loans now or in the future made by Bank to Borrower hereunder and for the
payment or other satisfaction of all other Liabilities, Borrower hereby assigns
to Bank and grants to Bank a continuing security interest in the following
property of Borrower, whether now or hereafter owned, existing, acquired or
arising and wherever now or hereafter located: (a) all Accounts (whether or not
that Eligible Accounts) and all Goods whose sale, lease or other disposition by
Borrower has given rise to Accounts and that have been returned to, or
repossessed or stopped in transit by, Borrower; (b) all Chattel Paper,
Instruments, Documents and General Intangibles (including, without limitation,
all patents, patent applications, trademarks, trademark applications,
tradenames, trade secrets, goodwill, copyrights, copyright applications,
registrations, licenses, franchises, customer lists, tax refund claims, claims
against carriers and shippers, guarantee claims, contracts rights, security
interests, security deposits and any rights to indemnification); (c) all
Inventory (whether or not Eligible Inventory); (d) all Goods (other than
Inventory), including, without limitation, Equipment, vehicles and fixtures; (e)
all investment property; (f) all deposits and cash; (g) any other property of
Borrower now or hereafter in the possession, custody or control of Bank or any
agent or any parent, affiliate or subsidiary of Bank or any participant with
Bank in the Loans for any purpose (whether for safekeeping, deposit, collection,
custody, pledge, transmission or otherwise); and (h) all additions and
accessions to, substitutions for, and replacements, products and proceeds of the
foregoing property, including, without limitation, proceeds of all insurance
policies insuring the foregoing property, and all of Borrower's books and
records relating to any of the foregoing and to Borrower's business.
5. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS
THEREIN. Borrower shall, at Bank's request, at any time and from time to time,
execute and deliver to Bank such financing statements, documents and other
agreements and instruments (and pay the cost of filing or recording the same in
all public offices deemed necessary or desirable by Bank) and do such other acts
and things as Bank may deem necessary or desirable in its sole discretion in
order to establish and maintain a valid, attached and perfected security
interest in the Collateral in favor of Bank (free and clear of all other liens,
claims, encumbrances and rights of third parties whatsoever, whether voluntarily
or involuntarily created, except Permitted Liens) to secure payment of the
Liabilities, and in order to facilitate the collection of the Collateral.
Borrower irrevocably hereby makes, constitutes and appoints Bank (and all
Persons designated by Bank for that purpose) as Borrower's true and lawful
attorney and agent-in-fact to execute such financing statements, documents and
other agreements and instruments and do such other acts and things as may be
necessary to preserve and perfect Bank's security interest in the Collateral.
Borrower further agrees that a carbon, photographic, photostatic or other
reproduction of this Agreement or of a financing statement shall be sufficient
as a financing statement.
6. POSSESSION OF COLLATERAL AND RELATED MATTERS. Until the
commencement of a foreclosure or liquidation to realize upon the Collateral,
Borrower shall have the right, except as otherwise provided in this Agreement,
in the ordinary course of Borrower's business, to (a) sell, lease or furnish
under contracts of service any of Borrower's Inventory normally held by Borrower
for any such purpose; and (b) use and consume any raw materials, work in process
or other materials normally held by Borrower for such purpose; provided,
however, that a sale in the ordinary course of business shall not include any
transfer or sale in satisfaction, partial or complete, of a debt owed by
Borrower.
7. COLLECTIONS.
(a) Borrower shall direct all of its Account Debtors to make all
payments on the Accounts directly to a post office box (the "LOCK BOX")
designated by, and under the exclusive control of, Bank or another financial
institution acceptable to Bank. Borrower shall establish an account (the "LOCK
BOX ACCOUNT") in Bank's name with Bank or such other financial institution
acceptable to Bank, into which all payments received in the Lock Box shall be
deposited, and into which Borrower will immediately deposit all payments
received by Borrower for Inventory or services in the identical form in which
such payments were received, whether by cash or check. If Borrower, any
Affiliate or Subsidiary, or any shareholder, officer, director, employee or
agent of Borrower or any Affiliate or Subsidiary, or any other Person acting for
or in concert with Borrower shall receive any monies, checks, notes, drafts or
other payments relating to or as proceeds of Accounts or other Collateral,
Borrower and each such Person shall receive all such items in trust for, and as
the sole and exclusive property of, Bank and, immediately upon receipt thereof,
shall remit the same (or cause the same to be remitted) in kind to the Lock Box
Account. If the Lock Box Account is not established with Bank, the financial
institution with which the Lock Box Account is established shall acknowledge and
agree, in a manner satisfactory to Bank, that the amounts on deposit in such
Lock Box Account are the sole and exclusive property of Bank, that such
financial institution has no right to setoff against the Lock Box Account or
against any other account maintained by such financial institution into which
the contents of the Lock Box Account are transferred, and that such financial
institution shall wire, or otherwise transfer in immediately available funds in
a manner satisfactory to Bank, funds deposited in the Lock Box Account on a
daily basis as such funds are collected. Borrower agrees that all payments made
to such Lock Box Account or otherwise received by Bank, whether in respect of
the Accounts or as proceeds of other Collateral or otherwise, will be applied on
account of the Liabilities in accordance with the terms of this Agreement;
provided, that so long as no Event of Default has occurred, payments received by
Bank shall not be applied to the unmatured portion of the LIBOR Rate Loans, but
shall be held in a cash collateral account maintained by Bank until the earlier
of (i) the last day of the Interest Period applicable to such LIBOR Rate Loan
and (ii) the occurrence of an Event of Default; provided further, that so long
as no Event of Default has occurred, the immediately available funds held in
such cash collateral account may be disbursed, at Borrower's discretion, to
Borrower so long as after giving effect to such disbursement, Borrower's
availability under Paragraph 1 of Exhibit A of the Agreement at such time equals
or exceeds the outstanding Liabilities at such time. If the Lock Box Account is
established with Bank, Borrower agrees to pay all fees, costs and expenses in
connection with opening and maintaining the Lock Box Account and depositing for
collection by Bank any check or other item of payment received by Bank on
account of the Liabilities. All of such fees, costs and expenses shall
constitute Loans hereunder, shall be payable to Bank by Borrower upon demand,
and, until paid, shall bear interest at the highest rate then applicable to
Loans hereunder. All checks, drafts, instruments and other items of payment or
proceeds of Collateral shall be endorsed by Borrower to Bank, and, if that
endorsement of any such item shall not be made for any reason, Bank is hereby
irrevocably authorized to endorse the same on Borrower's behalf. For the purpose
of this paragraph, Borrower irrevocably hereby makes, constitutes and appoints
Bank (and all Persons designated by Bank for that purpose) as Borrower's true
and lawful attorney and agent-in-fact (i) to endorse Borrower's name upon said
items of payment and/or proceeds of Collateral and upon any Chattel Paper,
document, Instrument, invoice or similar document or agreement relating to any
Account of Borrower or Goods pertaining thereto; (ii) to take control in any
manner of any item of payment or proceeds thereof; and (iii) to have access to
any lock box or postal box into which any of Borrower's mail is deposited, and
open and process all mail addressed to Borrower and deposited therein.
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(b) Bank may, at any time and from time to time after the occurrence
of an Event of Default, whether before or after notification to any Account
Debtor and whether before or after the maturity of any of the Liabilities, (i)
enforce collection of any of Borrower's Accounts or other amounts owed to
Borrower by suit or otherwise; (ii) exercise all of Borrower's rights and
remedies with respect to proceedings brought to collect any Accounts or other
amounts owed to Borrower; (iii) surrender, release or exchange all or any part
of any Accounts or other amounts owed to Borrower, or compromise or extend or
renew for any period (whether or not longer than the original period) any
indebtedness thereunder; (iv) sell or assign any Account of Borrower or other
amount owed to Borrower upon such terms, for such amount and at such time or
times as Bank deems advisable; (v) prepare, file and sign Borrower's name on any
proof of claim in bankruptcy or other similar document against any Account
Debtor or other Person obligated to Borrower; and (vi) do all other acts and
things which are necessary, in Bank's sole discretion, to fulfill Borrower's
obligations under this Agreement and to allow Bank to collect the Accounts or
other amounts owed to Borrower. In addition to any other provision hereof, Bank
may at any time, after the occurrence of an Event of Default, at Borrower's
expense, notify any parties obligated on any of the Accounts to make payment
directly to Bank of any amounts due or to become due thereunder.
(c) For purposes of calculating interest, Bank shall, within two (2)
--- -
business days after receipt by Bank at its office in Chicago, Illinois of (i)
checks; and (ii) cash or other immediately available funds from collections of
items of payment and proceeds of any Collateral, apply the whole or any part of
such collections or proceeds against the Liabilities in such order as Bank shall
determine in its sole discretion determined in good faith on a basis consistent
with the credit procedures of its Asset Based Lending Division. For purposes of
determining the amount of Loans available for borrowing purposes, (i) checks;
and (ii) cash or other immediately available funds from collections of items of
payment and proceeds of any Collateral shall be applied in whole or in part
against the Liabilities, in such order as Bank shall determine in its sole
discretion, on the day of receipt, subject to actual collection.
(d) Bank, in its sole discretion, determined in good faith on a
basis consistent with the credit procedures of its Asset Based Lending Division,
without waiving or releasing any obligation, liability or duty of Borrower under
this Agreement or the Other Agreements or any Event of Default, may at any time
or times hereafter, but shall not be obligated to, pay, acquire or accept an
assignment of any security interest, lien, encumbrance or claim asserted by any
Person in, upon or against the Collateral. All sums paid by Bank in respect
thereof and all costs, fees and expenses including, without limitation,
reasonable attorney fees, all court costs and all other charges relating thereto
incurred by Bank shall constitute Loans, payable by Borrower to Bank on demand
and, until paid, shall bear interest at the highest rate then applicable to
Loans hereunder.
(e) Promptly upon Borrower's receipt of any portion of the
Collateral evidenced by an agreement, Instrument or Document, including, without
limitation, any Chattel Paper, Borrower shall deliver the original thereof to
Bank together with an appropriate endorsement or other specific evidence of
assignment thereof to Bank (in form and substance acceptable to Bank). If an
endorsement or assignment of any such items shall not be made for any reason,
Bank is hereby irrevocably authorized, as Borrower's attorney and agent-in-fact,
to endorse or assign the same on Borrower's behalf.
8. SCHEDULES AND REPORTS.
(a) Within ten (10) days after the close of each calendar month, and
at such other times as may be requested by Bank from time to time hereafter,
Borrower shall deliver to Bank (i) a schedule identifying each Account and which
Accounts constitute Eligible Accounts together with copies of the invoices when
requested by Bank (with evidence of shipment attached) pertaining to each such
Account, for the month (or other applicable period) immediately preceding; (ii)
such additional schedules, certificates, reports and information with respect to
the Collateral as Bank may from time to time require. Bank, through its
officers, employees or agents, shall have the right, at any time and from time
to time in Bank's name, in the name of a nominee of Bank or in Borrower's name,
to verify the validity, amount or any other matter relating to any of Borrower's
Accounts, by mail, telephone, telegraph or otherwise. Borrower shall reimburse
Bank, on demand, for all costs, fees and expenses incurred by Bank in this
regard.
(b) Without limiting the generality of the foregoing, Borrower shall
deliver to Bank, at least once a month (or more frequently when requested by
Bank), a report with respect to Borrower's Inventory. Borrower shall immediately
notify Bank of any event causing loss or depreciation in value of Borrower's
Inventory (other than normal depreciation occurring in the ordinary course of
business) and which exceeds $50,000.00.
---------
(c) All schedules, certificates, reports, and other items delivered
by Borrower to Bank hereunder shall be executed by an authorized representative
of Borrower and shall be in such form and contain such information as Bank shall
specify.
9. TERMINATION. This Agreement shall be in effect from the date
hereof until May 27, 2001 (the "ORIGINAL TERM") and shall automatically renew
------ ----
itself from year to year thereafter (each such one-year renewal being referred
to herein as a "RENEWAL TERM") unless (a) Bank makes demand for repayment prior
to the end of the Original Term or the then current Renewal Term; (b) the due
date of the Liabilities is accelerated pursuant to paragraph 13 hereof; or (c)
Borrower elects to terminate this Agreement at the end of the Original Term or
at the end of any Renewal Term by giving Bank written notice of such election at
least ninety (90) days prior to the end of the Original Term or the then current
Renewal Term and by paying all of the Liabilities in full on the last day of
such term. If one or more of the events specified in clauses (a), (b) and (c)
occurs, then (i) Bank shall not make any additional Loans on or after the date
identified as the date on which the Liabilities are to be repaid and (ii) this
Agreement shall terminate on the date thereafter that the Liabilities are paid
in full. At such time as Borrower has repaid all of the Liabilities and this
Agreement has terminated, Borrower shall deliver to Bank a release, in form and
substance satisfactory to Bank, of all obligations and liabilities of Bank and
its officers, directors, employees, agents, parents, subsidiaries and affiliates
to Borrower, and if Borrower is obtaining new financing from another lender,
Borrower shall deliver such lender's indemnification of Bank, in form and
substance satisfactory to Bank, for checks which Bank has credited to Borrower's
account, but which subsequently are dishonored for any reason. If, during the
term of this Agreement, Borrower prepays all or any portion of the Liabilities
from any source other than income from the ordinary course operations of
Borrower's business. Borrower agrees to pay to Bank, as a prepayment fee, in
addition to the payment of all other Liabilities, an amount equal to the product
of (i) fifty percent (50%) of the average monthly interest earned by Bank on the
Loans made hereunder preceding the date of prepayment, multiplied by (ii) the
number of full and partial months remaining from the date of prepayment to the
end of the Original Term or the then current Renewal Term.
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10. REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrower hereby
represents, warrants and covenants that:
(a) the financial statements delivered or to be delivered by
Borrower to Bank at or prior to the date of this Agreement and at all times
subsequent thereto accurately reflect in all material respects the financial
condition of Borrower, and there has been no material adverse change in the
financial condition, the operations or any other status of Borrower since the
date of the financial statements delivered to Bank most recently prior to the
date of this Agreement;
(b) (i) the office where Borrower keeps its books, records and
accounts (or copies thereof) concerning the Collateral, Borrower's principal
place of business and all of Borrower's other places of business, locations of
Collateral and post office boxes are as set forth in Exhibit B; and (ii)
Borrower shall promptly (but in no event less than ten (10) days prior thereto)
advise Bank in writing of the proposed opening of any new place of business or
new location of Collateral, the closing of any existing place of business or
location of Collateral, any change in the location of Borrower's books, records
and accounts (or copies thereof) or the opening or closing of any post office
box of Borrower;
(c) the Collateral, including, without limitation, the Equipment
(except any part thereof which Borrower shall have advised Bank in writing
consists of Collateral normally used in more than one state) is and shall be
kept, or, in the case of vehicles, based, only at the addresses set forth on
Exhibit B, and at other locations within the continental United States of which
Bank has been advised by Borrower in writing;
(d) if any of the Collateral consists of Goods of a type normally
used in more than one state, whether or not actually so used, (i) Borrower shall
immediately give written notice to Bank of any use of any such Goods in any
state other than a state in which Borrower has previously advised Bank such
Goods shall be used; and (ii) such Goods shall not, unless Bank shall otherwise
consent in writing, be used outside of the continental United States;
(e) Borrower has not made, and shall not make, any loans or advances
to any Affiliate or other Person except for advances to employees, officers and
directors of Borrower for travel and other expenses arising in the ordinary
course of Borrower's business;
(f) each Account or item of Inventory which Borrower shall,
expressly or by implication, request Bank to classify as an Eligible Account or
as Eligible Inventory, respectively, shall, as of the time when such request is
made, conform in all respects to the requirements of such classification as set
forth in the respective definitions of "Eligible Account" and "Eligible
Inventory" as set forth herein and as otherwise established by Bank from time to
time, and Borrower shall promptly notify Bank in writing if any such Eligible
Account or Eligible Inventory shall subsequently become ineligible;
(g) Borrower is and shall at all times during the Original Term or
any Renewal Term be the lawful owner of all Collateral now purportedly owned or
hereafter purportedly acquired by Borrower, free from all liens, claims,
security interests and encumbrances whatsoever, whether voluntarily or
involuntarily created and whether or not perfected, other than the Permitted
Liens;
(h) Borrower has the right and power and is duly authorized and
empowered to enter into, execute and deliver this Agreement and the Other
Agreements and perform its obligations hereunder and thereunder. Borrower's
execution, delivery and performance of this Agreement and the Other Agreements
does not and shall not conflict with the provisions of any statute, regulation,
ordinance or rule of law, or any agreement, contract or other document which may
now or hereafter be binding on Borrower where such conflict would have a
material adverse effect on its business, property, assets, operations or
condition, financial or otherwise, and Borrower's execution, delivery and
performance of this Agreement and the Other Agreements shall not result in the
imposition of any lien or other encumbrance upon any of Borrower's property
(other than Permitted Liens) under any existing indenture, mortgage, deed of
trust, loan or credit agreement or other agreement or instrument by which
Borrower or any of its property may be bound or affected;
(i) except as previously disclosed to Bank in writing, there are no
actions or proceedings which are pending or, to the best of Borrower's
knowledge, threatened against Borrower which might result in any material
adverse change in its financial condition or materially adversely affect the
Collateral and Borrower shall, promptly upon becoming aware of any such pending
or threatened action or proceeding, give written notice thereof to Bank;
(j) (i) Borrower has obtained and shall maintain all licenses,
authorizations, approvals and permits, the lack of which would have a material
adverse effect on the operation of its business, and (ii) Borrower is and shall
remain in compliance in all material respects with all applicable federal,
state, local and foreign statutes, orders, regulations, rules and ordinances
(including, without limitation, Environmental Laws and statutes, orders,
regulations, rules and ordinances relating to taxes, employer and employee
contributions and similar items, securities, ERISA (as hereinafter defined), or
employee health and safety) the failure to comply with which would have a
material adverse effect on its business, property, assets, operations or
condition, financial or otherwise;
(k) all written information now, heretofore or hereafter furnished
by Borrower to Bank is and shall be true and correct in all material respects as
of the date with respect to which such information was or is furnished;
(l) Borrower is not conducting, permitting or suffering to be
conducted, nor shall it conduct, permit or suffer to be conducted, any
activities pursuant to or in connection with which any of the Collateral is now,
or will (while any Liabilities remain outstanding) be owned by any Affiliate;
provided, however, that Borrower may enter into transactions with Affiliates for
the purchase or sale of Inventory or services in the ordinary course of business
pursuant to terms that are no less favorable to Borrower than the terms upon
which such transfers or transactions would have been made had they been made to
or with a Person that is not an Affiliate and, in connection therewith, may
transfer cash or property to Affiliates for fair value;
(m) Borrower's name has always been as set forth on the first page
of this Agreement and Borrower uses no tradenames or division names in the
operation of its business, except as otherwise disclosed in writing to Bank;
Borrower shall notify Bank in writing within ten (10) days of the change of its
name or the use of any tradenames or division names not previously disclosed to
Bank in writing;
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<PAGE>
(n) with respect to Borrower's Equipment: (i) Borrower has good and
indefeasible and merchantable title to and ownership of all Equipment; (ii)
Borrower shall keep and maintain the Equipment in good operating condition and
repair and shall make all necessary replacements thereof and repairs thereto so
that the value and operating efficiency thereof shall at all times be preserved
and maintained in all material respects; (iii) Borrower shall not permit any
such items to become a fixture to real estate or an accession to other personal
property; and (iv) Borrower, immediately on demand by Bank, shall deliver to
Bank any and all evidence of ownership of, including, without limitation,
certificates of title and applications of title to, any of the Equipment;
(o) this Agreement and the Other Agreements to which Borrower is a
party are the legal, valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their respective terms;
(p) Borrower is and shall remain solvent, is and shall be able to
pay its debts as they become due, has and shall continue to have capital
sufficient to carry on its business, now owns and shall continue to own property
having a value both at fair valuation and at present fair saleable value greater
than the amount required to pay its debts, and will not be rendered insolvent by
the execution and delivery of this Agreement or any of the Other Agreements or
by completion of the transactions contemplated hereunder or thereunder;
(q) Borrower is not now obligated, nor shall it create, incur,
assume or become obligated (directly or indirectly), for any loans or other
indebtedness for borrowed money other than the Loans, except that Borrower may
(i) borrow money from a Person other than Bank on an unsecured and subordinated
basis if a subordination agreement in favor of Bank and in form and substance
satisfactory to Bank is executed and delivered to Bank relative thereto; (ii)
maintain any present indebtedness to any Person which has been disclosed to Bank
in writing and consented to in writing by Bank; and (iii) incur unsecured
indebtedness to trade creditors in the ordinary course of Borrower's business;
(iv) incur purchase money indebtedness or capitalized lease obligations in
connection with capital expenditures pursuant to subparagraph 11(q) of this
Agreement, and (v) incur other lease obligations requiring payments not to
exceed $100,000.00 during any fiscal year of Borrower;
-----------
(r) Borrower does not own any margin securities, and none of the
proceeds of the Loans hereunder shall be used for the purpose of purchasing or
carrying any margin securities or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase any margin securities or
for any other purpose not permitted by Regulation G or Regulation U of the Board
of Governors of the Federal Reserve System as in effect from time to time;
(s) except as otherwise disclosed in writing to Bank, Borrower has
no Parents, Subsidiaries or other Affiliates or divisions, nor is Borrower
engaged in any joint venture or partnership with any other Person;
(t) if Borrower is a corporation, limited liability company or
partnership, Borrower is duly organized, validly existing and in good standing
in its state of organization and Borrower is duly qualified and in good standing
in all states where the nature and extent of the business transacted by it or
the ownership of its assets makes such qualification necessary or, if Borrower
is not so qualified, Borrower may cure any such failure without losing any of
its rights or affecting Bank's rights;
(u) Borrower is not in default under any material contract, lease or
commitment to which it is a party or by which it is bound, nor does Borrower
know of any dispute regarding any contract, lease or commitment which is
material to the continued financial success and well-being of Borrower;
(v) there are no controversies pending or, to the best of Borrower's
knowledge, threatened between Borrower and any of its employees, other than
employee grievances arising in the ordinary course of business which are not, in
the aggregate, material to the continued financial success and well-being of
Borrower, and Borrower is in compliance in all material respects with all
federal and state laws respecting employment and employment terms, conditions
and practices;
(w) Borrower possesses, and shall continue to possess, adequate
licenses, patents, patent applications, copyrights, service marks, trademarks,
trademark applications, tradestyles and tradenames to continue to conduct its
business as heretofore conducted by it;
(x) (i) Borrower has not generated, used, stored, treated,
transported, manufactured, handled, produced or disposed of any Hazardous
Materials on or off its premises (whether or not owned by it) in any manner
which at any time violates any Environmental Law or any license, permit,
certificate, approval or similar authorization thereunder and the operations of
the Borrower comply in all material respects with all Environmental Laws and
licenses, permits, certificates, approvals and similar authorizations
thereunder; (ii) there has been no investigation proceeding, complaint, order,
directive, claim, citation or notice by any governmental authority or any other
Person, nor is any pending or to the best of the Borrower's knowledge
threatened, and Borrower shall immediately notify Bank upon becoming aware of
any such investigation, proceeding, complaint, order, directive, claim, citation
or notice and take prompt and appropriate actions to respond thereto, with
respect to any non-compliance with or violation of the requirements of any
Environmental Law by the Borrower or the release, spill or discharge, threatened
or actual, of any Hazardous Material or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials or any other environmental, health or safety matter, which affects the
Borrower or its business, operations or assets or any properties at which the
Borrower has transported, stored or disposed of any Hazardous Materials; (iii)
Borrower has no material liability (contingent or otherwise) in connection with
a release, spill or discharge, threatened or actual, of any Hazardous Materials
or the generation, use, storage, treatment, transportation, manufacture,
handling, production or disposal of any Hazardous Materials; and (iv) without
limiting the generality of the foregoing, Borrower shall, following the
determination by Bank that there is non-compliance, or any condition which
requires any action by or on behalf of Borrower in order to avoid any
non-compliance, with any Environmental Law, at Borrower's expense, cause an
independent environmental engineer acceptable to Bank to conduct such tests of
the relevant site as are appropriate and prepare and deliver a report setting
forth the result of such tests, a proposed plan for remediation and an estimate
of the costs thereof; and
(y) Borrower has paid and discharged, and shall at all times
hereafter promptly pay and discharge all obligations and liabilities arising
under the Employee Retirement Income Security Act of 1974 (as amended, modified
or restated from time to time, "ERISA") of a character which if
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<PAGE>
unpaid or unperformed might result in the imposition of a lien against any of
its properties or assets and will promptly notify the Bank of (i) the occurrence
of any "reportable event" (as defined in ERISA) which might result in the
termination by the Pension Benefit Guaranty Corporation ("PBGC") of any employee
benefit plan ("Plan") covering any officers or employees of the Borrower, any
benefits of which are, or are required to be, guaranteed by PBGC; (ii) the
receipt of any notice from PBGC of its intention to seek termination of any Plan
or appointment of a trustee therefor; and (iii) its intention to terminate or
withdraw from any Plan; provided, that Borrower shall not terminate any Plan or
withdraw therefrom if such withdrawal or termination shall result in any
liability to Borrower.
Borrower represents, warrants and covenants to Bank that all representations and
warranties of Borrower contained in this Agreement (whether appearing in
paragraphs 10 or 11 hereof or elsewhere) shall be true at the time of Borrower's
execution of this Agreement, shall survive the execution, delivery and
acceptance hereof by the parties hereto and the closing of the transactions
described herein or related hereto, shall remain true until the repayment in
full and satisfaction of all of the Liabilities and termination of this
Agreement, and shall be remade by Borrower at the time each Loan is made
pursuant to this Agreement, provided, that representations and warranties made
as of a particular date shall be true and correct as of such date.
11. ADDITIONAL COVENANTS OF BORROWER. Until payment or satisfaction
in full of all Liabilities and termination of this Agreement, unless Borrower
obtains Bank's prior written consent waiving or modifying any of Borrower's
covenants hereunder in any specific instance, Borrower agrees as follows:
(a) Borrower shall at all times keep accurate and complete books,
records and accounts with respect to all of Borrower's business activities, in
accordance with sound accounting practices and generally accepted accounting
principles consistently applied, and shall keep such books, records and
accounts, and any copies thereof, only at the addresses indicated for such
purpose on Exhibit B;
(b) Borrower agrees to deliver to Bank the following financial
information, all of which shall be prepared in accordance with generally
accepted accounting principles consistently applied: (i) no later than twenty
(20) days after each calendar month, copies of internally prepared financial
statements, including, without limitation, balance sheets and statements of
income, retained earnings and cash flow of Borrower, certified by the Chief
Financial Officer of Borrower; (ii) no later than thirty (30) days after the end
of each of the first three quarters of Borrower's fiscal year a balance sheet,
operating statement and reconciliation of surplus of Borrower, which quarterly
financial statements may be unaudited but shall be certified by the Chief
Financial Officer of Borrower; and (iii) no later than seventy-five (75) days
after the end of each of Borrower's fiscal years, audited annual financial
statements with an unqualified opinion by independent certified public
accountants selected by Borrower and reasonably satisfactory to Bank, which
financial statements shall be accompanied by a letter from such accountants
acknowledging that they are aware that a primary intent of Borrower in obtaining
such financial statements is to influence Bank and that Bank is relying upon
such financial statements in connection with the exercise of its rights
hereunder and copies of any management letters sent to the Borrower by such
accountants;
(c) Borrower shall promptly advise Bank in writing of any material
adverse change in the business, assets or condition, financial or otherwise, of
Borrower, the occurrence of any Event of Default hereunder or the occurrence of
any event which, if uncured, will become an Event of Default hereunder after
notice or lapse of time (or both);
(d) Bank, or any Persons designated by it, shall have the right, at
any time, to call at Borrower's places of business at any reasonable times, and,
without hindrance or delay, to inspect the Collateral and to inspect, audit,
check and make extracts from Borrower's books, records, journals, orders,
receipts and any correspondence and other data relating to Borrower's business,
the Collateral or any transactions between the parties hereto, and shall have
the right to make such verification concerning Borrower's business as Bank may
consider reasonable under the circumstances. Borrower shall furnish to Bank such
information relevant to Bank's rights under this Agreement as Bank shall at any
time and from time to time request. Borrower authorizes Bank to discuss the
affairs, finances and business of Borrower with any officers, employees or
directors of Borrower or with any Affiliate or the officers, employees or
directors of any Affiliate, and to discuss the financial condition of Borrower
with Borrower's independent public accountants. Any such discussions shall be
without liability to Bank or to Borrower's independent public accountants.
Borrower shall pay to Bank all customary fees and out-of-pocket expenses
incurred by Bank in the exercise of its rights hereunder, and all of such fees
and expenses shall constitute Loans hereunder, shall be payable on demand and,
until paid, shall bear interest at the highest rate then applicable to Loans
hereunder;
(e) Borrower shall:
(i) keep the Collateral properly housed and insured for the
full insurable value thereof against loss or damage by fire, theft,
explosion, sprinklers, collision (in the case of motor vehicles) and such
other risks as are customarily insured against by Persons engaged in
businesses similar to that of Borrower, with such companies, in such
amounts, with such deductibles, and under policies in such form as shall
be satisfactory to Bank. Original (or certified) copies of such policies
of insurance have been or shall be delivered to Bank within ninety (90)
days after the date hereof, together with evidence of payment of all
premiums therefor, and shall contain an endorsement, in form and substance
acceptable to Bank, showing loss under such insurance policies payable to
Bank. Such endorsement, or an independent instrument furnished to Bank,
shall provide that the insurance company shall give Bank at least thirty
(30) days written notice before any such policy of insurance is altered or
canceled and that no act, whether willful or negligent, or default of
Borrower or any other Person shall affect the right of Bank to recover
under such policy of insurance in case of loss or damage. In addition,
Borrower shall cause to be executed and delivered to Bank an assignment of
proceeds of its business interruption insurance policies. Borrower hereby
directs all insurers under all policies of insurance to pay all proceeds
payable thereunder directly to Bank. Borrower irrevocably makes,
constitutes and appoints Bank (and all officers, employees or agents
designated by Bank) as Borrower's true and lawful attorney (and
agent-in-fact) for the purpose of making, settling and adjusting claims
under such policies of insurance, endorsing the name of Borrower on any
check, draft, instrument or other item of payment for the proceeds of such
policies of insurance and making all determinations and decisions with
respect to such policies of insurance, provided, however, that if no Event
of Default shall have occurred and is continuing, Borrower may make,
settle and adjust claims involving less than $50,000 in the aggregate
------
without Bank's consent; and
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<PAGE>
(ii) maintain, at its expense, such public liability and third
party property damage insurance as is customary for Persons engaged in
businesses similar to that of Borrower with such companies and in such
amounts, with such deductibles and under policies in such form as shall be
satisfactory to Bank and original (or certified) copies of such policies
have been or shall be delivered to Bank within ninety (90) days after the
date hereof, together with evidence of payment of all premiums therefor;
each such policy shall contain an endorsement showing Bank as additional
insured thereunder and providing that the insurance company shall give
Bank at least thirty (30) days written notice before any such policy shall
be altered or canceled.
If Borrower at any time or times hereafter shall fail to obtain or
maintain any of the policies of insurance required above or to pay any premium
relating thereto, then Bank, without waiving or releasing any obligation or
default by Borrower hereunder, may (but shall be under no obligation to) obtain
and maintain such policies of insurance and pay such premiums and take such
other actions with respect thereto as Bank deems advisable. All sums disbursed
by Bank in connection with any such actions, including, without limitation,
court costs, expenses, other charges relating thereto and reasonable attorneys'
fees, shall constitute Loans hereunder, shall be payable on demand by Borrower
to Bank and, until paid, shall bear interest at the highest rate then applicable
to Loans hereunder;
(f) Borrower shall not use the Collateral, or any part thereof, in
any unlawful business or for any unlawful purpose or use or maintain any of the
Collateral in any manner that does or could result in material damage to the
environment or a violation of any applicable environmental laws, rules or
regulations; shall keep the Collateral in good condition, repair and order,
ordinary wear and tear excepted; shall permit Bank to examine any of the
Collateral at any time and wherever the Collateral may be located; shall not
permit the Collateral, or any part thereof, to be levied upon under execution,
attachment, distraint or other legal process; shall not sell, lease, grant a
security interest in or otherwise dispose of any of the Collateral except as
expressly permitted by this Agreement; shall not settle or adjust any Account
identified by Borrower as an Eligible Account or with respect to which the
Account Debtor is an Affiliate without the consent of Bank, provided, that
following the occurrence of an Event of Default, Borrower shall not settle or
adjust any Account without the consent of Bank; and shall not secrete or abandon
any of the Collateral, or remove or permit removal of any of the Collateral from
any of the locations listed on Exhibit B, except for the removal of Inventory
sold in the ordinary course of Borrower's business as permitted herein;
(g) all monies and other property obtained by Borrower from Bank
pursuant to this Agreement will be used solely for business purposes of
Borrower;
(h) Borrower shall, at the request of Bank, indicate on its records
concerning the Collateral a notation, in form satisfactory to Bank, of the
security interest of Bank hereunder;
(i) Borrower shall file all required tax returns and pay all of its
taxes when due subject to any extensions granted by the applicable taxing
authority, including, without limitation, taxes imposed by federal, state or
municipal agencies, and shall cause any liens for taxes to be promptly released;
provided, that Borrower shall have the right to contest the payment of such
taxes in good faith by appropriate proceedings so long as (i) the amount so
contested is shown on Borrower's financial statements; (ii) the contesting of
any such payment does not give rise to a lien for taxes; (iii) Borrower keeps on
deposit with Bank (such deposit to be held without interest) an amount of money
which, in the sole judgment of Bank, is sufficient to pay such taxes and any
interest or penalties that may accrue thereon or the Borrower maintains adequate
reserves on its balance sheet in accordance with generally accepted accounting
principles; and (iv) if Borrower fails to prosecute such contest with reasonable
diligence, Bank may apply the money so deposited in payment of such taxes. If
Borrower fails to pay any such taxes and in the absence of any such contest by
Borrower, Bank may (but shall be under no obligation to) advance and pay any
sums required to pay any such taxes and/or to secure the release of any lien
therefor, and any sums so advanced by Bank shall constitute Loans hereunder,
shall be payable by Borrower to Bank on demand, and, until paid, shall bear
interest at the highest rate then applicable to Loans hereunder;
(j) Borrower shall not assume, guarantee or endorse, or otherwise
become liable in connection with, the obligations of any Person, except by
endorsement of instruments for deposit or collection or similar transactions in
the ordinary course of business;
(k) Borrower shall not (i) enter into any merger or consolidation;
(ii) sell, lease or otherwise dispose of any of its assets other than in the
ordinary course of business; (iii) purchase all or substantially all of the
assets of any Person or division of such Person; or (iv) enter into any other
transaction outside the ordinary course of Borrower's business, including,
without limitation, any purchase, redemption or retirement of any shares of any
class of its stock or any other equity interest, and any issuance of any shares
of, or warrants or other rights to receive or purchase any shares of, any class
of its stock or any other equity interest;
(l) Borrower shall not declare or pay any dividend or other
distribution (whether in cash or in kind) on any class of its stock (if Borrower
is a corporation) or on account of any equity interest in Borrower (if Borrower
is a partnership, limited liability company or other type of entity);
(m) Borrower shall not purchase or otherwise acquire, or contract to
purchase or otherwise acquire, the obligations or stock of any Person, other
than direct obligations of the United States;
(n) Borrower shall not amend its organizational documents or change
its fiscal year unless such actions would not have an adverse effect on the
Borrower's business, property, assets, operations or condition, financial or
otherwise, as determined by Bank in its sole discretion, and Bank has received
ten (10) days prior written notice of such amendment or change, or enter into a
new line of business materially different from Borrower's current business;
(o) See Exhibit A
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<PAGE>
(p) Borrower shall reimburse Bank for all costs and expenses,
including, without limitation, legal expenses and reasonable attorneys' fees,
incurred by Bank in connection with (i) documentation and consummation of this
transaction and any other transactions between Borrower and Bank, including,
without limitation, Uniform Commercial Code and other public record searches,
lien filings, overnight courier or other express or messenger delivery,
appraisal costs, surveys, title insurance and environmental audit or review
costs; (ii) collection, protection or enforcement of any rights in or to the
Collateral; (iii) collection of any Liabilities; and (iv) administration and
enforcement of any of Bank's rights under this Agreement. Borrower shall also
pay all normal service charges with respect to all accounts maintained by
Borrower with Bank and any additional services requested by Borrower from Bank.
All such costs, expenses and charges shall constitute Loans hereunder, shall be
payable by Borrower to Bank on demand, and, until paid, shall bear interest at
the highest rate then applicable to Loans hereunder;
(q) Borrower shall not purchase or otherwise acquire (including,
without limitation, acquisition by way of capitalized lease), or commit to
purchase or acquire, any fixed asset if, after giving effect to such purchase or
other acquisition, the aggregate cost of all such fixed assets purchased or
otherwise acquired would exceed $100,000.00 during any fiscal year of Borrower;
----------
and
(r) Neither Borrower nor any Affiliate shall use any portion of the
proceeds of the Loans, either directly or indirectly, for the purpose of (i)
purchaisng any securities underwritten or privately placed by ABN AMRO
Securities (USA) Inc. ("AASI"), an affiliate of Bank; or (ii) purchasing from
AASI any securities in which AASI makes a market; or (iii) refinancing or making
payments of principal, interest or dividends on any securities issued by
Borrower or any Affiliate, and underwritten, privately placed or dealt in by
AASI.
12. DEFAULT. The occurrence of any one or more of the following
events shall constitute an "EVENT OF DEFAULT" by Borrower hereunder:
(a) the failure of any Obligor to pay when due, declared due,
or demanded by Bank, any of the Liabilities;
(b) the failure of any Obligor to perform, keep or observe any of
the covenants, conditions, promises, agreements or obligations of such Obligor
under this Agreement or any of the Other Agreements; provided that any such
failure by Borrower under subparagraphs 10(b)(ii), 10(g) (but only with respect
to involuntarily created liens, claims, security interests and encumbrances) and
10(j)(i) of this Agreement shall not constitute an Event of Default hereunder
until the fifteenth (15th) day following the occurrence thereof;
(c) the failure of any Obligor to perform, keep or observe (after
any applicable notice and cure period, if any) any of the covenants, conditions,
promises, agreements or obligations of such Obligor under any other agreement
with any Person if such failure may have a material adverse effect on such
Obligor's business, property, assets, operations or condition, financial or
otherwise;
(d) the making or furnishing by any Obligor to Bank of any
representation, warranty, certificate, schedule, report or other communication
within or in connection with this Agreement or the Other Agreements or in
connection with any other agreement between such Obligor and Bank, which is
untrue or misleading in any material respect as of date made;
(e) the loss, theft, damage or destruction of any of the Collateral
in an amount in excess of $_______ in the aggregate for all such events during
any year of the Original Term or any Renewal Term as determined by Bank in its
sole discretion, or (except as permitted hereby) sale, lease or furnishing under
a contract of service of, any of the Collateral;
(f) the creation (whether voluntary or involuntary) of, or any
attempt to create, any lien or other encumbrance upon any of the Collateral,
other than the Permitted Liens and involuntary liens securing amounts less than
_____________ and no/100 Dollars ($_______.00) and which are released or for
which a bond acceptable to Bank in its sole discretion has been posted within
ten (10) days of its creation, or the making or any attempt to make any levy,
seizure or attachment thereof, provided that with respect to states in which
creditors may obtain a prejudgment attachment without notice, such attachment
shall be an Event of Default only if the attachment remains in effect for ten
(10) days;
(g) the commencement of any proceedings in bankruptcy by or against
any Obligor or for the liquidation or reorganization of any Obligor, or alleging
that such Obligor is insolvent or unable to pay its debts as they mature, or for
the readjustment or arrangement of any Obligor's debts, whether under the United
States Bankruptcy Code or under any other law, whether state or federal, now or
hereafter existing for the relief of debtors, or the commencement of any
analogous statutory or non-statutory proceedings involving any Obligor;
provided, however, that if such commencement of proceedings against such Obligor
is involuntary, such action shall not constitute an Event of Default unless such
proceedings are not dismissed within thirty (30) days after the commencement of
such proceedings;
(h) the appointment of a receiver or trustee for any Obligor, for
any of the Collateral or for any substantial part of any Obligor's assets or the
institution of any proceedings for the dissolution, or the full or partial
liquidation, or the merger or consolidation, of any Obligor which is a
corporation, limited liability company or a partnership; provided, however, that
if such appointment or commencement of proceedings against such Obligor is
involuntary, such action shall not constitute an Event of Default unless such
appointment is not revoked or such proceedings are not dismissed within thirty
(30) days after the commencement of such proceedings;
(i) the entry of any judgment or order against any Obligor which
remains unsatisfied or undischarged and in effect for thirty (30) days after
such entry without a stay of enforcement or execution to extent such judgements
exceed $50,000.00 outstanding at any time;
---------
(j) the death of any Obligor who is a natural Person, or of any
partner of any Obligor which is a partnership, or any member of a limited
liability company or the dissolution of any Obligor which is a partnership
limited liability company or corporation;
(k) the occurrence of an event of default under, or the revocation
or termination of, any agreement, instrument or document executed and delivered
by any Person to Bank pursuant to which such Person has guaranteed to Bank the
payment of all or any of the Liabilities or has granted Bank a security interest
in or lien upon some or all of such Person's real and/or personal property to
secure the payment of all or any of the Liabilities;
(l) the institution in any court of a criminal proceeding for which
the possibility of a forfeiture of assets exists against any Obligor, or the
indictment of any Obligor for any crime other than traffic and boating tickets
and misdemeanors not punishable by jail terms; and
(m) Bank shall reasonably feel insecure for fear of removal or waste
of the Collateral, or any part thereof.
-10-
<PAGE>
13. REMEDIES UPON AN EVENT OF DEFAULT.
(a) Upon the occurrence of an Event of Default described in
subparagraph 12(g) hereof, all of Borrower's Liabilities shall immediately and
automatically become due and payable, without notice of any kind. Upon the
occurrence of any other Event of Default, all Liabilities may, at the option of
Bank, upon demand but without legal process of any kind, be declared, and
immediately shall become, due and payable.
(b) Upon the occurrence of an Event of Default, Bank may exercise
from time to time any rights and remedies available to it under the Uniform
Commercial Code and any other applicable law in addition to, and not in lieu of,
any rights and remedies expressly granted in this Agreement or in any of the
Other Agreements and all of Bank's rights and remedies shall be cumulative and
non-exclusive to the extent permitted by law. In particular, but not by way of
limitation of the foregoing, Bank may, without notice, demand or legal process
of any kind, take possession of any or all of the Collateral (in addition to
Collateral of which it already has possession), wherever it may be found, and
for that purpose may pursue the same wherever it may be found, and may enter
onto any of Borrower's premises where any of the Collateral may be, and search
for, take possession of, remove, keep and store any of the Collateral until the
same shall be sold or otherwise disposed of, and Bank shall have the right to
store the same at any of Borrower's premises without cost to Bank. At Bank's
request, Borrower shall, at Borrower's expense, assemble the Collateral and make
it available to Bank at one or more places to be designated by Bank and
reasonably convenient to Bank and Borrower. Borrower recognizes that if Borrower
fails to perform, observe or discharge any of its Liabilities under this
Agreement or the Other Agreements, no remedy at law will provide adequate relief
to Bank, and agrees that Bank shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages. Any notification of intended disposition of any of the Collateral
required by law will be deemed reasonably and properly given if given at least
five (5) calendar days before such disposition. Any proceeds of any disposition
by Bank of any of the Collateral may be applied by Bank to the payment of
expenses in connection with the Collateral, including, without limitation, legal
expenses and reasonable attorneys' fees, and any balance of such proceeds may be
applied by Bank toward the payment of such of the Liabilities, and in such order
of application, as Bank may from time to time elect.
14. INDEMNIFICATION. Borrower agrees to defend (with counsel
satisfactory to Bank), protect, indemnify and hold harmless Bank, each affiliate
or subsidiary of Bank, and each of their respective officers, directors,
employees, attorneys and agents (each an "INDEMNIFIED PARTY") from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature (including, without limitation, the disbursements and the reasonable fees
of counsel for each Indemnified Party in connection with any investigative,
administrative or judicial proceeding, whether or not the Indemnified Party
shall be designated a party thereto), which may be imposed on, incurred by, or
asserted against, any Indemnified Party (whether direct, indirect or
consequential and whether based on any federal, state or local laws or
regulations, including, without limitation, securities, Environmental Laws and
commercial laws and regulations, under common law or in equity, or based on
contract or otherwise) in any manner relating to or arising out of this
Agreement or any Other Agreement, or any act, event or transaction related or
attendant thereto, the making or issuance and the management of the Loans or any
Letter of Credit or the use or intended use of the proceeds of the Loans or any
Letter of Credit; provided, however, that Borrower shall not have any obligation
hereunder to any Indemnified Party with respect to matters caused by or
resulting from the willful misconduct or gross negligence of such Indemnified
Party. To the extent that the undertaking to indemnify set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, Borrower shall satisfy such undertaking to the maximum extent
permitted by applicable law. Any liability, obligation, loss, damage, penalty,
cost or expense covered by this indemnity shall be paid to each Indemnified
Party on demand, and, failing prompt payment, shall, together with interest
thereon at the highest rate then applicable to Loans hereunder from the date
incurred by each Indemnified Party until paid by Borrower, be added to the
Liabilities of Borrower and be secured by the Collateral. The provisions of this
paragraph 14 shall survive the satisfaction and payment of the other Liabilities
and the termination of this Agreement.
15. NOTICE. All written notices and other written communications
with respect to this Agreement shall be sent by ordinary, certified or overnight
mail, by telecopy or delivered in person, and in the case of Bank shall be sent
to it at 135 South LaSalle Street, Chicago, Illinois 60603-4105, Attention:
Asset Based Lending Division, and in the case of Borrower shall be sent to it at
its principal place of business set forth on the first page of this Agreement or
as otherwise directed by Borrower in writing.
16. CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION. This
Agreement and the Other Agreements are submitted by Borrower to Bank for Bank's
acceptance or rejection at Bank's principal place of business as an offer by
Borrower to borrow monies from Bank now and from time to time hereafter, and
shall not be binding upon Bank or become effective until accepted by Bank, in
writing, at said place of business. If so accepted by Bank, this Agreement and
the Other Agreements shall be deemed to have been made at said place of
business. THIS AGREEMENT AND THE OTHER AGREEMENTS SHALL BE GOVERNED AND
CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS AS TO INTERPRETATION,
ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT AND IN ALL OTHER RESPECTS,
INCLUDING, WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER
CHARGES, BUT EXCLUDING PERFECTION OF THE SECURITY INTERESTS IN COLLATERAL
LOCATED OUTSIDE OF THE STATE OF ILLINOIS, WHICH SHALL BE GOVERNED AND CONTROLLED
BY THE LAWS OF THE RELEVANT JURISDICTION IN WHICH SUCH COLLATERAL IS LOCATED. If
any provision of this Agreement shall be held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or remaining provisions of this Agreement.
To induce Bank to accept this Agreement, Borrower irrevocably agrees that,
subject to Bank's sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY
WAY, MANNER OR RESPECT ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE
OTHER AGREEMENTS OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS
WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN
SAID CITY AND STATE. Borrower hereby irrevocably appoints and designates the
Secretary of State of Illinois, whose address is Springfield, Illinois (or any
other person having and maintaining a place of business in such state whom
Borrower may from time to time hereafter designate upon ten (10) days written
notice to Bank and whom Bank has agreed, in its sole discretion,
-11-
<PAGE>
in writing is satisfactory and who has executed an agreement in form and
substance satisfactory to Bank agreeing to act as such attorney and agent), as
Borrower's true and lawful attorney and duly authorized agent for acceptance of
service of legal process. Borrower agrees that service of such process upon such
person shall constitute personal service of such process upon Borrower. Bank
agrees to endeavor to provide a copy of such process to the law firm of
Sonnenschein Nath & Rosenthal by mail at the address of 8000 Sears Tower, 233 S.
Wacker Drive, Chicago, Illinois 60606 or by facsimile transmission at facsimile
number (312) 876-7934. Failure of Bank to provide a copy of such process shall
not impair Bank's rights hereunder. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE
TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY
BANK IN ACCORDANCE WITH THIS PARAGRAPH. Bank consents to the law firm of
Sonnenschein Nath & Rosenthal acting as Borrower's attorney and agent for the
acceptance of process so long as the law firm of Sonnenschein Nath & Rosenthal
maintains a place of business in the State of Illinois and executes an agreement
in form and substance satisfactory to Bank agreeing to act as such attorney and
agent.
17. MODIFICATION AND BENEFIT OF AGREEMENT. This Agreement and the
Other Agreements may not be modified, altered or amended except by an agreement
in writing signed by Borrower or such other person who is a party to such Other
Agreement and Bank. Borrower may not sell, assign or transfer this Agreement or
the Other Agreements or any portion thereof, including, without limitation,
Borrower's rights, titles, interest, remedies, powers or duties hereunder and
thereunder. Borrower hereby consents to Bank's sale, assignment, transfer or
other disposition, at any time and from time to time hereafter, of this
Agreement or the Other Agreements, or of any portion thereof, or participations
therein, including, without limitation, Bank's rights, titles, interest,
remedies, powers and/or duties and agrees that it shall execute and deliver such
documents as Bank may request in connection with any such sale, assignment,
transfer or other disposition.
18. HEADINGS OF SUBDIVISIONS. The headings of subdivisions in this
Agreement are for convenience of reference only, and shall not govern the
interpretation of any of the provisions of this Agreement.
19. POWER OF ATTORNEY. Borrower acknowledges and agrees that its
appointment of Bank as its attorney and agent-in-fact for the purposes specified
in this Agreement is an appointment coupled with an interest and shall be
irrevocable until all of the Liabilities are satisfied and paid in full and this
Agreement is terminated.
20. CONFIDENTIALITY. Borrower and Bank hereby agree and acknowledge
that any and all information relating to Borrower which is (i) furnished by
Borrower to Bank (or to any affiliate of Bank); and (ii) non-public,
confidential or proprietary in nature, shall be kept confidential by Bank or
such affiliate in accordance with applicable law; provided, however, that such
information and other credit information relating to Borrower may be distributed
by Bank or such affiliate to Bank's or such affiliate's directors, officers,
employees, attorneys, affiliates, assignees, participants, auditors and
regulators, and upon the order of a court or other governmental agency having
jurisdiction over Bank or such affiliate, to any other party. Borrower and Bank
further agree that this provision shall survive the termination of this
agreement.
21. WAIVER OF JURY TRIAL; OTHER WAIVERS.
(a) BORROWER AND BANK EACH HEREBY WAIVE ALL RIGHTS TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS
AGREEMENT, ANY OF THE OTHER AGREEMENTS, THE LIABILITIES, THE COLLATERAL, ANY
ALLEGED TORTIOUS CONDUCT BY BORROWER OR BANK OR WHICH, IN ANY WAY, DIRECTLY OR
INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWER AND
BANK. IN NO EVENT SHALL BANK BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR
CONSEQUENTIAL DAMAGES.
(b) Borrower hereby waives demand, presentment, protest and notice
of nonpayment, and further waives the benefit of all valuation, appraisal and
exemption laws.
(c) BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY
KIND PRIOR TO THE EXERCISE BY BANK OF ITS RIGHTS TO REPOSSESS THE COLLATERAL OF
BORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH
COLLATERAL; provided that in the event that Bank seeks to enforce its rights
hereunder by judicial process, Bank shall provide Borrower with such notices as
are required by law.
(d) Bank's failure, at any time or times hereafter, to require
strict performance by Borrower of any provision of this Agreement or any of the
Other Agreements shall not waive, affect or diminish any right of Bank
thereafter to demand strict compliance and performance therewith. Any suspension
or waiver by Bank of an Event of Default under this Agreement or any default
under any of the Other Agreements shall not suspend, waive or affect any other
Event of Default under this Agreement or any other default under any of the
Other Agreements, whether the same is prior or subsequent thereto and whether of
the same or of a different kind or character. No delay on the part of Bank in
the exercise of any right or remedy under this Agreement or any Other Agreement
shall preclude other or further exercise thereof or the exercise of any right or
remedy. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or any of the Other
Agreements and no Event of Default under this Agreement or default under any of
the Other Agreements shall be deemed to have been suspended or waived by Bank
unless such suspension or waiver is in writing, signed by a duly authorized
officer of Bank and directed to Borrower specifying such suspension or waiver.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the 27th day of May, 1998.
-- ---
Apple Sports, Inc. LASALLE NATIONAL BANK
- ------------------------------
By /s/ Lawrence Geller By /s/ Robert S. Corsentino
------------------------- -------------------------------
Title Assistant Secretary Title Senior Vice President
________________________ ________________________
and
By_________________________
Title___________________
-13-
<PAGE>
EXHIBIT B - BUSINESS AND COLLATERAL LOCATIONS
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between Apple Sports, Inc. ("BORROWER") and LASALLE NATIONAL
------------------
BANK ("BANK").
A. Borrower's Business Locations (please indicate which location is the
principal place of business and at which locations originals and all copies of
Borrower's books, records and accounts are kept).
1 One Roebling Court
Ronkonkoma, New York 11779
(leased property/principal place of business)
2.
3.
B. Other locations of Collateral (including, without limitation, warehouse
locations, processing locations, consignment locations) and all post office
boxes of Borrower. Please indicate the relationship of such location to Borrower
(i.e. public warehouse, processor, etc.).
1. c/o Mary Haven Industries
101 County Road
Yaphank, New York 11980
(processor location)
2. 51 Roebling Court
Ronkonkoma, New York 11779
(leased property)
3.
-14-
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS
----------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
CREDIT TERMS
____________
(1) LOAN LIMIT: Bank may, in its sole discretion, advance an amount up to the
sum of the following sublimits (the "Loan Limit"):
(a) Subject to subparagraph (3)(a) of this Exhibit A, up to eighty-five
percent (85%) of the face amount (less maximum discounts, credits
and allowances which may be taken by or granted to Account Debtors
in connection therewith) of Borrower's Eligible Accounts, whichever
is less; plus
----
(b) Up to sixty percent (60%) of the lower of the cost or market
value of Borrower's Eligible Inventory or Six Million and No/100
Dollars ($6,000,000.00), whichever is less, MINUS the outstanding
-----
amount of all Loans to (I) Apple Golf Shoes, Inc. ("Apple Golf")
pursuant to subparagraph (1)(b) of Exhibit A of the Apple Golf
Agreement, as hereinafter defined; and (II) Dorson Sports, Inc.
("Dorson") pursuant to subparagraph (1)(b) of Exhibit A of the
Dorson Agreement, as hereinafter defined;
provided, that the aggregate Loan Limit shall in no event exceed
THREE MILLION AND NO/100 DOLLARS ($3,000,000.00), except as such
amount may be increased or decreased by Bank, in its sole
discretion, from time to time; and
further provided, that the aggregate amount of Loans to (I) Borrower
under this Agreement; (II) Apple Golf under and as defined in that
certain Loan and Security Agreement entered into by and between
Apple Sports and Bank of even date herewith (the "Apple Golf
Agreement"); and (III) Dorson under and as defined in that certain
Loan and Security Agreement entered into by and between Dorson and
Bank of even date herewith (the "Dorson Agreement") shall in no
event exceed TWELVE MILLION AND NO/100 DOLLARS ($12,000,000.00).
BORROWER: APPLE SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 2
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
(2) LETTERS OF CREDIT: Subject to the terms and conditions of this Agreement,
including Exhibit A, and the Other Agreements, during the Original Term or
any Renewal Term, Bank may, in its sole discretion from time to time
issue, upon Borrower's request, Commercial and/or Standby Letters of
Credit; provided, that the aggregate undrawn face amount of all such
Letters of Credit issued on behalf of Borrower, Apple Golf, and Dorson
shall at no time exceed Five Million and No/100 Dollars ($5,000,000.00).
Bank's contingent liability under the Letters of Credit shall
automatically reduce, dollar for dollar, the amount which Borrower may
borrow based upon the Loan Limit. Payments made by Bank to any Person on
account of any Letter of Credit shall constitute Loans hereunder. At no
time shall the aggregate of direct Loans by Bank to Borrower plus the
contingent liability of Bank under the outstanding Letters of Credit be in
excess of the Loan Limit. Borrower shall remit to Bank a Letter of Credit
fee equal to one-fourth of one percent (1/4th of 1%) per month on the
aggregate undrawn face amount of all Letters of Credit outstanding, which
fee shall be payable monthly in arrears on each day that interest is
payable hereunder. Borrower shall also pay on demand Bank's normal and
customary administrative charges for issuance of any Letter of Credit.
(3) ADDITIONS TO ELIGIBLE ACCOUNTS CRITERIA:
(a) DATINGS: Invoices that otherwise meet the criteria for Eligible
Accounts and that are due and payable on or before a specified
due date shall be considered ineligible for borrowing purposes if
they are not paid within thirty (30) days of the date upon which
they are due. In the event any such invoice is not paid within
one hundred eighty (180) days of its invoice date, then all
Accounts payable by that Account Debtor may, at the sole option
of Bank, be considered ineligible.
(4) INTEREST RATE: Subject to the terms and conditions set forth below, the
Loans shall bear interest at the per annum rate of interest set forth in
subsection (a) or (b) below:
BORROWER: APPLE SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 3
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
(a) Bank's publicly announced prime rate per annum (which is not
intended to be Bank's lowest or most favorable rate in effect at any
time) (the "Prime Rate") in effect from time to time, payable on the
last Business Day of each month in arrears. Said rate of interest
shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the effective date of each
such change in the Prime Rate.
(b) Two and one-half percent (2-1/2%) per annum in excess of the per
annum rate of interest at which U.S. Dollar deposits of an amount
comparable to the amount of the Loans and for a period equal to
the relevant Interest Period (as hereinafter defined) are offered
generally to Bank (rounded upward if necessary to the nearest
1/1000 of 1.00%) in the London Interbank Eurodollar market at
11:00 a.m. (London time) two (2) Business Days prior to the
commencement of each Interest Period ("LIBOR"), such rate to
remain fixed for such Interest Period. "Interest Period" shall
mean any continuous period of thirty (30), sixty (60), ninety
(90) or one hundred eighty (180) days, as selected from time to
time by Borrower by irrevocable notice (in writing, by telex,
telegram or cable) given to Bank not less than three (3) Business
Days prior to the first day of each respective Interest Period
commencing on the date hereof; provided that: (i) each such
period occurring after such initial period shall commence on the
day on which the immediately preceding period expires; (ii) the
final Interest Period shall be such that its expiration occurs on
or before the end of the Original Term or any Renewal Term; and
(iii) if for any reason Borrower shall fail to timely select a
period, then such Loans shall continue as, or revert to, Prime
Rate Loans. Interest shall be payable on the last Business Day
of each month and on the date of any payment hereon by Borrower.
Upon the occurrence of an Event of Default, the Loans shall bear
interest at the rate of two percent (2.0%) per annum in excess of
the interest rate otherwise payable thereon, which interest shall be
BORROWER: APPLE SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 4
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
payable on demand. All interest shall be calculated on the basis of
a 360-day year.
(4).(1) OTHER LIBOR PROVISIONS:
(a) Subject to the provisions of this Agreement, Borrower
shall have the option (i) as of any date, to convert all or
any part of the Prime Rate Loans to, or request that new
Loans be made as, LIBOR Rate Loans of various Interest
Periods, (ii) as of the last day of any Interest Period, to
continue all or any portion of the relevant LIBOR Rate
Loans as LIBOR Rate Loans; (iii) as of the last day of any
Interest Period, to convert all or any portion of the LIBOR
Rate Loans to Prime Rate Loans; and (iv) at any time, to
request new Loans as Prime Rate Loans; provided, that Loans
may not be continued as or converted to LIBOR Rate Loans,
if the continuation or conversion thereof would violate the
provisions of subparagraphs (4).(1)(b) and (4).(1)(c) of
this Exhibit A or if an Event of Default has occurred.
(b) Bank's determination of LIBOR as provided above shall be
conclusive, absent manifest error. Furthermore, if Bank
determines, in good faith (which determination shall be
conclusive, absent manifest error), prior to the
commencement of any Interest Period that (i) U.S. Dollar
deposits of sufficient amount and maturity for funding the
Loans are not available to Bank in the London Interbank
Eurodollar market in the ordinary course of business, or
(ii) by reason of circumstances affecting the London
Interbank Eurodollar market, adequate and fair means do not
exist for ascertaining the rate of interest to be
applicable to the Loans requested by Borrower to be LIBOR
Rate Loans or the Loans bearing interest at the rates set
forth in subparagraph (4)(b) of this Exhibit A shall not
represent the effective pricing to Bank for U.S. Dollar
deposits of a comparable amount for the relevant period
(such as for example, but not limited to,
BORROWER: APPLE SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 5
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
official reserve requirements required by Regulation D to
the extent not given effect in determining the rate), Bank
shall promptly notify Borrower and (x) all existing LIBOR
Rate Loans shall convert to Prime Rate Loans upon the end of
the applicable Interest Period, and (y) no additional LIBOR
Rate Loans shall be made until such circumstances are cured.
(c) If, after the date hereof, the introduction of, or any
change in any applicable law, treaty, rule, regulation or
guideline or in the interpretation or administration
thereof by any governmental authority or any central bank
or other fiscal, monetary or other authority having
jurisdiction over Bank or its lending offices (a
"Regulatory Change"), shall, in the opinion of counsel to
Bank, make it unlawful for Bank to make or maintain LIBOR
Rate Loans, then Bank shall promptly notify Borrower and
(i) the LIBOR Rate Loans shall immediately convert to Prime
Rate Loans on the last Business Day of the then existing
Interest Period or on such earlier date as required by law
and (ii) no additional LIBOR Rate Loans shall be made until
such circumstance is cured.
(d) If, for any reason, a LIBOR Rate Loan is paid prior to the
last Business Day of any Interest Period or if a LIBOR Rate
Loan does not occur on a date specified by Borrower in its
request (other than as a result of a default by Bank),
Borrower agrees to indemnify Bank against any loss
(including any loss on redeployment of the funds repaid),
cost or expense incurred by Bank as a result of such
prepayment.
(e) If any Regulatory Change (whether or not having the force
of law) shall (i) impose, modify or deem applicable any
assessment, reserve, special deposit or similar requirement
against assets held by, or deposits in or for the account
of or loans by, or any other acquisition of funds or
disbursements by, Bank; (ii) subject Bank or the LIBOR Rate
Loans to any tax, duty, charge, stamp tax or fee or change
the basis of
BORROWER: APPLE SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 6
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
taxation of payments to Bank of principal or interest due
from Borrower to Bank hereunder (other than a change in the
taxation of the overall net income of Bank); or (c) impose
on Bank any other condition regarding the LIBOR Rate
Loans or Bank's funding thereof, and Bank shall determine
(which determination shall be conclusive, absent any
manifest error) that the result of the foregoing is to
increase the cost to Bank of making or maintaining the
LIBOR Rate Loans or to reduce the amount of principal or
interest received by Bank hereunder, then Borrower shall
pay to Bank, on demand, such additional amounts as Bank
shall, from time to time, determine are sufficient to
compensate and indemnify Bank from such increased cost or
reduced amount.
(f) Each request for LIBOR Rate Loans shall be in an amount not
less than Five Hundred Thousand and No/100 Dollars
($500,000.00), and in integral multiples of, Five Hundred
Thousand and No/100 Dollars ($500,000.00).
(g) Unless otherwise specified by Borrower, all Loans shall be
Prime Rate Loans.
(h) No more than six (6) Interest Periods may be in effect with
respect to outstanding LIBOR Rate Loans at any one time.
(5) FEES AND CHARGES:
(a) FACILITIES FEES: Borrower, Apple Golf, and Dorson shall jointly
pay to Bank an unused line fee of one-fourth of one percent
(1/4th of 1%) of the difference between Twelve Million and No/100
Dollars ($12,000,000.00) and the average monthly loan balance of
Borrower, Apple Golf, and Dorson plus the aggregate undrawn
face amount of all Letters of Credit issued by Bank on behalf of
Borrower, Apple Golf, and Dorson which fee shall be fully
earned by Bank and payable monthly in arrears on each day that
interest is
BORROWER: APPLE SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
-----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ ---------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 7
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
payable hereunder. Said fee shall be calculated on the basis of
a 360 day year.
(b) CLOSING FEE: Borrower, Apple Golf, and Dorson shall jointly pay
to Bank a closing fee of Twenty Thousand and No/100 Dollars
($20,000.00) which fee shall be fully earned by Bank and payable
on the date of disbursement under the Agreement.
(c) PREPAYMENT FEE: Notwithstanding the provisions of Paragraph 9 of
the Agreement, in the event that Borrower prepays the Liabilities
prior to the end of the Original Term or any applicable Renewal
Term and the Agreement is terminated as a result thereof,
Borrower shall pay a prepayment fee, jointly and severally with
Apple Sports and Dorson, equal to (i) three percent (3%) of the
maximum Loan Limit if such prepayment occurs on or before the
first anniversary of the date hereof; (ii) two percent (2%) of
the maximum Loan Limit if such prepayment occurs after the first
anniversary of the date hereof, but on or before the second
anniversary of the date hereof; and (iii) one percent (1%) of the
maximum Loan Limit if such prepayment occurs after the second
anniversary of the date hereof but prior to the end of the
Original Term or any applicable Renewal Term.
ADDITIONS AND CHANGES TO COVENANTS
- -----------------------------------
(6) PERMITTED DIVIDENDS: If (a) Borrower remains an S corporation for
federal income tax purposes; (b) an Event of Default has not occurred
and will not occur as a result of the distribution; and (c) Borrower
gives Bank sufficient documentation to verify compliance with this
paragraph fifteen (15) days prior to the distribution, Borrower may
distribute to its shareholders the excess, if any, of the Deemed Tax Due
over the sum of all distributions previously made pursuant to this
paragraph. Deemed Tax Due means the sum of the products of the taxable
income or loss of Borrower and the Deemed Tax Rate (the product of a
loss and the Deemed Tax Rate being a negative number), for each and
every taxable period which falls in the period beginning on the date
hereof and ending
BORROWER: APPLE SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 8
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
on the last day of the last period with respect to which tax (including
estimated tax) is due. Deemed Tax Rate means the sum of the highest New
York and federal individual rates (but adjusting for deductibility of
state income taxes).
(7) CHECKING ACCOUNT PROVISIONS: Borrower shall maintain its controlled
disbursement account with Bank. Normal charges shall be assessed
thereon.
(8) TANGIBLE NET WORTH: Notwithstanding the provisions of subparagraph 11(o)
of the Agreement, Borrower, Apple Golf, and Dorson shall at all times
maintain an aggregate tangible net worth of not less than the Minimum
Tangible Net Worth, as hereinafter defined. At all times from the date
hereof through December 30, 1998, "Minimum Tangible Net Worth" shall
equal tangible net worth as shown on Borrower's unaudited financial
statement. At all times from December 31, 1998 through December 30,
1999, "Minimum Tangible Net Worth" shall equal tangible net worth as
shown on Borrower's unaudited financial statement, plus $250,000.00.
Thereafter, from December 31st of each year through December 30th of the
following year (the "Measurement Period"), Minimum Tangible Net Worth
shall be equal to the greater of (1) Borrower's tangible net worth as
shown on Borrower's fiscal year end statement as of the first day of the
Measurement Period and (2) the Minimum Tangible Net Worth as of the last
day of the immediately preceding fiscal year, plus $250,000.00; and
"Tangible Net Worth" being defined for purposes of this subparagraph
with respect to any Person, such Person's shareholders' equity
(including retained earnings) less the book value of all intangible
assets as determined solely by Bank on a consistent basis plus the
amount of any LIFO reserve plus the amount of any debt subordinated to
Bank, all as determined under generally accepted accounting principle
applied on a basis consistent with the financial statement dated
_________________, 19__ except as set forth herein.
BORROWER: APPLE SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 9
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
ADDITIONS AND CHANGES TO DEFAULT PROVISIONS
- -------------------------------------------
(9) ADDITIONAL CROSS DEFAULT: In addition to the Events of Default specified
in Paragraph 12 of the Agreement, it shall be an Event of Default
hereunder if Apple Golf and/or Dorson shall fail to perform, keep or
observe any of the covenants, conditions, promises, agreements or other
obligations of Apple Golf and/or Dorson to Bank under any agreements now
or hereafter existing between Apple Golf and/or Dorson and Bank,
including, without limitation, that certain Apple Golf Agreement and/or
Dorson Agreement or in the event of the termination of said Apple Golf
Agreement and/or Dorson Agreement.
(10) SPECIFIC CROSS DEFAULT: In particular, but not by way of limitation of
subparagraph 12(c) of the Agreement, a default under, termination of or
amendment (without the prior written consent of Bank) in any material
respect of that certain Trademark License Agreement entered into by and
between Borrower and Wilson Sporting Goods Co. dated May 31, 1996, shall
constitute an Event of Default. For purposes of this paragraph,
termination shall include the giving of notice of termination of said
agreement by either Borrower or Wilson Sporting Goods Co.
(11) CHANGE OF CONTROL DEFAULT: In addition to the Events of Default
specified in Paragraph 12 of the Agreement, it shall be an Event of
Default hereunder if Empire of Carolina, Inc. shall cease to own and
have voting control over at least 66 2/3% of the issued and outstanding
stock of Borrower.
(12) CHANGE OF MANAGEMENT DEFAULT: In addition to the Events of Default
specified in Paragraph 12 of the Agreement, it shall be an Event of
Default hereunder if any of ________________, ________________ or
__________________ shall cease to be the _________________,
______________________ or ___________________, respectively, of
Borrower.
BORROWER: APPLE SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 10
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
CONDITIONS TO CLOSING
- ----------------------
(13) ADDITIONAL CONDITIONS TO CLOSING: Bank shall be under no obligation to
consummate the transactions contemplated by this Agreement until each of
the conditions listed in this Paragraph (13) has been satisfied.
Whenever a condition contained herein requires delivery of an agreement
or other document to Bank, each such agreement or other document shall
be in form and substance satisfactory to Bank in its sole discretion.
(a) LANDLORD'S AGREEMENT AND/OR LANDLORD/SUBLESSOR'S AGREEMENT: Borrower
shall cause to be executed in favor of Bank and delivered to Bank a
Landlord's Agreement and/or Landlord/Sublessor's Agreement from each
lessor and/or sublessor of property(ies) set forth on Exhibit B,
which Landlord's Agreement and/or Landlord/Sublessor's Agreement
shall include a copy of the relevant lease and/or sublease.
(b) GUARANTIES: Borrower shall cause to be executed in favor of Bank
and delivered to Bank the Continuing Unconditional Guaranties of
each of Apple Golf and Dorson of any and all indebtedness of
Borrower to Bank.
(c) LICENSOR'S CONSENT: Borrower shall cause Wilson Sporting Goods Co.
to execute and deliver to Bank a Licensor's Consent.
(d) PROCESSOR'S LETTERS: Bank hereby acknowledges that Eligible
Inventory is and from time to time may be delivered to a processor
for processing at the locations set forth in Exhibit B. Relative
thereto, Borrower shall cause each such party to execute and deliver
a Processor's Letter to Bank and shall cause each such party to
execute and deliver a Uniform Commercial Code Financing Statement to
Bank.
(e) TRADEMARK SECURITY AGREEMENT: Borrower shall execute and deliver to
Bank a Trademark Security Agreement.
BORROWER: APPLE SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 11
--------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
(f) SERVICE OF PROCESS: Borrower shall execute and deliver and shall
cause Sonnenschein Nath & Rosenthal to execute and deliver to Bank
an agreement wherein Sonnenschein Nath & Rosenthal shall agree to
accept service of process on behalf of Borrower.
(g) RELATED TRANSACTIONS: Empire of Carolina, Inc. shall have
consummated the transactions set forth in that certain Share
Purchase Agreement dated April 10, 1998 by and between The
Shareholders of Apple Sports Inc. and the Shareholders of Apple Golf
Shoes, Inc. as Sellers and Empire of Carolina, Inc. as Purchaser
(the "Purchase Agreement"). Borrower shall provide Bank with copies
of the Purchase Agreement and all related documentation, and
evidence satisfactory to Bank that (i) any and all approvals of the
transaction contemplated therein have been obtained, including
without limitation, the consent of Wilson Sporting Goods Co., Islip
Foreign Trade Zone Authority and Vets Park Associate and (ii) that
the proceeds of the Loans hereunder were not used to consummate
the transactions contemplated by the Purchase Agreement.
(h) ATTORNEY'S OPINION LETTER: Borrower shall cause to be executed and
delivered to Bank an Attorney's Opinion Letter.
OTHER PROVISIONS
- ----------------
(14) PERMITTED LIENS: Bank acknowledges that the liens evidenced by the
following filed financing statements and any amendments thereto, as said
financing statements exist as of ____________, 1998, shall constitute
Permitted Liens:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BORROWER: APPLE SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
EXHIBIT 10.43
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "AGREEMENT") made this 27th
------
day of May, 1998 by and between LASALLE NATIONAL BANK, a national banking
--- ----
association ("BANK"), 135 South LaSalle Street, Chicago, Illinois 60603-4105,
and
Apple Golf Shoes, Inc.,
- -------------------------------------------------------------------------------
One Roebling Court,
- -------------------------------------------------------------------------------
Ronkonkoma, New York 11779 ("BORROWER")
- -------------------------------------------------------------------------------
[INSERT ENTITY DESIGNATION(S) AND ADDRESS(ES) OF PRINCIPAL PLACE OF BUSINESS].
WITNESSETH:
WHEREAS, Borrower may, from time to time, request Loans from Bank, and the
parties wish to provide for the terms and conditions upon which such Loans, if
made by Bank, shall be made;
NOW, THEREFORE, in consideration of any Loan (including any Loan by
renewal or extension) hereafter made to Borrower by Bank, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by Borrower, the parties agree as follows:
1. DEFINITIONS.
(a) "ACCOUNT," "ACCOUNT DEBTOR," "CHATTEL PAPER," "DOCUMENTS,"
"EQUIPMENT," "GENERAL INTANGIBLES," "GOODS," "INSTRUMENTS," "INVENTORY," and
"INVESTMENT PROPERTY" shall have the respective meanings assigned to such terms,
as of the date of this Agreement, in the Illinois Uniform Commercial Code.
(b) "AFFILIATE" shall mean any Person directly or indirectly
controlling, controlled by or under common control with Borrower.
(c) "COLLATERAL" shall mean all of the property of Borrower
described in paragraph 4 hereof, together with all other real or personal
property of any Obligor or any other Person now or hereafter pledged to Bank to
secure, either directly or indirectly, repayment of any of the Liabilities.
(d) "ELIGIBLE ACCOUNT" shall mean an Account owing to Borrower which
is acceptable to Bank in its sole discretion determined in good faith on a basis
consistent with the credit procedures of its Asset Based Lending Division for
lending purposes. Without limiting Bank's discretion, Bank shall, in general,
consider an Account to be an Eligible Account if it meets, and so long as it
continues to meet, the following requirements:
(i) it is genuine and in all respects what it
purports to be;
(ii) it is owned by Borrower, Borrower has the right to
subject it to a security interest in favor of Bank or assign it to Bank
and it is subject to a first priority perfected security interest in favor
of Bank and to no other claim, lien, security interest or encumbrance
whatsoever, other than Permitted Liens;
(iii) it arises from (A) the performance of services by
Borrower and such services have been fully performed and acknowledged and
accepted by the Account Debtor thereunder; or (B) the sale or lease of
Goods by Borrower, and such Goods have been completed in accordance with
the Account Debtor's specifications (if any) and delivered to and accepted
by the Account Debtor, such Account Debtor has not refused to accept any
of the Goods, returned or offered to return any of the Goods which are the
subject of such Account, and Borrower has possession of, or Borrower has
delivered to Bank (at Bank's request) shipping and delivery receipts
evidencing delivery of such Goods;
(iv) it is evidenced by an invoice rendered to the Account
Debtor thereunder, is due and payable within ninety (90) days after the
------- --
date of the invoice and does not remain unpaid ninety (90) days past the
------ --
invoice date thereof; provided, however, that if more than twenty-five
-----------
percent (25%) of the aggregate dollar amount of invoices owing by a
particular Account Debtor remain unpaid ninety (90) days after the
------ --
respective invoice dates thereof, then all Accounts owing by that Account
Debtor shall be deemed ineligible;
(v) it is a valid, legally enforceable and unconditional
obligation of the Account Debtor thereunder, and is not subject to setoff,
counterclaim, credit, allowance or adjustment by such Account Debtor, or
to any claim by such Account Debtor denying liability thereunder in whole
or in part;
(vi) it does not arise out of a contract or order which fails
in any material respect to comply with the requirements of applicable law;
(vii) the Account Debtor thereunder is not a director,
officer, employee or agent of Borrower, or a Subsidiary, Parent or
Affiliate;
(viii) it is not an Account with respect to which the Account
Debtor is the United States of America or any department, agency or
instrumentality thereof, unless Borrower assigns its right to payment of
such Account to Bank pursuant to, and in full compliance with, the
Assignment of Claims Act of 1940, as amended;
-1-
<PAGE>
(ix) it is not an Account with respect to which the Account
Debtor is located in a state which requires Borrower, as a precondition to
commencing or maintaining an action in the courts of that state, either to
(A) receive a certificate of authority to do business and be in good
standing in such state; or (B) file a notice of business activities report
or similar report with such state's taxing authority, unless (x) Borrower
has taken one of the actions described in clauses (A) or (B); (y) the
failure to take one of the actions described in either clause (A) or (B)
may be cured retroactively by Borrower at its election; or (z) Borrower
has proven, to Bank's satisfaction, that it is exempt from any such
requirements under any such state's laws;
(x) it is an Account which arises out of a sale made in the
ordinary course of Borrower's business;
(xi) the Account Debtor is a resident or citizen of,
and is located within, the United States of America or the
following Provinces of Canada: British Columbia, Alberta,
Saskatchewan, Manitoba, Ontario or New Brunswick;
(xii) it is not an Account with respect to which the Account
Debtor's obligation to pay is conditional upon the Account Debtor's
approval of the Goods or services or is otherwise subject to any
repurchase obligation or return right, as with sales made on a
bill-and-hold, guaranteed sale, sale on approval, sale or return or
consignment basis;
(xiii) it is not an Account (A) with respect to which any
representation or warranty contained in this Agreement is untrue; or (B)
which violates any of the covenants of Borrower contained in this
Agreement;
(xiv) it is not an Account which, when added to a particular
Account Debtor's other indebtedness to Borrower, exceeds a credit limit
determined by Bank, in its sole discretion determined in good faith on a
basis consistent with the credit procedures of its Asset Based Lending
Division, for that Account Debtor (except that Accounts excluded from
Eligible Accounts solely by reason of this subparagraph 1(d)(xiv) shall be
Eligible Accounts to the extent of such credit limit); and
(xv) it is not an Account with respect to which the prospect
of payment or performance by the Account Debtor is or will be impaired, as
determined by Bank in its sole discretion determined in good faith on a
basis consistent with the credit procedures of its Asset Based Lending
Division.
(e) "ELIGIBLE INVENTORY" shall mean Inventory of Borrower which is
acceptable to Bank in its sole discretion determined in good faith on a basis
consistent with the credit procedures of its Asset Based Lending Division for
lending purposes. Without limiting Bank's discretion, Bank shall, in general,
consider Inventory to be Eligible Inventory if it meets, and so long as it
continues to meet, the following requirements:
(i) it is owned by Borrower, Borrower has the right to subject
it to a security interest in favor of Bank and it is subject to a first
priority perfected security interest in favor of Bank and to no other
claim, lien, security interest or encumbrance whatsoever, other than
Permitted Liens;
(ii) it is located on the premises listed on Exhibit B and is
not in transit;
(iii) if held for sale or lease or furnishing under contracts
of service, it is (except as Bank may otherwise consent in writing) new
and unused and free from defects which would, in Bank's sole
determination, determined in good faith on a basis consistent with the
credit procedures of its Asset Based Lending Division, affect its market
value;
(iv) it is not stored with a bailee, consignee, warehouseman,
processor or similar party unless Bank has given its prior written
approval and Borrower has caused any such bailee, consignee, warehouseman,
processor or similar party to issue and deliver to Bank, in form and
substance acceptable to Bank, such Uniform Commercial Code financing
statements, warehouse receipts, waivers and other documents as Bank shall
require;
(v) Bank has determined in good faith on a basis consistent
with the credit procedures of its Asset Based Lending Division that it is
not unacceptable due to age, type, category or quantity; and
(vi) it is not Inventory (A) with respect to which any of the
representations and warranties contained in this Agreement are untrue; or
(B) which violates any of the covenants of Borrower contained in this
Agreement.
(f) "ENVIRONMENTAL LAWS" shall mean all federal, state, district,
local and foreign laws, rules, regulations, ordinances, and consent decrees
relating to health, safety, hazardous substances, pollution and environmental
matters, as now or at any time hereafter in effect, applicable to the Borrower's
business or facilities owned or operated by Borrower, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contamination, chemicals, or hazardous, toxic or dangerous substances, materials
or wastes into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata) or otherwise
relating to the generation, manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials.
(g) "EVENT OF DEFAULT" shall have the meaning specified in paragraph
12 hereof.
(h) "EXHIBIT A" shall mean the exhibit entitled Exhibit A Special
Provisions which is attached hereto and made a part hereof.
(i) "EXHIBIT B" shall mean the exhibit entitled Exhibit B Business
and Collateral Locations which is attached hereto and made a part hereof.
(j) "HAZARDOUS MATERIALS" shall mean any hazardous, toxic or
dangerous substance, materials and wastes, including, without limitation,
hydrocarbons (including naturally occurring or man-made petroleum and
hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation,
radioactive materials, biological substances, polychlorinated biphenyls,
pesticides, herbicides and any other kind and/or type of pollutants or
contaminants (including, without limitation, materials which include hazardous
constituents), sewage, sludge, industrial slag, solvents and/or any other
similar substances, materials, or wastes and including any other substances,
materials or wastes that are or become regulated under any Environmental Law
(including, without limitation, any that are or become classified as hazardous
or toxic under any
-2-
<PAGE>
Environmental Law).
(k) "INDEMNIFIED PARTY" shall have the meaning specified in
paragraph 14 hereof.
(l) "LETTER OF CREDIT" shall mean any letter of credit issued by
Bank on behalf of Borrower.
(m) "LIABILITIES" shall mean any and all obligations, liabilities
and indebtedness of Borrower to Bank or to any parent, affiliate or subsidiary
of Bank of any and every kind and nature, howsoever created, arising or
evidenced and howsoever owned, held or acquired, whether now or hereafter
existing, whether now due or to become due, whether primary, secondary, direct,
indirect, absolute, contingent or otherwise (including, without limitation,
obligations of performance), whether several, joint or joint and several, and
whether arising or existing under written or oral agreement or by operation of
law.
(n) "LOANS" shall mean all loans and advances made by Bank to or on
behalf of Borrower hereunder.
(o) "LOAN LIMIT" shall have the meaning specified in paragraph 1 of
Exhibit A.
(p) "LOCK BOX" and "LOCK BOX ACCOUNT" shall have the meanings
specified in paragraph 7 hereof.
(q) "OBLIGOR" shall mean Borrower and each other Person who is or
shall become primarily or secondarily liable for any of the Liabilities.
(r) "ORIGINAL TERM" shall have the meaning specified in paragraph 9
hereof.
(s) "OTHER AGREEMENTS" shall mean all agreements, instruments and
documents, other than this Agreement, including, without limitation, guaranties,
mortgages, trust deeds, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, leases, financing statements and all
other writings heretofore, now or from time to time hereafter executed by or on
behalf of Borrower or any other Person and delivered to Bank or to any parent,
affiliate or subsidiary of Bank in connection with the Liabilities or the
transactions contemplated hereby.
(t) "PARENT" shall mean any Person now or at any time or times
hereafter owning or controlling (alone or with any other Person) at least a
majority of the issued and outstanding equity of Borrower and, if Borrower is a
partnership, the general partner of Borrower.
(u) "PERMITTED LIENS" shall mean (i) statutory liens of landlords,
carriers, warehousemen, processors, mechanics, materialmen or suppliers incurred
in the ordinary course of business and securing amounts not yet due or declared
to be due by the claimant thereunder, or amounts which are being contested in
good faith and by appropriate proceedings and for which Borrower has maintained
adequate reserves; (ii) liens or security interests in favor of Bank; (iii)
zoning restrictions and easements, licenses, covenants and other restrictions
affecting the use of real property that do not individually or in the aggregate
have a material adverse effect on Borrower's ability to use such real property
for its intended purpose in connection with Borrower's business; (iv) liens
specifically permitted by Bank in writing; and (v) liens arising in connection
with the financing or refinancing of the acquisition of Equipment, provided that
such borrowings are permitted by this Agreement and further provided that such
liens are limited to the Equipment being financed or refinanced.
(v) "PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party or foreign or United States government
(whether federal, state, county, city, municipal or otherwise), including,
without limitation, any instrumentality, division, agency, body or department
thereof.
(w) "RENEWAL TERM" shall have the meaning specified in paragraph 9
hereof.
(x) "SUBSIDIARY" shall mean any corporation of which more than fifty
percent (50%) of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective of
whether at the time stock of any other class of such corporation shall have or
might have voting power by reason of the happening of any contingency) is at the
time, directly or indirectly, owned by Borrower or any partnership or joint
venture or limited liability company of which more than fifty percent (50%) of
the outstanding equity interests are at the time, directly or indirectly, owned
by Borrower or of which Borrower is a general partner.
(y) "TANGIBLE NET WORTH" shall have the meaning specified in
subparagraph 11(o) hereof.
(Z) "BUSINESS DAY" shall mean any day other than a Saturday, a
Sunday or (i) with respect to all matters, determinations, fundings and payments
in connection with LIBOR Rate Loans, any day on which banks in London, England
or Chicago, Illinois are required or permitted to close, and (ii) with respect
to all other matters, any day that banks in Chicago, Illinois are permitted or
required to close.
(AA) "INTEREST PERIOD" shall have the meaning specified in Paragraph
(4)(b) of Exhibit A of the Agreement hereto.
(BB) "LIBOR RATE LOANS" shall mean the Loans bearing interest at the
rate set forth in Paragraph (4)(b) of Exhibit A of the Agreement.
(cc) "PRIME RATE LOANS" shall mean the Loans bearing interest at the
rates set forth in Paragraph (4)(a) of Exhibit A of the Agreement.
2. LOANS. Subject to the terms and conditions of this Agreement
(including Exhibit A) and the Other Agreements, during the Original Term and any
Renewal Term, Bank may, in its sole discretion, make such Loans to Borrower as
Borrower shall from time to time request. The aggregate unpaid principal of all
Loans outstanding at any one time shall not exceed the Loan Limit set forth in
Exhibit A and shall bear interest at the rates set forth in Exhibit A. ALL LOANS
SHALL BE REPAID BY BORROWER UPON DEMAND BY BANK. Prior to Bank making such
demand, Loans shall be repaid as provided elsewhere in this Agreement. If at any
time the outstanding principal balance of the Loans exceeds the Loan Limit, or
any portion of the Loans exceeds any applicable sublimit set forth in Exhibit A,
Borrower shall immediately, and without the necessity of a demand by Bank, pay
to Bank such amount as may be necessary to eliminate such excess and Bank shall
apply such payment to the Liabilities in such order as Bank shall determine in
its sole discretion. Borrower hereby authorizes Bank, in its sole discretion, to
charge any of Borrower's accounts or advance Loans to make any payments of
principal, interest or fees, costs and expenses required by this Agreement. All
Loans shall, in Bank's sole discretion, be evidenced by one or more promissory
notes in form and substance satisfactory to Bank. However, if such Loans are not
so evidenced, such Loans may be evidenced solely by entries upon the books and
records maintained by Bank.
3. FEES AND CHARGES. Borrower shall pay to Bank, in addition to all
other amounts payable hereunder, the fees and charges set forth in Exhibit A. It
is the intent of the parties that the rate of interest and the other charges to
Borrower under this Agreement shall be lawful;
-3-
<PAGE>
therefore, if for any reason the interest or other charges payable under this
Agreement are found by a court of competent jurisdiction, in a final
determination, to exceed the limit which Bank may lawfully charge Borrower, then
the obligation to pay interest and other charges shall automatically be reduced
to such limit and, if any amount in excess of such limit shall have been paid,
then such amount shall be refunded to Borrower.
4. GRANT OF SECURITY INTEREST TO BANK. As security for the payment
of all Loans now or in the future made by Bank to Borrower hereunder and for the
payment or other satisfaction of all other Liabilities, Borrower hereby assigns
to Bank and grants to Bank a continuing security interest in the following
property of Borrower, whether now or hereafter owned, existing, acquired or
arising and wherever now or hereafter located: (a) all Accounts (whether or not
that Eligible Accounts) and all Goods whose sale, lease or other disposition by
Borrower has given rise to Accounts and that have been returned to, or
repossessed or stopped in transit by, Borrower; (b) all Chattel Paper,
Instruments, Documents and General Intangibles (including, without limitation,
all patents, patent applications, trademarks, trademark applications,
tradenames, trade secrets, goodwill, copyrights, copyright applications,
registrations, licenses, franchises, customer lists, tax refund claims, claims
against carriers and shippers, guarantee claims, contracts rights, security
interests, security deposits and any rights to indemnification); (c) all
Inventory (whether or not Eligible Inventory); (d) all Goods (other than
Inventory), including, without limitation, Equipment, vehicles and fixtures; (e)
all investment property; (f) all deposits and cash; (g) any other property of
Borrower now or hereafter in the possession, custody or control of Bank or any
agent or any parent, affiliate or subsidiary of Bank or any participant with
Bank in the Loans for any purpose (whether for safekeeping, deposit, collection,
custody, pledge, transmission or otherwise); and (h) all additions and
accessions to, substitutions for, and replacements, products and proceeds of the
foregoing property, including, without limitation, proceeds of all insurance
policies insuring the foregoing property, and all of Borrower's books and
records relating to any of the foregoing and to Borrower's business.
5. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS
THEREIN. Borrower shall, at Bank's request, at any time and from time to time,
execute and deliver to Bank such financing statements, documents and other
agreements and instruments (and pay the cost of filing or recording the same in
all public offices deemed necessary or desirable by Bank) and do such other acts
and things as Bank may deem necessary or desirable in its sole discretion in
order to establish and maintain a valid, attached and perfected security
interest in the Collateral in favor of Bank (free and clear of all other liens,
claims, encumbrances and rights of third parties whatsoever, whether voluntarily
or involuntarily created, except Permitted Liens) to secure payment of the
Liabilities, and in order to facilitate the collection of the Collateral.
Borrower irrevocably hereby makes, constitutes and appoints Bank (and all
Persons designated by Bank for that purpose) as Borrower's true and lawful
attorney and agent-in-fact to execute such financing statements, documents and
other agreements and instruments and do such other acts and things as may be
necessary to preserve and perfect Bank's security interest in the Collateral.
Borrower further agrees that a carbon, photographic, photostatic or other
reproduction of this Agreement or of a financing statement shall be sufficient
as a financing statement.
6. POSSESSION OF COLLATERAL AND RELATED MATTERS. Until the
commencement of a foreclosure or liquidation to realize upon the Collateral,
Borrower shall have the right, except as otherwise provided in this Agreement,
in the ordinary course of Borrower's business, to (a) sell, lease or furnish
under contracts of service any of Borrower's Inventory normally held by Borrower
for any such purpose; and (b) use and consume any raw materials, work in process
or other materials normally held by Borrower for such purpose; provided,
however, that a sale in the ordinary course of business shall not include any
transfer or sale in satisfaction, partial or complete, of a debt owed by
Borrower.
7. COLLECTIONS.
(a) Borrower shall direct all of its Account Debtors to make all
payments on the Accounts directly to a post office box (the "LOCK BOX")
designated by, and under the exclusive control of, Bank or another financial
institution acceptable to Bank. Borrower shall establish an account (the "LOCK
BOX ACCOUNT") in Bank's name with Bank or such other financial institution
acceptable to Bank, into which all payments received in the Lock Box shall be
deposited, and into which Borrower will immediately deposit all payments
received by Borrower for Inventory or services in the identical form in which
such payments were received, whether by cash or check. If Borrower, any
Affiliate or Subsidiary, or any shareholder, officer, director, employee or
agent of Borrower or any Affiliate or Subsidiary, or any other Person acting for
or in concert with Borrower shall receive any monies, checks, notes, drafts or
other payments relating to or as proceeds of Accounts or other Collateral,
Borrower and each such Person shall receive all such items in trust for, and as
the sole and exclusive property of, Bank and, immediately upon receipt thereof,
shall remit the same (or cause the same to be remitted) in kind to the Lock Box
Account. If the Lock Box Account is not established with Bank, the financial
institution with which the Lock Box Account is established shall acknowledge and
agree, in a manner satisfactory to Bank, that the amounts on deposit in such
Lock Box Account are the sole and exclusive property of Bank, that such
financial institution has no right to setoff against the Lock Box Account or
against any other account maintained by such financial institution into which
the contents of the Lock Box Account are transferred, and that such financial
institution shall wire, or otherwise transfer in immediately available funds in
a manner satisfactory to Bank, funds deposited in the Lock Box Account on a
daily basis as such funds are collected. Borrower agrees that all payments made
to such Lock Box Account or otherwise received by Bank, whether in respect of
the Accounts or as proceeds of other Collateral or otherwise, will be applied on
account of the Liabilities in accordance with the terms of this Agreement;
provided, that so long as no Event of Default has occurred, payments received by
Bank shall not be applied to the unmatured portion of the LIBOR Rate Loans, but
shall be held in a cash collateral account maintained by Bank until the earlier
of (i) the last day of the Interest Period applicable to such LIBOR Rate Loan
and (ii) the occurrence of an Event of Default; provided further, that so long
as no Event of Default has occurred, the immediately available funds held in
such cash collateral account may be disbursed, at Borrower's discretion, to
Borrower so long as after giving effect to such disbursement, Borrower's
availability under Paragraph 1 of Exhibit A of the Agreement at such time equals
or exceeds the outstanding Liabilities at such time. If the Lock Box Account is
established with Bank, Borrower agrees to pay all fees, costs and expenses in
connection with opening and maintaining the Lock Box Account and depositing for
collection by Bank any check or other item of payment received by Bank on
account of the Liabilities. All of such fees, costs and expenses shall
constitute Loans hereunder, shall be payable to Bank by Borrower upon demand,
and, until paid, shall bear interest at the highest rate then applicable to
Loans hereunder. All checks, drafts, instruments and other items of payment or
proceeds of Collateral shall be endorsed by Borrower to Bank, and, if that
endorsement of any such item shall not be made for any reason, Bank is hereby
irrevocably authorized to endorse the same on Borrower's behalf. For the purpose
of this paragraph, Borrower irrevocably hereby makes, constitutes and appoints
Bank (and all Persons designated by Bank for that purpose) as Borrower's true
and lawful attorney and agent-in-fact (i) to endorse Borrower's name upon said
items of payment and/or proceeds of Collateral and upon any Chattel Paper,
document, Instrument, invoice or similar document or agreement relating to any
Account of Borrower or Goods pertaining thereto; (ii) to take control in any
manner of any item of payment or proceeds thereof; and (iii) to have access to
any lock box or postal box into which any of Borrower's mail is deposited, and
open and process all mail addressed to Borrower and deposited therein.
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(b) Bank may, at any time and from time to time after the occurrence
of an Event of Default, whether before or after notification to any Account
Debtor and whether before or after the maturity of any of the Liabilities, (i)
enforce collection of any of Borrower's Accounts or other amounts owed to
Borrower by suit or otherwise; (ii) exercise all of Borrower's rights and
remedies with respect to proceedings brought to collect any Accounts or other
amounts owed to Borrower; (iii) surrender, release or exchange all or any part
of any Accounts or other amounts owed to Borrower, or compromise or extend or
renew for any period (whether or not longer than the original period) any
indebtedness thereunder; (iv) sell or assign any Account of Borrower or other
amount owed to Borrower upon such terms, for such amount and at such time or
times as Bank deems advisable; (v) prepare, file and sign Borrower's name on any
proof of claim in bankruptcy or other similar document against any Account
Debtor or other Person obligated to Borrower; and (vi) do all other acts and
things which are necessary, in Bank's sole discretion, to fulfill Borrower's
obligations under this Agreement and to allow Bank to collect the Accounts or
other amounts owed to Borrower. In addition to any other provision hereof, Bank
may at any time, after the occurrence of an Event of Default, at Borrower's
expense, notify any parties obligated on any of the Accounts to make payment
directly to Bank of any amounts due or to become due thereunder.
(c) For purposes of calculating interest, Bank shall, within two (2)
--- -
business days after receipt by Bank at its office in Chicago, Illinois of (i)
checks; and (ii) cash or other immediately available funds from collections of
items of payment and proceeds of any Collateral, apply the whole or any part of
such collections or proceeds against the Liabilities in such order as Bank shall
determine in its sole discretion determined in good faith on a basis consistent
with the credit procedures of its Asset Based Lending Division. For purposes of
determining the amount of Loans available for borrowing purposes, (i) checks;
and (ii) cash or other immediately available funds from collections of items of
payment and proceeds of any Collateral shall be applied in whole or in part
against the Liabilities, in such order as Bank shall determine in its sole
discretion, on the day of receipt, subject to actual collection.
(d) Bank, in its sole discretion, determined in good faith on a
basis consistent with the credit procedures of its Asset Based Lending Division,
without waiving or releasing any obligation, liability or duty of Borrower under
this Agreement or the Other Agreements or any Event of Default, may at any time
or times hereafter, but shall not be obligated to, pay, acquire or accept an
assignment of any security interest, lien, encumbrance or claim asserted by any
Person in, upon or against the Collateral. All sums paid by Bank in respect
thereof and all costs, fees and expenses including, without limitation,
reasonable attorney fees, all court costs and all other charges relating thereto
incurred by Bank shall constitute Loans, payable by Borrower to Bank on demand
and, until paid, shall bear interest at the highest rate then applicable to
Loans hereunder.
(e) Promptly upon Borrower's receipt of any portion of the
Collateral evidenced by an agreement, Instrument or Document, including, without
limitation, any Chattel Paper, Borrower shall deliver the original thereof to
Bank together with an appropriate endorsement or other specific evidence of
assignment thereof to Bank (in form and substance acceptable to Bank). If an
endorsement or assignment of any such items shall not be made for any reason,
Bank is hereby irrevocably authorized, as Borrower's attorney and agent-in-fact,
to endorse or assign the same on Borrower's behalf.
8. SCHEDULES AND REPORTS.
(a) Within ten (10) days after the close of each calendar month, and
at such other times as may be requested by Bank from time to time hereafter,
Borrower shall deliver to Bank (i) a schedule identifying each Account and which
Accounts constitute Eligible Accounts together with copies of the invoices when
requested by Bank (with evidence of shipment attached) pertaining to each such
Account, for the month (or other applicable period) immediately preceding; (ii)
such additional schedules, certificates, reports and information with respect to
the Collateral as Bank may from time to time require. Bank, through its
officers, employees or agents, shall have the right, at any time and from time
to time in Bank's name, in the name of a nominee of Bank or in Borrower's name,
to verify the validity, amount or any other matter relating to any of Borrower's
Accounts, by mail, telephone, telegraph or otherwise. Borrower shall reimburse
Bank, on demand, for all costs, fees and expenses incurred by Bank in this
regard.
(b) Without limiting the generality of the foregoing, Borrower shall
deliver to Bank, at least once a month (or more frequently when requested by
Bank), a report with respect to Borrower's Inventory. Borrower shall immediately
notify Bank of any event causing loss or depreciation in value of Borrower's
Inventory (other than normal depreciation occurring in the ordinary course of
business) and which exceeds $50,000.00.
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(c) All schedules, certificates, reports, and other items delivered
by Borrower to Bank hereunder shall be executed by an authorized representative
of Borrower and shall be in such form and contain such information as Bank shall
specify.
9. TERMINATION. This Agreement shall be in effect from the date
hereof until May 25, 2001 (the "ORIGINAL TERM") and shall automatically renew
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itself from year to year thereafter (each such one-year renewal being referred
to herein as a "RENEWAL TERM") unless (a) Bank makes demand for repayment prior
to the end of the Original Term or the then current Renewal Term; (b) the due
date of the Liabilities is accelerated pursuant to paragraph 13 hereof; or (c)
Borrower elects to terminate this Agreement at the end of the Original Term or
at the end of any Renewal Term by giving Bank written notice of such election at
least ninety (90) days prior to the end of the Original Term or the then current
Renewal Term and by paying all of the Liabilities in full on the last day of
such term. If one or more of the events specified in clauses (a), (b) and (c)
occurs, then (i) Bank shall not make any additional Loans on or after the date
identified as the date on which the Liabilities are to be repaid and (ii) this
Agreement shall terminate on the date thereafter that the Liabilities are paid
in full. At such time as Borrower has repaid all of the Liabilities and this
Agreement has terminated, Borrower shall deliver to Bank a release, in form and
substance satisfactory to Bank, of all obligations and liabilities of Bank and
its officers, directors, employees, agents, parents, subsidiaries and affiliates
to Borrower, and if Borrower is obtaining new financing from another lender,
Borrower shall deliver such lender's indemnification of Bank, in form and
substance satisfactory to Bank, for checks which Bank has credited to Borrower's
account, but which subsequently are dishonored for any reason. If, during the
term of this Agreement, Borrower prepays all or any portion of the Liabilities
from any source other than income from the ordinary course operations of
Borrower's business. Borrower agrees to pay to Bank, as a prepayment fee, in
addition to the payment of all other Liabilities, an amount equal to the product
of (i) fifty percent (50%) of the average monthly interest earned by Bank on the
Loans made hereunder preceding the date of prepayment, multiplied by (ii) the
number of full and partial months remaining from the date of prepayment to the
end of the Original Term or the then current Renewal Term.
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<PAGE>
10. REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrower hereby
represents, warrants and covenants that:
(a) the financial statements delivered or to be delivered by
Borrower to Bank at or prior to the date of this Agreement and at all times
subsequent thereto accurately reflect in all material respects the financial
condition of Borrower, and there has been no material adverse change in the
financial condition, the operations or any other status of Borrower since the
date of the financial statements delivered to Bank most recently prior to the
date of this Agreement;
(b) (i) the office where Borrower keeps its books, records and
accounts (or copies thereof) concerning the Collateral, Borrower's principal
place of business and all of Borrower's other places of business, locations of
Collateral and post office boxes are as set forth in Exhibit B; and (ii)
Borrower shall promptly (but in no event less than ten (10) days prior thereto)
advise Bank in writing of the proposed opening of any new place of business or
new location of Collateral, the closing of any existing place of business or
location of Collateral, any change in the location of Borrower's books, records
and accounts (or copies thereof) or the opening or closing of any post office
box of Borrower;
(c) the Collateral, including, without limitation, the Equipment
(except any part thereof which Borrower shall have advised Bank in writing
consists of Collateral normally used in more than one state) is and shall be
kept, or, in the case of vehicles, based, only at the addresses set forth on
Exhibit B, and at other locations within the continental United States of which
Bank has been advised by Borrower in writing;
(d) if any of the Collateral consists of Goods of a type normally
used in more than one state, whether or not actually so used, (i) Borrower shall
immediately give written notice to Bank of any use of any such Goods in any
state other than a state in which Borrower has previously advised Bank such
Goods shall be used; and (ii) such Goods shall not, unless Bank shall otherwise
consent in writing, be used outside of the continental United States;
(e) Borrower has not made, and shall not make, any loans or advances
to any Affiliate or other Person except for advances to employees, officers and
directors of Borrower for travel and other expenses arising in the ordinary
course of Borrower's business;
(f) each Account or item of Inventory which Borrower shall,
expressly or by implication, request Bank to classify as an Eligible Account or
as Eligible Inventory, respectively, shall, as of the time when such request is
made, conform in all respects to the requirements of such classification as set
forth in the respective definitions of "Eligible Account" and "Eligible
Inventory" as set forth herein and as otherwise established by Bank from time to
time, and Borrower shall promptly notify Bank in writing if any such Eligible
Account or Eligible Inventory shall subsequently become ineligible;
(g) Borrower is and shall at all times during the Original Term or
any Renewal Term be the lawful owner of all Collateral now purportedly owned or
hereafter purportedly acquired by Borrower, free from all liens, claims,
security interests and encumbrances whatsoever, whether voluntarily or
involuntarily created and whether or not perfected, other than the Permitted
Liens;
(h) Borrower has the right and power and is duly authorized and
empowered to enter into, execute and deliver this Agreement and the Other
Agreements and perform its obligations hereunder and thereunder. Borrower's
execution, delivery and performance of this Agreement and the Other Agreements
does not and shall not conflict with the provisions of any statute, regulation,
ordinance or rule of law, or any agreement, contract or other document which may
now or hereafter be binding on Borrower where such conflict would have a
material adverse effect on its business, property, assets, operations or
condition, financial or otherwise, and Borrower's execution, delivery and
performance of this Agreement and the Other Agreements shall not result in the
imposition of any lien or other encumbrance upon any of Borrower's property
(other than Permitted Liens) under any existing indenture, mortgage, deed of
trust, loan or credit agreement or other agreement or instrument by which
Borrower or any of its property may be bound or affected;
(i) except as previously disclosed to Bank in writing, there are no
actions or proceedings which are pending or, to the best of Borrower's
knowledge, threatened against Borrower which might result in any material
adverse change in its financial condition or materially adversely affect the
Collateral and Borrower shall, promptly upon becoming aware of any such pending
or threatened action or proceeding, give written notice thereof to Bank;
(j) (i) Borrower has obtained and shall maintain all licenses,
authorizations, approvals and permits, the lack of which would have a material
adverse effect on the operation of its business, and (ii) Borrower is and shall
remain in compliance in all material respects with all applicable federal,
state, local and foreign statutes, orders, regulations, rules and ordinances
(including, without limitation, Environmental Laws and statutes, orders,
regulations, rules and ordinances relating to taxes, employer and employee
contributions and similar items, securities, ERISA (as hereinafter defined), or
employee health and safety) the failure to comply with which would have a
material adverse effect on its business, property, assets, operations or
condition, financial or otherwise;
(k) all written information now, heretofore or hereafter furnished
by Borrower to Bank is and shall be true and correct in all material respects as
of the date with respect to which such information was or is furnished;
(l) Borrower is not conducting, permitting or suffering to be
conducted, nor shall it conduct, permit or suffer to be conducted, any
activities pursuant to or in connection with which any of the Collateral is now,
or will (while any Liabilities remain outstanding) be owned by any Affiliate;
provided, however, that Borrower may enter into transactions with Affiliates for
the purchase or sale of Inventory or services in the ordinary course of business
pursuant to terms that are no less favorable to Borrower than the terms upon
which such transfers or transactions would have been made had they been made to
or with a Person that is not an Affiliate and, in connection therewith, may
transfer cash or property to Affiliates for fair value;
(m) Borrower's name has always been as set forth on the first page
of this Agreement and Borrower uses no tradenames or division names in the
operation of its business, except as otherwise disclosed in writing to Bank;
Borrower shall notify Bank in writing within ten (10) days of the change of its
name or the use of any tradenames or division names not previously disclosed to
Bank in writing;
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<PAGE>
(n) with respect to Borrower's Equipment: (i) Borrower has good and
indefeasible and merchantable title to and ownership of all Equipment; (ii)
Borrower shall keep and maintain the Equipment in good operating condition and
repair and shall make all necessary replacements thereof and repairs thereto so
that the value and operating efficiency thereof shall at all times be preserved
and maintained in all material respects; (iii) Borrower shall not permit any
such items to become a fixture to real estate or an accession to other personal
property; and (iv) Borrower, immediately on demand by Bank, shall deliver to
Bank any and all evidence of ownership of, including, without limitation,
certificates of title and applications of title to, any of the Equipment;
(o) this Agreement and the Other Agreements to which Borrower is a
party are the legal, valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their respective terms;
(p) Borrower is and shall remain solvent, is and shall be able to
pay its debts as they become due, has and shall continue to have capital
sufficient to carry on its business, now owns and shall continue to own property
having a value both at fair valuation and at present fair saleable value greater
than the amount required to pay its debts, and will not be rendered insolvent by
the execution and delivery of this Agreement or any of the Other Agreements or
by completion of the transactions contemplated hereunder or thereunder;
(q) Borrower is not now obligated, nor shall it create, incur,
assume or become obligated (directly or indirectly), for any loans or other
indebtedness for borrowed money other than the Loans, except that Borrower may
(i) borrow money from a Person other than Bank on an unsecured and subordinated
basis if a subordination agreement in favor of Bank and in form and substance
satisfactory to Bank is executed and delivered to Bank relative thereto; (ii)
maintain any present indebtedness to any Person which has been disclosed to Bank
in writing and consented to in writing by Bank; and (iii) incur unsecured
indebtedness to trade creditors in the ordinary course of Borrower's business;
(iv) incur purchase money indebtedness or capitalized lease obligations in
connection with capital expenditures pursuant to subparagraph 11(q) of this
Agreement, and (v) incur other lease obligations requiring payments not to
exceed $100,000.00 during any fiscal year of Borrower;
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(r) Borrower does not own any margin securities, and none of the
proceeds of the Loans hereunder shall be used for the purpose of purchasing or
carrying any margin securities or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase any margin securities or
for any other purpose not permitted by Regulation G or Regulation U of the Board
of Governors of the Federal Reserve System as in effect from time to time;
(s) except as otherwise disclosed in writing to Bank, Borrower has
no Parents, Subsidiaries or other Affiliates or divisions, nor is Borrower
engaged in any joint venture or partnership with any other Person;
(t) if Borrower is a corporation, limited liability company or
partnership, Borrower is duly organized, validly existing and in good standing
in its state of organization and Borrower is duly qualified and in good standing
in all states where the nature and extent of the business transacted by it or
the ownership of its assets makes such qualification necessary or, if Borrower
is not so qualified, Borrower may cure any such failure without losing any of
its rights or affecting Bank's rights;
(u) Borrower is not in default under any material contract, lease or
commitment to which it is a party or by which it is bound, nor does Borrower
know of any dispute regarding any contract, lease or commitment which is
material to the continued financial success and well-being of Borrower;
(v) there are no controversies pending or, to the best of Borrower's
knowledge, threatened between Borrower and any of its employees, other than
employee grievances arising in the ordinary course of business which are not, in
the aggregate, material to the continued financial success and well-being of
Borrower, and Borrower is in compliance in all material respects with all
federal and state laws respecting employment and employment terms, conditions
and practices;
(w) Borrower possesses, and shall continue to possess, adequate
licenses, patents, patent applications, copyrights, service marks, trademarks,
trademark applications, tradestyles and tradenames to continue to conduct its
business as heretofore conducted by it;
(x) (i) Borrower has not generated, used, stored, treated,
transported, manufactured, handled, produced or disposed of any Hazardous
Materials on or off its premises (whether or not owned by it) in any manner
which at any time violates any Environmental Law or any license, permit,
certificate, approval or similar authorization thereunder and the operations of
the Borrower comply in all material respects with all Environmental Laws and
licenses, permits, certificates, approvals and similar authorizations
thereunder; (ii) there has been no investigation proceeding, complaint, order,
directive, claim, citation or notice by any governmental authority or any other
Person, nor is any pending or to the best of the Borrower's knowledge
threatened, and Borrower shall immediately notify Bank upon becoming aware of
any such investigation, proceeding, complaint, order, directive, claim, citation
or notice and take prompt and appropriate actions to respond thereto, with
respect to any non-compliance with or violation of the requirements of any
Environmental Law by the Borrower or the release, spill or discharge, threatened
or actual, of any Hazardous Material or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials or any other environmental, health or safety matter, which affects the
Borrower or its business, operations or assets or any properties at which the
Borrower has transported, stored or disposed of any Hazardous Materials; (iii)
Borrower has no material liability (contingent or otherwise) in connection with
a release, spill or discharge, threatened or actual, of any Hazardous Materials
or the generation, use, storage, treatment, transportation, manufacture,
handling, production or disposal of any Hazardous Materials; and (iv) without
limiting the generality of the foregoing, Borrower shall, following the
determination by Bank that there is non-compliance, or any condition which
requires any action by or on behalf of Borrower in order to avoid any
non-compliance, with any Environmental Law, at Borrower's expense, cause an
independent environmental engineer acceptable to Bank to conduct such tests of
the relevant site as are appropriate and prepare and deliver a report setting
forth the result of such tests, a proposed plan for remediation and an estimate
of the costs thereof; and
(y) Borrower has paid and discharged, and shall at all times
hereafter promptly pay and discharge all obligations and liabilities arising
under the Employee Retirement Income Security Act of 1974 (as amended, modified
or restated from time to time, "ERISA") of a character which if
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<PAGE>
unpaid or unperformed might result in the imposition of a lien against any of
its properties or assets and will promptly notify the Bank of (i) the occurrence
of any "reportable event" (as defined in ERISA) which might result in the
termination by the Pension Benefit Guaranty Corporation ("PBGC") of any employee
benefit plan ("Plan") covering any officers or employees of the Borrower, any
benefits of which are, or are required to be, guaranteed by PBGC; (ii) the
receipt of any notice from PBGC of its intention to seek termination of any Plan
or appointment of a trustee therefor; and (iii) its intention to terminate or
withdraw from any Plan; provided, that Borrower shall not terminate any Plan or
withdraw therefrom if such withdrawal or termination shall result in any
liability to Borrower.
Borrower represents, warrants and covenants to Bank that all representations and
warranties of Borrower contained in this Agreement (whether appearing in
paragraphs 10 or 11 hereof or elsewhere) shall be true at the time of Borrower's
execution of this Agreement, shall survive the execution, delivery and
acceptance hereof by the parties hereto and the closing of the transactions
described herein or related hereto, shall remain true until the repayment in
full and satisfaction of all of the Liabilities and termination of this
Agreement, and shall be remade by Borrower at the time each Loan is made
pursuant to this Agreement, provided, that representations and warranties made
as of a particular date shall be true and correct as of such date.
11. ADDITIONAL COVENANTS OF BORROWER. Until payment or satisfaction
in full of all Liabilities and termination of this Agreement, unless Borrower
obtains Bank's prior written consent waiving or modifying any of Borrower's
covenants hereunder in any specific instance, Borrower agrees as follows:
(a) Borrower shall at all times keep accurate and complete books,
records and accounts with respect to all of Borrower's business activities, in
accordance with sound accounting practices and generally accepted accounting
principles consistently applied, and shall keep such books, records and
accounts, and any copies thereof, only at the addresses indicated for such
purpose on Exhibit B;
(b) Borrower agrees to deliver to Bank the following financial
information, all of which shall be prepared in accordance with generally
accepted accounting principles consistently applied: (i) no later than twenty
(20) days after each calendar month, copies of internally prepared financial
statements, including, without limitation, balance sheets and statements of
income, retained earnings and cash flow of Borrower, certified by the Chief
Financial Officer of Borrower; (ii) no later than thirty (30) days after the end
of each of the first three quarters of Borrower's fiscal year a balance sheet,
operating statement and reconciliation of surplus of Borrower, which quarterly
financial statements may be unaudited but shall be certified by the Chief
Financial Officer of Borrower; and (iii) no later than seventy-five (75) days
after the end of each of Borrower's fiscal years, audited annual financial
statements with an unqualified opinion by independent certified public
accountants selected by Borrower and reasonably satisfactory to Bank, which
financial statements shall be accompanied by a letter from such accountants
acknowledging that they are aware that a primary intent of Borrower in obtaining
such financial statements is to influence Bank and that Bank is relying upon
such financial statements in connection with the exercise of its rights
hereunder and copies of any management letters sent to the Borrower by such
accountants;
(c) Borrower shall promptly advise Bank in writing of any material
adverse change in the business, assets or condition, financial or otherwise, of
Borrower, the occurrence of any Event of Default hereunder or the occurrence of
any event which, if uncured, will become an Event of Default hereunder after
notice or lapse of time (or both);
(d) Bank, or any Persons designated by it, shall have the right, at
any time, to call at Borrower's places of business at any reasonable times, and,
without hindrance or delay, to inspect the Collateral and to inspect, audit,
check and make extracts from Borrower's books, records, journals, orders,
receipts and any correspondence and other data relating to Borrower's business,
the Collateral or any transactions between the parties hereto, and shall have
the right to make such verification concerning Borrower's business as Bank may
consider reasonable under the circumstances. Borrower shall furnish to Bank such
information relevant to Bank's rights under this Agreement as Bank shall at any
time and from time to time request. Borrower authorizes Bank to discuss the
affairs, finances and business of Borrower with any officers, employees or
directors of Borrower or with any Affiliate or the officers, employees or
directors of any Affiliate, and to discuss the financial condition of Borrower
with Borrower's independent public accountants. Any such discussions shall be
without liability to Bank or to Borrower's independent public accountants.
Borrower shall pay to Bank all customary fees and out-of-pocket expenses
incurred by Bank in the exercise of its rights hereunder, and all of such fees
and expenses shall constitute Loans hereunder, shall be payable on demand and,
until paid, shall bear interest at the highest rate then applicable to Loans
hereunder;
(e) Borrower shall:
(i) keep the Collateral properly housed and insured for the
full insurable value thereof against loss or damage by fire, theft,
explosion, sprinklers, collision (in the case of motor vehicles) and such
other risks as are customarily insured against by Persons engaged in
businesses similar to that of Borrower, with such companies, in such
amounts, with such deductibles, and under policies in such form as shall
be satisfactory to Bank. Original (or certified) copies of such policies
of insurance have been or shall be delivered to Bank within ninety (90)
days after the date hereof, together with evidence of payment of all
premiums therefor, and shall contain an endorsement, in form and substance
acceptable to Bank, showing loss under such insurance policies payable to
Bank. Such endorsement, or an independent instrument furnished to Bank,
shall provide that the insurance company shall give Bank at least thirty
(30) days written notice before any such policy of insurance is altered or
canceled and that no act, whether willful or negligent, or default of
Borrower or any other Person shall affect the right of Bank to recover
under such policy of insurance in case of loss or damage. In addition,
Borrower shall cause to be executed and delivered to Bank an assignment of
proceeds of its business interruption insurance policies. Borrower hereby
directs all insurers under all policies of insurance to pay all proceeds
payable thereunder directly to Bank. Borrower irrevocably makes,
constitutes and appoints Bank (and all officers, employees or agents
designated by Bank) as Borrower's true and lawful attorney (and
agent-in-fact) for the purpose of making, settling and adjusting claims
under such policies of insurance, endorsing the name of Borrower on any
check, draft, instrument or other item of payment for the proceeds of such
policies of insurance and making all determinations and decisions with
respect to such policies of insurance, provided, however, that if no Event
of Default shall have occurred and is continuing, Borrower may make,
settle and adjust claims involving less than $50,000 in the aggregate
------
without Bank's consent; and
-8-
<PAGE>
(ii) maintain, at its expense, such public liability and third
party property damage insurance as is customary for Persons engaged in
businesses similar to that of Borrower with such companies and in such
amounts, with such deductibles and under policies in such form as shall be
satisfactory to Bank and original (or certified) copies of such policies
have been or shall be delivered to Bank within ninety (90) days after the
date hereof, together with evidence of payment of all premiums therefor;
each such policy shall contain an endorsement showing Bank as additional
insured thereunder and providing that the insurance company shall give
Bank at least thirty (30) days written notice before any such policy shall
be altered or canceled.
If Borrower at any time or times hereafter shall fail to obtain or
maintain any of the policies of insurance required above or to pay any premium
relating thereto, then Bank, without waiving or releasing any obligation or
default by Borrower hereunder, may (but shall be under no obligation to) obtain
and maintain such policies of insurance and pay such premiums and take such
other actions with respect thereto as Bank deems advisable. All sums disbursed
by Bank in connection with any such actions, including, without limitation,
court costs, expenses, other charges relating thereto and reasonable attorneys'
fees, shall constitute Loans hereunder, shall be payable on demand by Borrower
to Bank and, until paid, shall bear interest at the highest rate then applicable
to Loans hereunder;
(f) Borrower shall not use the Collateral, or any part thereof, in
any unlawful business or for any unlawful purpose or use or maintain any of the
Collateral in any manner that does or could result in material damage to the
environment or a violation of any applicable environmental laws, rules or
regulations; shall keep the Collateral in good condition, repair and order,
ordinary wear and tear excepted; shall permit Bank to examine any of the
Collateral at any time and wherever the Collateral may be located; shall not
permit the Collateral, or any part thereof, to be levied upon under execution,
attachment, distraint or other legal process; shall not sell, lease, grant a
security interest in or otherwise dispose of any of the Collateral except as
expressly permitted by this Agreement; shall not settle or adjust any Account
identified by Borrower as an Eligible Account or with respect to which the
Account Debtor is an Affiliate without the consent of Bank, provided, that
following the occurrence of an Event of Default, Borrower shall not settle or
adjust any Account without the consent of Bank; and shall not secrete or abandon
any of the Collateral, or remove or permit removal of any of the Collateral from
any of the locations listed on Exhibit B, except for the removal of Inventory
sold in the ordinary course of Borrower's business as permitted herein;
(g) all monies and other property obtained by Borrower from Bank
pursuant to this Agreement will be used solely for business purposes of
Borrower;
(h) Borrower shall, at the request of Bank, indicate on its records
concerning the Collateral a notation, in form satisfactory to Bank, of the
security interest of Bank hereunder;
(i) Borrower shall file all required tax returns and pay all of its
taxes when due subject to any extensions granted by the applicable taxing
authority, including, without limitation, taxes imposed by federal, state or
municipal agencies, and shall cause any liens for taxes to be promptly released;
provided, that Borrower shall have the right to contest the payment of such
taxes in good faith by appropriate proceedings so long as (i) the amount so
contested is shown on Borrower's financial statements; (ii) the contesting of
any such payment does not give rise to a lien for taxes; (iii) Borrower keeps on
deposit with Bank (such deposit to be held without interest) an amount of money
which, in the sole judgment of Bank, is sufficient to pay such taxes and any
interest or penalties that may accrue thereon or the Borrower maintains adequate
reserves on its balance sheet in accordance with generally accepted accounting
principles; and (iv) if Borrower fails to prosecute such contest with reasonable
diligence, Bank may apply the money so deposited in payment of such taxes. If
Borrower fails to pay any such taxes and in the absence of any such contest by
Borrower, Bank may (but shall be under no obligation to) advance and pay any
sums required to pay any such taxes and/or to secure the release of any lien
therefor, and any sums so advanced by Bank shall constitute Loans hereunder,
shall be payable by Borrower to Bank on demand, and, until paid, shall bear
interest at the highest rate then applicable to Loans hereunder;
(j) Borrower shall not assume, guarantee or endorse, or otherwise
become liable in connection with, the obligations of any Person, except by
endorsement of instruments for deposit or collection or similar transactions in
the ordinary course of business;
(k) Borrower shall not (i) enter into any merger or consolidation;
(ii) sell, lease or otherwise dispose of any of its assets other than in the
ordinary course of business; (iii) purchase all or substantially all of the
assets of any Person or division of such Person; or (iv) enter into any other
transaction outside the ordinary course of Borrower's business, including,
without limitation, any purchase, redemption or retirement of any shares of any
class of its stock or any other equity interest, and any issuance of any shares
of, or warrants or other rights to receive or purchase any shares of, any class
of its stock or any other equity interest;
(l) Borrower shall not declare or pay any dividend or other
distribution (whether in cash or in kind) on any class of its stock (if Borrower
is a corporation) or on account of any equity interest in Borrower (if Borrower
is a partnership, limited liability company or other type of entity);
(m) Borrower shall not purchase or otherwise acquire, or contract to
purchase or otherwise acquire, the obligations or stock of any Person, other
than direct obligations of the United States;
(n) Borrower shall not amend its organizational documents or change
its fiscal year unless such actions would not have an adverse effect on the
Borrower's business, property, assets, operations or condition, financial or
otherwise, as determined by Bank in its sole discretion, and Bank has received
ten (10) days prior written notice of such amendment or change, or enter into a
new line of business materially different from Borrower's current business;
(o) See Exhibit A
-9-
<PAGE>
(p) Borrower shall reimburse Bank for all costs and expenses,
including, without limitation, legal expenses and reasonable attorneys' fees,
incurred by Bank in connection with (i) documentation and consummation of this
transaction and any other transactions between Borrower and Bank, including,
without limitation, Uniform Commercial Code and other public record searches,
lien filings, overnight courier or other express or messenger delivery,
appraisal costs, surveys, title insurance and environmental audit or review
costs; (ii) collection, protection or enforcement of any rights in or to the
Collateral; (iii) collection of any Liabilities; and (iv) administration and
enforcement of any of Bank's rights under this Agreement. Borrower shall also
pay all normal service charges with respect to all accounts maintained by
Borrower with Bank and any additional services requested by Borrower from Bank.
All such costs, expenses and charges shall constitute Loans hereunder, shall be
payable by Borrower to Bank on demand, and, until paid, shall bear interest at
the highest rate then applicable to Loans hereunder;
(q) Borrower shall not purchase or otherwise acquire (including,
without limitation, acquisition by way of capitalized lease), or commit to
purchase or acquire, any fixed asset if, after giving effect to such purchase or
other acquisition, the aggregate cost of all such fixed assets purchased or
otherwise acquired would exceed $100,000.00 during any fiscal year of Borrower;
----------
and
(r) Neither Borrower nor any Affiliate shall use any portion of the
proceeds of the Loans, either directly or indirectly, for the purpose of (i)
purchaisng any securities underwritten or privately placed by ABN AMRO
Securities (USA) Inc. ("AASI"), an affiliate of Bank; or (ii) purchasing from
AASI any securities in which AASI makes a market; or (iii) refinancing or making
payments of principal, interest or dividends on any securities issued by
Borrower or any Affiliate, and underwritten, privately placed or dealt in by
AASI.
12. DEFAULT. The occurrence of any one or more of the following
events shall constitute an "EVENT OF DEFAULT" by Borrower hereunder:
(a) the failure of any Obligor to pay when due, declared due,
or demanded by Bank, any of the Liabilities;
(b) the failure of any Obligor to perform, keep or observe any of
the covenants, conditions, promises, agreements or obligations of such Obligor
under this Agreement or any of the Other Agreements; provided that any such
failure by Borrower under subparagraphs 10(b)(ii), 10(g) (but only with respect
to involuntarily created liens, claims, security interests and encumbrances) and
10(j)(i) of this Agreement shall not constitute an Event of Default hereunder
until the fifteenth (15th) day following the occurrence thereof;
(c) the failure of any Obligor to perform, keep or observe (after
any applicable notice and cure period, if any) any of the covenants, conditions,
promises, agreements or obligations of such Obligor under any other agreement
with any Person if such failure may have a material adverse effect on such
Obligor's business, property, assets, operations or condition, financial or
otherwise;
(d) the making or furnishing by any Obligor to Bank of any
representation, warranty, certificate, schedule, report or other communication
within or in connection with this Agreement or the Other Agreements or in
connection with any other agreement between such Obligor and Bank, which is
untrue or misleading in any material respect as of date made;
(e) the loss, theft, damage or destruction of any of the Collateral
in an amount in excess of $_______ in the aggregate for all such events during
any year of the Original Term or any Renewal Term as determined by Bank in its
sole discretion, or (except as permitted hereby) sale, lease or furnishing under
a contract of service of, any of the Collateral;
(f) the creation (whether voluntary or involuntary) of, or any
attempt to create, any lien or other encumbrance upon any of the Collateral,
other than the Permitted Liens and involuntary liens securing amounts less than
_____________ and no/100 Dollars ($_______.00) and which are released or for
which a bond acceptable to Bank in its sole discretion has been posted within
ten (10) days of its creation, or the making or any attempt to make any levy,
seizure or attachment thereof, provided that with respect to states in which
creditors may obtain a prejudgment attachment without notice, such attachment
shall be an Event of Default only if the attachment remains in effect for ten
(10) days;
(g) the commencement of any proceedings in bankruptcy by or against
any Obligor or for the liquidation or reorganization of any Obligor, or alleging
that such Obligor is insolvent or unable to pay its debts as they mature, or for
the readjustment or arrangement of any Obligor's debts, whether under the United
States Bankruptcy Code or under any other law, whether state or federal, now or
hereafter existing for the relief of debtors, or the commencement of any
analogous statutory or non-statutory proceedings involving any Obligor;
provided, however, that if such commencement of proceedings against such Obligor
is involuntary, such action shall not constitute an Event of Default unless such
proceedings are not dismissed within thirty (30) days after the commencement of
such proceedings;
(h) the appointment of a receiver or trustee for any Obligor, for
any of the Collateral or for any substantial part of any Obligor's assets or the
institution of any proceedings for the dissolution, or the full or partial
liquidation, or the merger or consolidation, of any Obligor which is a
corporation, limited liability company or a partnership; provided, however, that
if such appointment or commencement of proceedings against such Obligor is
involuntary, such action shall not constitute an Event of Default unless such
appointment is not revoked or such proceedings are not dismissed within thirty
(30) days after the commencement of such proceedings;
(i) the entry of any judgment or order against any Obligor which
remains unsatisfied or undischarged and in effect for thirty (30) days after
such entry without a stay of enforcement or execution to extent such judgements
exceed $50,000.00 outstanding at any time;
---------
(j) the death of any Obligor who is a natural Person, or of any
partner of any Obligor which is a partnership, or any member of a limited
liability company or the dissolution of any Obligor which is a partnership
limited liability company or corporation;
(k) the occurrence of an event of default under, or the revocation
or termination of, any agreement, instrument or document executed and delivered
by any Person to Bank pursuant to which such Person has guaranteed to Bank the
payment of all or any of the Liabilities or has granted Bank a security interest
in or lien upon some or all of such Person's real and/or personal property to
secure the payment of all or any of the Liabilities;
(l) the institution in any court of a criminal proceeding for which
the possibility of a forfeiture of assets exists against any Obligor, or the
indictment of any Obligor for any crime other than traffic and boating tickets
and misdemeanors not punishable by jail terms; and
(m) Bank shall reasonably feel insecure for fear of removal or waste
of the Collateral, or any part thereof.
-10-
<PAGE>
13. REMEDIES UPON AN EVENT OF DEFAULT.
(a) Upon the occurrence of an Event of Default described in
subparagraph 12(g) hereof, all of Borrower's Liabilities shall immediately and
automatically become due and payable, without notice of any kind. Upon the
occurrence of any other Event of Default, all Liabilities may, at the option of
Bank, upon demand but without legal process of any kind, be declared, and
immediately shall become, due and payable.
(b) Upon the occurrence of an Event of Default, Bank may exercise
from time to time any rights and remedies available to it under the Uniform
Commercial Code and any other applicable law in addition to, and not in lieu of,
any rights and remedies expressly granted in this Agreement or in any of the
Other Agreements and all of Bank's rights and remedies shall be cumulative and
non-exclusive to the extent permitted by law. In particular, but not by way of
limitation of the foregoing, Bank may, without notice, demand or legal process
of any kind, take possession of any or all of the Collateral (in addition to
Collateral of which it already has possession), wherever it may be found, and
for that purpose may pursue the same wherever it may be found, and may enter
onto any of Borrower's premises where any of the Collateral may be, and search
for, take possession of, remove, keep and store any of the Collateral until the
same shall be sold or otherwise disposed of, and Bank shall have the right to
store the same at any of Borrower's premises without cost to Bank. At Bank's
request, Borrower shall, at Borrower's expense, assemble the Collateral and make
it available to Bank at one or more places to be designated by Bank and
reasonably convenient to Bank and Borrower. Borrower recognizes that if Borrower
fails to perform, observe or discharge any of its Liabilities under this
Agreement or the Other Agreements, no remedy at law will provide adequate relief
to Bank, and agrees that Bank shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages. Any notification of intended disposition of any of the Collateral
required by law will be deemed reasonably and properly given if given at least
five (5) calendar days before such disposition. Any proceeds of any disposition
by Bank of any of the Collateral may be applied by Bank to the payment of
expenses in connection with the Collateral, including, without limitation, legal
expenses and reasonable attorneys' fees, and any balance of such proceeds may be
applied by Bank toward the payment of such of the Liabilities, and in such order
of application, as Bank may from time to time elect.
14. INDEMNIFICATION. Borrower agrees to defend (with counsel
satisfactory to Bank), protect, indemnify and hold harmless Bank, each affiliate
or subsidiary of Bank, and each of their respective officers, directors,
employees, attorneys and agents (each an "INDEMNIFIED PARTY") from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature (including, without limitation, the disbursements and the reasonable fees
of counsel for each Indemnified Party in connection with any investigative,
administrative or judicial proceeding, whether or not the Indemnified Party
shall be designated a party thereto), which may be imposed on, incurred by, or
asserted against, any Indemnified Party (whether direct, indirect or
consequential and whether based on any federal, state or local laws or
regulations, including, without limitation, securities, Environmental Laws and
commercial laws and regulations, under common law or in equity, or based on
contract or otherwise) in any manner relating to or arising out of this
Agreement or any Other Agreement, or any act, event or transaction related or
attendant thereto, the making or issuance and the management of the Loans or any
Letter of Credit or the use or intended use of the proceeds of the Loans or any
Letter of Credit; provided, however, that Borrower shall not have any obligation
hereunder to any Indemnified Party with respect to matters caused by or
resulting from the willful misconduct or gross negligence of such Indemnified
Party. To the extent that the undertaking to indemnify set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, Borrower shall satisfy such undertaking to the maximum extent
permitted by applicable law. Any liability, obligation, loss, damage, penalty,
cost or expense covered by this indemnity shall be paid to each Indemnified
Party on demand, and, failing prompt payment, shall, together with interest
thereon at the highest rate then applicable to Loans hereunder from the date
incurred by each Indemnified Party until paid by Borrower, be added to the
Liabilities of Borrower and be secured by the Collateral. The provisions of this
paragraph 14 shall survive the satisfaction and payment of the other Liabilities
and the termination of this Agreement.
15. NOTICE. All written notices and other written communications
with respect to this Agreement shall be sent by ordinary, certified or overnight
mail, by telecopy or delivered in person, and in the case of Bank shall be sent
to it at 135 South LaSalle Street, Chicago, Illinois 60603-4105, Attention:
Asset Based Lending Division, and in the case of Borrower shall be sent to it at
its principal place of business set forth on the first page of this Agreement or
as otherwise directed by Borrower in writing.
16. CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION. This
Agreement and the Other Agreements are submitted by Borrower to Bank for Bank's
acceptance or rejection at Bank's principal place of business as an offer by
Borrower to borrow monies from Bank now and from time to time hereafter, and
shall not be binding upon Bank or become effective until accepted by Bank, in
writing, at said place of business. If so accepted by Bank, this Agreement and
the Other Agreements shall be deemed to have been made at said place of
business. THIS AGREEMENT AND THE OTHER AGREEMENTS SHALL BE GOVERNED AND
CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS AS TO INTERPRETATION,
ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT AND IN ALL OTHER RESPECTS,
INCLUDING, WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER
CHARGES, BUT EXCLUDING PERFECTION OF THE SECURITY INTERESTS IN COLLATERAL
LOCATED OUTSIDE OF THE STATE OF ILLINOIS, WHICH SHALL BE GOVERNED AND CONTROLLED
BY THE LAWS OF THE RELEVANT JURISDICTION IN WHICH SUCH COLLATERAL IS LOCATED. If
any provision of this Agreement shall be held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or remaining provisions of this Agreement.
To induce Bank to accept this Agreement, Borrower irrevocably agrees that,
subject to Bank's sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY
WAY, MANNER OR RESPECT ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE
OTHER AGREEMENTS OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS
WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN
SAID CITY AND STATE. Borrower hereby irrevocably appoints and designates the
Secretary of State of Illinois, whose address is Springfield, Illinois (or any
other person having and maintaining a place of business in such state whom
Borrower may from time to time hereafter designate upon ten (10) days written
notice to Bank and whom Bank has agreed, in its sole discretion,
-11-
<PAGE>
in writing is satisfactory and who has executed an agreement in form and
substance satisfactory to Bank agreeing to act as such attorney and agent), as
Borrower's true and lawful attorney and duly authorized agent for acceptance of
service of legal process. Borrower agrees that service of such process upon such
person shall constitute personal service of such process upon Borrower. Bank
agrees to endeavor to provide a copy of such process to the law firm of
Sonnenschein Nath & Rosenthal by mail at the address of 8000 Sears Tower, 233 S.
Wacker Drive, Chicago, Illinois 60606 or by facsimile transmission at facsimile
number (312) 876-7934. Failure of Bank to provide a copy of such process shall
not impair Bank's rights hereunder. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE
TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY
BANK IN ACCORDANCE WITH THIS PARAGRAPH. Bank consents to the law firm of
Sonnenschein Nath & Rosenthal acting as Borrower's attorney and agent for the
acceptance of process so long as the law firm of Sonnenschein Nath & Rosenthal
maintains a place of business in the State of Illinois and executes an agreement
in form and substance satisfactory to Bank agreeing to act as such attorney and
agent.
17. MODIFICATION AND BENEFIT OF AGREEMENT. This Agreement and the
Other Agreements may not be modified, altered or amended except by an agreement
in writing signed by Borrower or such other person who is a party to such Other
Agreement and Bank. Borrower may not sell, assign or transfer this Agreement or
the Other Agreements or any portion thereof, including, without limitation,
Borrower's rights, titles, interest, remedies, powers or duties hereunder and
thereunder. Borrower hereby consents to Bank's sale, assignment, transfer or
other disposition, at any time and from time to time hereafter, of this
Agreement or the Other Agreements, or of any portion thereof, or participations
therein, including, without limitation, Bank's rights, titles, interest,
remedies, powers and/or duties and agrees that it shall execute and deliver such
documents as Bank may request in connection with any such sale, assignment,
transfer or other disposition.
18. HEADINGS OF SUBDIVISIONS. The headings of subdivisions in this
Agreement are for convenience of reference only, and shall not govern the
interpretation of any of the provisions of this Agreement.
19. POWER OF ATTORNEY. Borrower acknowledges and agrees that its
appointment of Bank as its attorney and agent-in-fact for the purposes specified
in this Agreement is an appointment coupled with an interest and shall be
irrevocable until all of the Liabilities are satisfied and paid in full and this
Agreement is terminated.
20. CONFIDENTIALITY. Borrower and Bank hereby agree and acknowledge
that any and all information relating to Borrower which is (i) furnished by
Borrower to Bank (or to any affiliate of Bank); and (ii) non-public,
confidential or proprietary in nature, shall be kept confidential by Bank or
such affiliate in accordance with applicable law; provided, however, that such
information and other credit information relating to Borrower may be distributed
by Bank or such affiliate to Bank's or such affiliate's directors, officers,
employees, attorneys, affiliates, assignees, participants, auditors and
regulators, and upon the order of a court or other governmental agency having
jurisdiction over Bank or such affiliate, to any other party. Borrower and Bank
further agree that this provision shall survive the termination of this
agreement.
21. WAIVER OF JURY TRIAL; OTHER WAIVERS.
(a) BORROWER AND BANK EACH HEREBY WAIVE ALL RIGHTS TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS
AGREEMENT, ANY OF THE OTHER AGREEMENTS, THE LIABILITIES, THE COLLATERAL, ANY
ALLEGED TORTIOUS CONDUCT BY BORROWER OR BANK OR WHICH, IN ANY WAY, DIRECTLY OR
INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWER AND
BANK. IN NO EVENT SHALL BANK BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR
CONSEQUENTIAL DAMAGES.
(b) Borrower hereby waives demand, presentment, protest and notice
of nonpayment, and further waives the benefit of all valuation, appraisal and
exemption laws.
(c) BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY
KIND PRIOR TO THE EXERCISE BY BANK OF ITS RIGHTS TO REPOSSESS THE COLLATERAL OF
BORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH
COLLATERAL; provided that in the event that Bank seeks to enforce its rights
hereunder by judicial process, Bank shall provide Borrower with such notices as
are required by law.
(d) Bank's failure, at any time or times hereafter, to require
strict performance by Borrower of any provision of this Agreement or any of the
Other Agreements shall not waive, affect or diminish any right of Bank
thereafter to demand strict compliance and performance therewith. Any suspension
or waiver by Bank of an Event of Default under this Agreement or any default
under any of the Other Agreements shall not suspend, waive or affect any other
Event of Default under this Agreement or any other default under any of the
Other Agreements, whether the same is prior or subsequent thereto and whether of
the same or of a different kind or character. No delay on the part of Bank in
the exercise of any right or remedy under this Agreement or any Other Agreement
shall preclude other or further exercise thereof or the exercise of any right or
remedy. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or any of the Other
Agreements and no Event of Default under this Agreement or default under any of
the Other Agreements shall be deemed to have been suspended or waived by Bank
unless such suspension or waiver is in writing, signed by a duly authorized
officer of Bank and directed to Borrower specifying such suspension or waiver.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the 27th day of May, 1998.
-- ---
Apple Golf Shoes, Inc. LASALLE NATIONAL BANK
- ------------------------------
By /s/ Lawrence Geller By /s/ Robert S. Corsentino
--------------------------- ------------------------------
Title Assistant Secretary Title Senior Vice President
________________________ ____________________________
and
By_________________________
Title___________________
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<PAGE>
EXHIBIT B - BUSINESS AND COLLATERAL LOCATIONS
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between Apple Golf Shoes, Inc. ("BORROWER") and LASALLE NATIONAL
----------------------
BANK ("BANK").
A. Borrower's Business Locations (please indicate which location is the
principal place of business and at which locations originals and all copies of
Borrower's books, records and accounts are kept).
1 One Roebling Court
Ronkonkoma, New York 11779
(leased property/principal place of business)
2.
3.
B. Other locations of Collateral (including, without limitation, warehouse
locations, processing locations, consignment locations) and all post office
boxes of Borrower. Please indicate the relationship of such location to Borrower
(i.e. public warehouse, processor, etc.).
1. 51 Roebling Court
Ronkonkoma, New York 11779
(leased property)
2.
3.
-14-
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS
----------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE GOLF SHOES, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
CREDIT TERMS
____________
(1) LOAN LIMIT: Bank may, in its sole discretion, advance an amount up to the
sum of the following sublimits (the "Loan Limit"):
(a) Subject to subparagraph (3)(a) of this Exhibit A, up to eighty-five
percent (85%) of the face amount (less maximum discounts, credits
and allowances which may be taken by or granted to Account Debtors
in connection therewith) of Borrower's Eligible Accounts, whichever
is less; plus
----
(b) Up to sixty percent (60%) of the lower of the cost or market
value of Borrower's Eligible Inventory or Six Million and No/100
Dollars ($6,000,000.00), whichever is less, MINUS the outstanding
-----
amount of all Loans to (I) Apple Sports, Inc. ("Apple Sports")
pursuant to subparagraph (1)(b) of Exhibit A of the Apple Sports
Agreement, as hereinafter defined; and (II) Dorson Sports, Inc.
("Dorson") pursuant to subparagraph (1)(b) of Exhibit A of the
Dorson Agreement, as hereinafter defined;
provided, that the aggregate Loan Limit shall in no event exceed
THREE MILLION AND NO/100 DOLLARS ($3,000,000.00), except as such
amount may be increased or decreased by Bank, in its sole
discretion, from time to time; and
further provided, that the aggregate amount of Loans to (I) Borrower
under this Agreement; (II) Apple Sports under and as defined in that
certain Loan and Security Agreement entered into by and between
Apple Sports and Bank of even date herewith (the "Apple Sports
Agreement"); and (III) Dorson under and as defined in that certain
Loan and Security Agreement entered into by and between Dorson and
Bank of even date herewith (the "Dorson Agreement") shall in no
event exceed TWELVE MILLION AND NO/100 DOLLARS ($12,000,000.00).
BORROWER: APPLE GOLF SHOES, INC.
INITIALED FOR BORROWER BY: /s/ LG
-----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 2
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE GOLF SHOES, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
(2) LETTERS OF CREDIT: Subject to the terms and conditions of this Agreement,
including Exhibit A, and the Other Agreements, during the Original Term or
any Renewal Term, Bank may, in its sole discretion from time to time
issue, upon Borrower's request, Commercial and/or Standby Letters of
Credit; provided, that the aggregate undrawn face amount of all such
Letters of Credit issued on behalf of Borrower, Apple Sports, and Dorson
shall at no time exceed Five Million and No/100 Dollars ($5,000,000.00).
Bank's contingent liability under the Letters of Credit shall
automatically reduce, dollar for dollar, the amount which Borrower may
borrow based upon the Loan Limit. Payments made by Bank to any Person on
account of any Letter of Credit shall constitute Loans hereunder. At no
time shall the aggregate of direct Loans by Bank to Borrower plus the
contingent liability of Bank under the outstanding Letters of Credit be in
excess of the Loan Limit. Borrower shall remit to Bank a Letter of Credit
fee equal to one-fourth of one percent (1/4th of 1%) per month on the
aggregate undrawn face amount of all Letters of Credit outstanding, which
fee shall be payable monthly in arrears on each day that interest is
payable hereunder. Borrower shall also pay on demand Bank's normal and
customary administrative charges for issuance of any Letter of Credit.
(3) ADDITIONS TO ELIGIBLE ACCOUNTS CRITERIA:
(a) DATINGS: Invoices that otherwise meet the criteria for Eligible
Accounts and that are due and payable on or before a specified
due date shall be considered ineligible for borrowing purposes if
they are not paid within thirty (30) days of the date upon which
they are due. In the event any such invoice is not paid within
one hundred eighty (180) days of its invoice date, then all
Accounts payable by that Account Debtor may, at the sole option
of Bank, be considered ineligible.
(4) INTEREST RATE: Subject to the terms and conditions set forth below, the
Loans shall bear interest at the per annum rate of interest set forth in
subsection (a) or (b) below:
BORROWER: APPLE GOLF SHOES, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 3
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE GOLF SHOES, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
(a) Bank's publicly announced prime rate per annum (which is not
intended to be Bank's lowest or most favorable rate in effect at any
time) (the "Prime Rate") in effect from time to time, payable on the
last Business Day of each month in arrears. Said rate of interest
shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the effective date of each
such change in the Prime Rate.
(b) Two and one-half percent (2-1/2%) per annum in excess of the per
annum rate of interest at which U.S. Dollar deposits of an amount
comparable to the amount of the Loans and for a period equal to
the relevant Interest Period (as hereinafter defined) are offered
generally to Bank (rounded upward if necessary to the nearest
1/1000 of 1.00%) in the London Interbank Eurodollar market at
11:00 a.m. (London time) two (2) Business Days prior to the
commencement of each Interest Period ("LIBOR"), such rate to
remain fixed for such Interest Period. "Interest Period" shall
mean any continuous period of thirty (30), sixty (60), ninety
(90) or one hundred eighty (180) days, as selected from time to
time by Borrower by irrevocable notice (in writing, by telex,
telegram or cable) given to Bank not less than three (3) Business
Days prior to the first day of each respective Interest Period
commencing on the date hereof; provided that: (i) each such
period occurring after such initial period shall commence on the
day on which the immediately preceding period expires; (ii) the
final Interest Period shall be such that its expiration occurs on
or before the end of the Original Term or any Renewal Term; and
(iii) if for any reason Borrower shall fail to timely select a
period, then such Loans shall continue as, or revert to, Prime
Rate Loans. Interest shall be payable on the last Business Day
of each month and on the date of any payment hereon by Borrower.
Upon the occurrence of an Event of Default, the Loans shall bear
interest at the rate of two percent (2.0%) per annum in excess of
the interest rate otherwise payable thereon, which interest shall be
BORROWER: APPLE GOLF SHOES, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 4
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE GOLF SHOES, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
payable on demand. All interest shall be calculated on the basis of
a 360-day year.
(4).(1) OTHER LIBOR PROVISIONS:
(a) Subject to the provisions of this Agreement, Borrower
shall have the option (i) as of any date, to convert all or
any part of the Prime Rate Loans to, or request that new
Loans be made as, LIBOR Rate Loans of various Interest
Periods, (ii) as of the last day of any Interest Period, to
continue all or any portion of the relevant LIBOR Rate
Loans as LIBOR Rate Loans; (iii) as of the last day of any
Interest Period, to convert all or any portion of the LIBOR
Rate Loans to Prime Rate Loans; and (iv) at any time, to
request new Loans as Prime Rate Loans; provided, that Loans
may not be continued as or converted to LIBOR Rate Loans,
if the continuation or conversion thereof would violate the
provisions of subparagraphs (4).(1)(b) and (4).(1)(c) of
this Exhibit A or if an Event of Default has occurred.
(b) Bank's determination of LIBOR as provided above shall be
conclusive, absent manifest error. Furthermore, if Bank
determines, in good faith (which determination shall be
conclusive, absent manifest error), prior to the
commencement of any Interest Period that (i) U.S. Dollar
deposits of sufficient amount and maturity for funding the
Loans are not available to Bank in the London Interbank
Eurodollar market in the ordinary course of business, or
(ii) by reason of circumstances affecting the London
Interbank Eurodollar market, adequate and fair means do not
exist for ascertaining the rate of interest to be
applicable to the Loans requested by Borrower to be LIBOR
Rate Loans or the Loans bearing interest at the rates set
forth in subparagraph (4)(b) of this Exhibit A shall not
represent the effective pricing to Bank for U.S. Dollar
deposits of a comparable amount for the relevant period
(such as for example, but not limited to,
BORROWER: APPLE GOLF SHOES, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 5
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE GOLF SHOES, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
official reserve requirements required by Regulation D to
the extent not given effect in determining the rate), Bank
shall promptly notify Borrower and (x) all existing LIBOR Rate
Loans shall convert to Prime Rate Loans upon the end of the
applicable Interest Period, and (y) no additional LIBOR Rate
Loans shall be made until such circumstances are cured.
(c) If, after the date hereof, the introduction of, or any
change in any applicable law, treaty, rule, regulation or
guideline or in the interpretation or administration
thereof by any governmental authority or any central bank
or other fiscal, monetary or other authority having
jurisdiction over Bank or its lending offices (a
"Regulatory Change"), shall, in the opinion of counsel to
Bank, make it unlawful for Bank to make or maintain LIBOR
Rate Loans, then Bank shall promptly notify Borrower and
(i) the LIBOR Rate Loans shall immediately convert to Prime
Rate Loans on the last Business Day of the then existing
Interest Period or on such earlier date as required by law
and (ii) no additional LIBOR Rate Loans shall be made until
such circumstance is cured.
(d) If, for any reason, a LIBOR Rate Loan is paid prior to the
last Business Day of any Interest Period or if a LIBOR Rate
Loan does not occur on a date specified by Borrower in its
request (other than as a result of a default by Bank),
Borrower agrees to indemnify Bank against any loss
(including any loss on redeployment of the funds repaid),
cost or expense incurred by Bank as a result of such
prepayment.
(e) If any Regulatory Change (whether or not having the force
of law) shall (i) impose, modify or deem applicable any
assessment, reserve, special deposit or similar requirement
against assets held by, or deposits in or for the account
of or loans by, or any other acquisition of funds or
disbursements by, Bank; (ii) subject Bank or the LIBOR Rate
Loans to any tax, duty, charge, stamp tax or fee or change
the basis of
BORROWER: APPLE GOLF SHOES, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 6
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE GOLF SHOES, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
taxation of payments to Bank of principal or interest due
from Borrower to Bank hereunder (other than a change in the
taxation of the overall net income of Bank); or (c) impose
on Bank any other condition regarding the LIBOR Rate
Loans or Bank's funding thereof, and Bank shall determine
(which determination shall be conclusive, absent any
manifest error) that the result of the foregoing is to
increase the cost to Bank of making or maintaining the
LIBOR Rate Loans or to reduce the amount of principal or
interest received by Bank hereunder, then Borrower shall
pay to Bank, on demand, such additional amounts as Bank
shall, from time to time, determine are sufficient to
compensate and indemnify Bank from such increased cost or
reduced amount.
(f) Each request for LIBOR Rate Loans shall be in an amount not
less than Five Hundred Thousand and No/100 Dollars
($500,000.00), and in integral multiples of, Five Hundred
Thousand and No/100 Dollars ($500,000.00).
(g) Unless otherwise specified by Borrower, all Loans shall be
Prime Rate Loans.
(h) No more than six (6) Interest Periods may be in effect with
respect to outstanding LIBOR Rate Loans at any one time.
(5) FEES AND CHARGES:
(a) FACILITIES FEES: Borrower, Apple Sports, and Dorson shall jointly
pay to Bank an unused line fee of one-fourth of one percent
(1/4th of 1%) of the difference between Twelve Million and No/100
Dollars ($12,000,000.00) and the average monthly loan balance of
Borrower, Apple Sports, and Dorson plus the aggregate undrawn
face amount of all Letters of Credit issued by Bank on behalf of
Borrower, Apple Sports, and Dorson which fee shall be fully
earned by Bank and payable monthly in arrears on each day that
interest is
BORROWER: APPLE GOLF SHOES, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 7
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE GOLF SHOES, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
payable hereunder. Said fee shall be calculated on the basis of
a 360 day year.
(b) CLOSING FEE: Borrower, Apple Sports, and Dorson shall jointly pay to
Bank a closing fee of Twenty Thousand and No/100 Dollars
($20,000.00) which fee shall be fully earned by Bank and payable on
the date of disbursement under the Agreement.
(c) PREPAYMENT FEE: Notwithstanding the provisions of Paragraph 9 of
the Agreement, in the event that Borrower prepays the Liabilities
prior to the end of the Original Term or any applicable Renewal
Term and the Agreement is terminated as a result thereof,
Borrower shall pay a prepayment fee, jointly and severally with
Apple Sports and Dorson, equal to (i) three percent (3%) of the
maximum Loan Limit if such prepayment occurs on or before the
first anniversary of the date hereof; (ii) two percent (2%) of
the maximum Loan Limit if such prepayment occurs after the first
anniversary of the date hereof, but on or before the second
anniversary of the date hereof; and (iii) one percent (1%) of the
maximum Loan Limit if such prepayment occurs after the second
anniversary of the date hereof but prior to the end of the
Original Term or any applicable Renewal Term.
ADDITIONS AND CHANGES TO COVENANTS
- -----------------------------------
(6) PERMITTED DIVIDENDS: If (a) Borrower remains an S corporation for federal
income tax purposes; (b) an Event of Default has not occurred and will not
occur as a result of the distribution; and (c) Borrower gives Bank
sufficient documentation to verify compliance with this paragraph fifteen
(15) days prior to the distribution, Borrower may distribute to its
shareholders the excess, if any, of the Deemed Tax Due over the sum of all
distributions previously made pursuant to this paragraph. Deemed Tax Due
means the sum of the products of the taxable income or loss of Borrower
and the Deemed Tax Rate (the product of a loss and the Deemed Tax Rate
being a negative number), for each and every taxable period which falls in
the period beginning on the date hereof and ending
BORROWER: APPLE GOLF SHOES, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 8
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE GOLF SHOES, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
on the last day of the last period with respect to which tax (including
estimated tax) is due. Deemed Tax Rate means the sum of the highest New
York and federal individual rates (but adjusting for deductibility of
state income taxes).
(7) CHECKING ACCOUNT PROVISIONS: Borrower shall maintain its controlled
disbursement account with Bank. Normal charges shall be assessed thereon.
(8) TANGIBLE NET WORTH: Notwithstanding the provisions of subparagraph 11(o)
of the Agreement, Borrower, Apple Sports, and Dorson shall at all times
maintain an aggregate tangible net worth of not less than the Minimum
Tangible Net Worth, as hereinafter defined. At all times from the date
hereof through December 30, 1998, "Minimum Tangible Net Worth" shall equal
tangible net worth as shown on Borrower's unaudited financial statement.
At all times from December 31, 1998 through December 30, 1999, "Minimum
Tangible Net Worth" shall equal tangible net worth as shown on Borrower's
unaudited financial statement, plus $250,000.00. Thereafter, from December
31st of each year through December 30th of the following year (the
"Measurement Period"), Minimum Tangible Net Worth shall be equal to the
greater of (1) Borrower's tangible net worth as shown on Borrower's fiscal
year end statement as of the first day of the Measurement Period and (2)
the Minimum Tangible Net Worth as of the last day of the immediately
preceding fiscal year, plus $250,000.00; and "Tangible Net Worth" being
defined for purposes of this subparagraph with respect to any Person, such
Person's shareholders' equity (including retained earnings) less the book
value of all intangible assets as determined solely by Bank on a
consistent basis plus the amount of any LIFO reserve plus the amount of
any debt subordinated to Bank, all as determined under generally accepted
accounting principle applied on a basis consistent with the financial
statement dated _________________, 19__ except as set forth herein.
BORROWER: APPLE GOLF SHOES, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 9
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE GOLF SHOES, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
ADDITIONS AND CHANGES TO DEFAULT PROVISIONS
- -------------------------------------------
(9) ADDITIONAL CROSS DEFAULT: In addition to the Events of Default specified
in Paragraph 12 of the Agreement, it shall be an Event of Default
hereunder if Apple Sports and/or Dorson shall fail to perform, keep or
observe any of the covenants, conditions, promises, agreements or other
obligations of Apple Sports and/or Dorson to Bank under any agreements now
or hereafter existing between Apple Sports and/or Dorson and Bank,
including, without limitation, that certain Apple Sports Agreement and/or
Dorson Agreement or in the event of the termination of said Apple Sports
Agreement and/or Dorson Agreement.
(10) SPECIFIC CROSS DEFAULT: In particular, but not by way of limitation of
subparagraph 12(c) of the Agreement, a default under, termination of or
amendment (without the prior written consent of Bank) in any material
respect of that certain Trademark License Agreement entered into by and
between Borrower and Wilson Sporting Goods Co. dated May 31, 1996, shall
constitute an Event of Default. For purposes of this paragraph,
termination shall include the giving of notice of termination of said
agreement by either Borrower or Wilson Sporting Goods Co.
(11) CHANGE OF CONTROL DEFAULT: In addition to the Events of Default specified
in Paragraph 12 of the Agreement, it shall be an Event of Default
hereunder if Empire of Carolina, Inc. shall cease to own and have voting
control over at least 66 2/3% of the issued and outstanding stock of
Borrower.
(12) CHANGE OF MANAGEMENT DEFAULT: In addition to the Events of Default
specified in Paragraph 12 of the Agreement, it shall be an Event of
Default hereunder if any of ________________, ________________ or
__________________ shall cease to be the _________________,
______________________ or ___________________, respectively, of Borrower.
BORROWER: APPLE GOLF SHOES, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 10
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE GOLF SHOES, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
CONDITIONS TO CLOSING
- ----------------------
(13) ADDITIONAL CONDITIONS TO CLOSING: Bank shall be under no obligation to
consummate the transactions contemplated by this Agreement until each of
the conditions listed in this Paragraph (13) has been satisfied. Whenever
a condition contained herein requires delivery of an agreement or other
document to Bank, each such agreement or other document shall be in form
and substance satisfactory to Bank in its sole discretion.
(a) OWNER'S AGREEMENT: Borrower shall cause to be executed in favor of
Bank and delivered to Bank a Owner's Agreement from each owner of
property(ies) set forth on Exhibit B.
(b) GUARANTIES: Borrower shall cause to be executed in favor of Bank and
delivered to Bank the Continuing Unconditional Guaranties of each of
Apple Sports and Dorson of any and all indebtedness of Borrower to
Bank.
(c) LICENSOR'S CONSENT: Borrower shall cause Wilson Sporting Goods Co.
to execute and deliver to Bank a Licensor's Consent.
(d) SERVICE OF PROCESS: Borrower shall execute and deliver and shall
cause Sonnenschein Nath & Rosenthal to execute and deliver to Bank
an agreement wherein Sonnenschein Nath & Rosenthal shall agree to
accept service of process on behalf of Borrower.
(e) ATTORNEY'S OPINION LETTER: Borrower shall cause to be executed and
delivered to Bank an Attorney's Opinion Letter.
OTHER PROVISIONS
- ----------------
(14) PERMITTED LIENS: Bank acknowledges that the liens evidenced by the
following filed financing statements and any amendments thereto, as said
BORROWER: APPLE GOLF SHOES, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 11
--------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between APPLE GOLF SHOES, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
financing statements exist as of ____________, 1998, shall constitute
Permitted Liens:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BORROWER: APPLE GOLF SHOES, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
EXHIBIT 10.44
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "AGREEMENT") made this 27th
------
day of May, 1998 by and between LASALLE NATIONAL BANK, a national banking
--- ----
association ("BANK"), 135 South LaSalle Street, Chicago, Illinois 60603-4105,
and
Dorson Sports, Inc.,
- -------------------------------------------------------------------------------
One Roebling Court,
- -------------------------------------------------------------------------------
Ronkonkoma, New York 11779 ("BORROWER")
- -------------------------------------------------------------------------------
[INSERT ENTITY DESIGNATION(S) AND ADDRESS(ES) OF PRINCIPAL PLACE OF BUSINESS].
WITNESSETH:
WHEREAS, Borrower may, from time to time, request Loans from Bank, and the
parties wish to provide for the terms and conditions upon which such Loans, if
made by Bank, shall be made;
NOW, THEREFORE, in consideration of any Loan (including any Loan by
renewal or extension) hereafter made to Borrower by Bank, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by Borrower, the parties agree as follows:
1. DEFINITIONS.
(a) "ACCOUNT," "ACCOUNT DEBTOR," "CHATTEL PAPER," "DOCUMENTS,"
"EQUIPMENT," "GENERAL INTANGIBLES," "GOODS," "INSTRUMENTS," "INVENTORY," and
"INVESTMENT PROPERTY" shall have the respective meanings assigned to such terms,
as of the date of this Agreement, in the Illinois Uniform Commercial Code.
(b) "AFFILIATE" shall mean any Person directly or indirectly
controlling, controlled by or under common control with Borrower.
(c) "COLLATERAL" shall mean all of the property of Borrower
described in paragraph 4 hereof, together with all other real or personal
property of any Obligor or any other Person now or hereafter pledged to Bank to
secure, either directly or indirectly, repayment of any of the Liabilities.
(d) "ELIGIBLE ACCOUNT" shall mean an Account owing to Borrower which
is acceptable to Bank in its sole discretion determined in good faith on a basis
consistent with the credit procedures of its Asset Based Lending Division for
lending purposes. Without limiting Bank's discretion, Bank shall, in general,
consider an Account to be an Eligible Account if it meets, and so long as it
continues to meet, the following requirements:
(i) it is genuine and in all respects what it
purports to be;
(ii) it is owned by Borrower, Borrower has the right to
subject it to a security interest in favor of Bank or assign it to Bank
and it is subject to a first priority perfected security interest in favor
of Bank and to no other claim, lien, security interest or encumbrance
whatsoever, other than Permitted Liens;
(iii) it arises from (A) the performance of services by
Borrower and such services have been fully performed and acknowledged and
accepted by the Account Debtor thereunder; or (B) the sale or lease of
Goods by Borrower, and such Goods have been completed in accordance with
the Account Debtor's specifications (if any) and delivered to and accepted
by the Account Debtor, such Account Debtor has not refused to accept any
of the Goods, returned or offered to return any of the Goods which are the
subject of such Account, and Borrower has possession of, or Borrower has
delivered to Bank (at Bank's request) shipping and delivery receipts
evidencing delivery of such Goods;
(iv) it is evidenced by an invoice rendered to the Account
Debtor thereunder, is due and payable within ninety (90) days after the
------- --
date of the invoice and does not remain unpaid ninety (90) days past the
------ --
invoice date thereof; provided, however, that if more than twenty-five
-----------
percent (25%) of the aggregate dollar amount of invoices owing by a
particular Account Debtor remain unpaid ninety (90) days after the
------ --
respective invoice dates thereof, then all Accounts owing by that Account
Debtor shall be deemed ineligible;
(v) it is a valid, legally enforceable and unconditional
obligation of the Account Debtor thereunder, and is not subject to setoff,
counterclaim, credit, allowance or adjustment by such Account Debtor, or
to any claim by such Account Debtor denying liability thereunder in whole
or in part;
(vi) it does not arise out of a contract or order which fails
in any material respect to comply with the requirements of applicable law;
(vii) the Account Debtor thereunder is not a director,
officer, employee or agent of Borrower, or a Subsidiary, Parent or
Affiliate;
(viii) it is not an Account with respect to which the Account
Debtor is the United States of America or any department, agency or
instrumentality thereof, unless Borrower assigns its right to payment of
such Account to Bank pursuant to, and in full compliance with, the
Assignment of Claims Act of 1940, as amended;
-1-
<PAGE>
(ix) it is not an Account with respect to which the Account
Debtor is located in a state which requires Borrower, as a precondition to
commencing or maintaining an action in the courts of that state, either to
(A) receive a certificate of authority to do business and be in good
standing in such state; or (B) file a notice of business activities report
or similar report with such state's taxing authority, unless (x) Borrower
has taken one of the actions described in clauses (A) or (B); (y) the
failure to take one of the actions described in either clause (A) or (B)
may be cured retroactively by Borrower at its election; or (z) Borrower
has proven, to Bank's satisfaction, that it is exempt from any such
requirements under any such state's laws;
(x) it is an Account which arises out of a sale made in the
ordinary course of Borrower's business;
(xi) the Account Debtor is a resident or citizen of,
and is located within, the United States of America or the
following Provinces of Canada: British Columbia, Alberta,
Saskatchewan, Manitoba, Ontario or New Brunswick;
(xii) it is not an Account with respect to which the Account
Debtor's obligation to pay is conditional upon the Account Debtor's
approval of the Goods or services or is otherwise subject to any
repurchase obligation or return right, as with sales made on a
bill-and-hold, guaranteed sale, sale on approval, sale or return or
consignment basis;
(xiii) it is not an Account (A) with respect to which any
representation or warranty contained in this Agreement is untrue; or (B)
which violates any of the covenants of Borrower contained in this
Agreement;
(xiv) it is not an Account which, when added to a particular
Account Debtor's other indebtedness to Borrower, exceeds a credit limit
determined by Bank, in its sole discretion determined in good faith on a
basis consistent with the credit procedures of its Asset Based Lending
Division, for that Account Debtor (except that Accounts excluded from
Eligible Accounts solely by reason of this subparagraph 1(d)(xiv) shall be
Eligible Accounts to the extent of such credit limit); and
(xv) it is not an Account with respect to which the prospect
of payment or performance by the Account Debtor is or will be impaired, as
determined by Bank in its sole discretion determined in good faith on a
basis consistent with the credit procedures of its Asset Based Lending
Division.
(e) "ELIGIBLE INVENTORY" shall mean Inventory of Borrower which is
acceptable to Bank in its sole discretion determined in good faith on a basis
consistent with the credit procedures of its Asset Based Lending Division for
lending purposes. Without limiting Bank's discretion, Bank shall, in general,
consider Inventory to be Eligible Inventory if it meets, and so long as it
continues to meet, the following requirements:
(i) it is owned by Borrower, Borrower has the right to subject
it to a security interest in favor of Bank and it is subject to a first
priority perfected security interest in favor of Bank and to no other
claim, lien, security interest or encumbrance whatsoever, other than
Permitted Liens;
(ii) it is located on the premises listed on Exhibit B and is
not in transit;
(iii) if held for sale or lease or furnishing under contracts
of service, it is (except as Bank may otherwise consent in writing) new
and unused and free from defects which would, in Bank's sole
determination, determined in good faith on a basis consistent with the
credit procedures of its Asset Based Lending Division, affect its market
value;
(iv) it is not stored with a bailee, consignee, warehouseman,
processor or similar party unless Bank has given its prior written
approval and Borrower has caused any such bailee, consignee, warehouseman,
processor or similar party to issue and deliver to Bank, in form and
substance acceptable to Bank, such Uniform Commercial Code financing
statements, warehouse receipts, waivers and other documents as Bank shall
require;
(v) Bank has determined in good faith on a basis consistent
with the credit procedures of its Asset Based Lending Division that it is
not unacceptable due to age, type, category or quantity; and
(vi) it is not Inventory (A) with respect to which any of the
representations and warranties contained in this Agreement are untrue; or
(B) which violates any of the covenants of Borrower contained in this
Agreement.
(f) "ENVIRONMENTAL LAWS" shall mean all federal, state, district,
local and foreign laws, rules, regulations, ordinances, and consent decrees
relating to health, safety, hazardous substances, pollution and environmental
matters, as now or at any time hereafter in effect, applicable to the Borrower's
business or facilities owned or operated by Borrower, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contamination, chemicals, or hazardous, toxic or dangerous substances, materials
or wastes into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata) or otherwise
relating to the generation, manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials.
(g) "EVENT OF DEFAULT" shall have the meaning specified in paragraph
12 hereof.
(h) "EXHIBIT A" shall mean the exhibit entitled Exhibit A Special
Provisions which is attached hereto and made a part hereof.
(i) "EXHIBIT B" shall mean the exhibit entitled Exhibit B Business
and Collateral Locations which is attached hereto and made a part hereof.
(j) "HAZARDOUS MATERIALS" shall mean any hazardous, toxic or
dangerous substance, materials and wastes, including, without limitation,
hydrocarbons (including naturally occurring or man-made petroleum and
hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation,
radioactive materials, biological substances, polychlorinated biphenyls,
pesticides, herbicides and any other kind and/or type of pollutants or
contaminants (including, without limitation, materials which include hazardous
constituents), sewage, sludge, industrial slag, solvents and/or any other
similar substances, materials, or wastes and including any other substances,
materials or wastes that are or become regulated under any Environmental Law
(including, without limitation, any that are or become classified as hazardous
or toxic under any
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<PAGE>
Environmental Law).
(k) "INDEMNIFIED PARTY" shall have the meaning specified in
paragraph 14 hereof.
(l) "LETTER OF CREDIT" shall mean any letter of credit issued by
Bank on behalf of Borrower.
(m) "LIABILITIES" shall mean any and all obligations, liabilities
and indebtedness of Borrower to Bank or to any parent, affiliate or subsidiary
of Bank of any and every kind and nature, howsoever created, arising or
evidenced and howsoever owned, held or acquired, whether now or hereafter
existing, whether now due or to become due, whether primary, secondary, direct,
indirect, absolute, contingent or otherwise (including, without limitation,
obligations of performance), whether several, joint or joint and several, and
whether arising or existing under written or oral agreement or by operation of
law.
(n) "LOANS" shall mean all loans and advances made by Bank to or on
behalf of Borrower hereunder.
(o) "LOAN LIMIT" shall have the meaning specified in paragraph 1 of
Exhibit A.
(p) "LOCK BOX" and "LOCK BOX ACCOUNT" shall have the meanings
specified in paragraph 7 hereof.
(q) "OBLIGOR" shall mean Borrower and each other Person who is or
shall become primarily or secondarily liable for any of the Liabilities.
(r) "ORIGINAL TERM" shall have the meaning specified in paragraph 9
hereof.
(s) "OTHER AGREEMENTS" shall mean all agreements, instruments and
documents, other than this Agreement, including, without limitation, guaranties,
mortgages, trust deeds, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, leases, financing statements and all
other writings heretofore, now or from time to time hereafter executed by or on
behalf of Borrower or any other Person and delivered to Bank or to any parent,
affiliate or subsidiary of Bank in connection with the Liabilities or the
transactions contemplated hereby.
(t) "PARENT" shall mean any Person now or at any time or times
hereafter owning or controlling (alone or with any other Person) at least a
majority of the issued and outstanding equity of Borrower and, if Borrower is a
partnership, the general partner of Borrower.
(u) "PERMITTED LIENS" shall mean (i) statutory liens of landlords,
carriers, warehousemen, processors, mechanics, materialmen or suppliers incurred
in the ordinary course of business and securing amounts not yet due or declared
to be due by the claimant thereunder, or amounts which are being contested in
good faith and by appropriate proceedings and for which Borrower has maintained
adequate reserves; (ii) liens or security interests in favor of Bank; (iii)
zoning restrictions and easements, licenses, covenants and other restrictions
affecting the use of real property that do not individually or in the aggregate
have a material adverse effect on Borrower's ability to use such real property
for its intended purpose in connection with Borrower's business; (iv) liens
specifically permitted by Bank in writing; and (v) liens arising in connection
with the financing or refinancing of the acquisition of Equipment, provided that
such borrowings are permitted by this Agreement and further provided that such
liens are limited to the Equipment being financed or refinanced.
(v) "PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party or foreign or United States government
(whether federal, state, county, city, municipal or otherwise), including,
without limitation, any instrumentality, division, agency, body or department
thereof.
(w) "RENEWAL TERM" shall have the meaning specified in paragraph 9
hereof.
(x) "SUBSIDIARY" shall mean any corporation of which more than fifty
percent (50%) of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective of
whether at the time stock of any other class of such corporation shall have or
might have voting power by reason of the happening of any contingency) is at the
time, directly or indirectly, owned by Borrower or any partnership or joint
venture or limited liability company of which more than fifty percent (50%) of
the outstanding equity interests are at the time, directly or indirectly, owned
by Borrower or of which Borrower is a general partner.
(y) "TANGIBLE NET WORTH" shall have the meaning specified in
subparagraph 11(o) hereof.
(Z) "BUSINESS DAY" shall mean any day other than a Saturday, a
Sunday or (i) with respect to all matters, determinations, fundings and payments
in connection with LIBOR Rate Loans, any day on which banks in London, England
or Chicago, Illinois are required or permitted to close, and (ii) with respect
to all other matters, any day that banks in Chicago, Illinois are permitted or
required to close.
(AA) "INTEREST PERIOD" shall have the meaning specified in Paragraph
(4)(b) of Exhibit A of the Agreement hereto.
(BB) "LIBOR RATE LOANS" shall mean the Loans bearing interest at the
rate set forth in Paragraph (4)(b) of Exhibit A of the Agreement.
(cc) "PRIME RATE LOANS" shall mean the Loans bearing interest at the
rates set forth in Paragraph (4)(a) of Exhibit A of the Agreement.
2. LOANS. Subject to the terms and conditions of this Agreement
(including Exhibit A) and the Other Agreements, during the Original Term and any
Renewal Term, Bank may, in its sole discretion, make such Loans to Borrower as
Borrower shall from time to time request. The aggregate unpaid principal of all
Loans outstanding at any one time shall not exceed the Loan Limit set forth in
Exhibit A and shall bear interest at the rates set forth in Exhibit A. ALL LOANS
SHALL BE REPAID BY BORROWER UPON DEMAND BY BANK. Prior to Bank making such
demand, Loans shall be repaid as provided elsewhere in this Agreement. If at any
time the outstanding principal balance of the Loans exceeds the Loan Limit, or
any portion of the Loans exceeds any applicable sublimit set forth in Exhibit A,
Borrower shall immediately, and without the necessity of a demand by Bank, pay
to Bank such amount as may be necessary to eliminate such excess and Bank shall
apply such payment to the Liabilities in such order as Bank shall determine in
its sole discretion. Borrower hereby authorizes Bank, in its sole discretion, to
charge any of Borrower's accounts or advance Loans to make any payments of
principal, interest or fees, costs and expenses required by this Agreement. All
Loans shall, in Bank's sole discretion, be evidenced by one or more promissory
notes in form and substance satisfactory to Bank. However, if such Loans are not
so evidenced, such Loans may be evidenced solely by entries upon the books and
records maintained by Bank.
3. FEES AND CHARGES. Borrower shall pay to Bank, in addition to all
other amounts payable hereunder, the fees and charges set forth in Exhibit A. It
is the intent of the parties that the rate of interest and the other charges to
Borrower under this Agreement shall be lawful;
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<PAGE>
therefore, if for any reason the interest or other charges payable under this
Agreement are found by a court of competent jurisdiction, in a final
determination, to exceed the limit which Bank may lawfully charge Borrower, then
the obligation to pay interest and other charges shall automatically be reduced
to such limit and, if any amount in excess of such limit shall have been paid,
then such amount shall be refunded to Borrower.
4. GRANT OF SECURITY INTEREST TO BANK. As security for the payment
of all Loans now or in the future made by Bank to Borrower hereunder and for the
payment or other satisfaction of all other Liabilities, Borrower hereby assigns
to Bank and grants to Bank a continuing security interest in the following
property of Borrower, whether now or hereafter owned, existing, acquired or
arising and wherever now or hereafter located: (a) all Accounts (whether or not
that Eligible Accounts) and all Goods whose sale, lease or other disposition by
Borrower has given rise to Accounts and that have been returned to, or
repossessed or stopped in transit by, Borrower; (b) all Chattel Paper,
Instruments, Documents and General Intangibles (including, without limitation,
all patents, patent applications, trademarks, trademark applications,
tradenames, trade secrets, goodwill, copyrights, copyright applications,
registrations, licenses, franchises, customer lists, tax refund claims, claims
against carriers and shippers, guarantee claims, contracts rights, security
interests, security deposits and any rights to indemnification); (c) all
Inventory (whether or not Eligible Inventory); (d) all Goods (other than
Inventory), including, without limitation, Equipment, vehicles and fixtures; (e)
all investment property; (f) all deposits and cash; (g) any other property of
Borrower now or hereafter in the possession, custody or control of Bank or any
agent or any parent, affiliate or subsidiary of Bank or any participant with
Bank in the Loans for any purpose (whether for safekeeping, deposit, collection,
custody, pledge, transmission or otherwise); and (h) all additions and
accessions to, substitutions for, and replacements, products and proceeds of the
foregoing property, including, without limitation, proceeds of all insurance
policies insuring the foregoing property, and all of Borrower's books and
records relating to any of the foregoing and to Borrower's business.
5. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS
THEREIN. Borrower shall, at Bank's request, at any time and from time to time,
execute and deliver to Bank such financing statements, documents and other
agreements and instruments (and pay the cost of filing or recording the same in
all public offices deemed necessary or desirable by Bank) and do such other acts
and things as Bank may deem necessary or desirable in its sole discretion in
order to establish and maintain a valid, attached and perfected security
interest in the Collateral in favor of Bank (free and clear of all other liens,
claims, encumbrances and rights of third parties whatsoever, whether voluntarily
or involuntarily created, except Permitted Liens) to secure payment of the
Liabilities, and in order to facilitate the collection of the Collateral.
Borrower irrevocably hereby makes, constitutes and appoints Bank (and all
Persons designated by Bank for that purpose) as Borrower's true and lawful
attorney and agent-in-fact to execute such financing statements, documents and
other agreements and instruments and do such other acts and things as may be
necessary to preserve and perfect Bank's security interest in the Collateral.
Borrower further agrees that a carbon, photographic, photostatic or other
reproduction of this Agreement or of a financing statement shall be sufficient
as a financing statement.
6. POSSESSION OF COLLATERAL AND RELATED MATTERS. Until the
commencement of a foreclosure or liquidation to realize upon the Collateral,
Borrower shall have the right, except as otherwise provided in this Agreement,
in the ordinary course of Borrower's business, to (a) sell, lease or furnish
under contracts of service any of Borrower's Inventory normally held by Borrower
for any such purpose; and (b) use and consume any raw materials, work in process
or other materials normally held by Borrower for such purpose; provided,
however, that a sale in the ordinary course of business shall not include any
transfer or sale in satisfaction, partial or complete, of a debt owed by
Borrower.
7. COLLECTIONS.
(a) Borrower shall direct all of its Account Debtors to make all
payments on the Accounts directly to a post office box (the "LOCK BOX")
designated by, and under the exclusive control of, Bank or another financial
institution acceptable to Bank. Borrower shall establish an account (the "LOCK
BOX ACCOUNT") in Bank's name with Bank or such other financial institution
acceptable to Bank, into which all payments received in the Lock Box shall be
deposited, and into which Borrower will immediately deposit all payments
received by Borrower for Inventory or services in the identical form in which
such payments were received, whether by cash or check. If Borrower, any
Affiliate or Subsidiary, or any shareholder, officer, director, employee or
agent of Borrower or any Affiliate or Subsidiary, or any other Person acting for
or in concert with Borrower shall receive any monies, checks, notes, drafts or
other payments relating to or as proceeds of Accounts or other Collateral,
Borrower and each such Person shall receive all such items in trust for, and as
the sole and exclusive property of, Bank and, immediately upon receipt thereof,
shall remit the same (or cause the same to be remitted) in kind to the Lock Box
Account. If the Lock Box Account is not established with Bank, the financial
institution with which the Lock Box Account is established shall acknowledge and
agree, in a manner satisfactory to Bank, that the amounts on deposit in such
Lock Box Account are the sole and exclusive property of Bank, that such
financial institution has no right to setoff against the Lock Box Account or
against any other account maintained by such financial institution into which
the contents of the Lock Box Account are transferred, and that such financial
institution shall wire, or otherwise transfer in immediately available funds in
a manner satisfactory to Bank, funds deposited in the Lock Box Account on a
daily basis as such funds are collected. Borrower agrees that all payments made
to such Lock Box Account or otherwise received by Bank, whether in respect of
the Accounts or as proceeds of other Collateral or otherwise, will be applied on
account of the Liabilities in accordance with the terms of this Agreement;
provided, that so long as no Event of Default has occurred, payments received by
Bank shall not be applied to the unmatured portion of the LIBOR Rate Loans, but
shall be held in a cash collateral account maintained by Bank until the earlier
of (i) the last day of the Interest Period applicable to such LIBOR Rate Loan
and (ii) the occurrence of an Event of Default; provided further, that so long
as no Event of Default has occurred, the immediately available funds held in
such cash collateral account may be disbursed, at Borrower's discretion, to
Borrower so long as after giving effect to such disbursement, Borrower's
availability under Paragraph 1 of Exhibit A of the Agreement at such time equals
or exceeds the outstanding Liabilities at such time. If the Lock Box Account is
established with Bank, Borrower agrees to pay all fees, costs and expenses in
connection with opening and maintaining the Lock Box Account and depositing for
collection by Bank any check or other item of payment received by Bank on
account of the Liabilities. All of such fees, costs and expenses shall
constitute Loans hereunder, shall be payable to Bank by Borrower upon demand,
and, until paid, shall bear interest at the highest rate then applicable to
Loans hereunder. All checks, drafts, instruments and other items of payment or
proceeds of Collateral shall be endorsed by Borrower to Bank, and, if that
endorsement of any such item shall not be made for any reason, Bank is hereby
irrevocably authorized to endorse the same on Borrower's behalf. For the purpose
of this paragraph, Borrower irrevocably hereby makes, constitutes and appoints
Bank (and all Persons designated by Bank for that purpose) as Borrower's true
and lawful attorney and agent-in-fact (i) to endorse Borrower's name upon said
items of payment and/or proceeds of Collateral and upon any Chattel Paper,
document, Instrument, invoice or similar document or agreement relating to any
Account of Borrower or Goods pertaining thereto; (ii) to take control in any
manner of any item of payment or proceeds thereof; and (iii) to have access to
any lock box or postal box into which any of Borrower's mail is deposited, and
open and process all mail addressed to Borrower and deposited therein.
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<PAGE>
(b) Bank may, at any time and from time to time after the occurrence
of an Event of Default, whether before or after notification to any Account
Debtor and whether before or after the maturity of any of the Liabilities, (i)
enforce collection of any of Borrower's Accounts or other amounts owed to
Borrower by suit or otherwise; (ii) exercise all of Borrower's rights and
remedies with respect to proceedings brought to collect any Accounts or other
amounts owed to Borrower; (iii) surrender, release or exchange all or any part
of any Accounts or other amounts owed to Borrower, or compromise or extend or
renew for any period (whether or not longer than the original period) any
indebtedness thereunder; (iv) sell or assign any Account of Borrower or other
amount owed to Borrower upon such terms, for such amount and at such time or
times as Bank deems advisable; (v) prepare, file and sign Borrower's name on any
proof of claim in bankruptcy or other similar document against any Account
Debtor or other Person obligated to Borrower; and (vi) do all other acts and
things which are necessary, in Bank's sole discretion, to fulfill Borrower's
obligations under this Agreement and to allow Bank to collect the Accounts or
other amounts owed to Borrower. In addition to any other provision hereof, Bank
may at any time, after the occurrence of an Event of Default, at Borrower's
expense, notify any parties obligated on any of the Accounts to make payment
directly to Bank of any amounts due or to become due thereunder.
(c) For purposes of calculating interest, Bank shall, within two (2)
--- -
business days after receipt by Bank at its office in Chicago, Illinois of (i)
checks; and (ii) cash or other immediately available funds from collections of
items of payment and proceeds of any Collateral, apply the whole or any part of
such collections or proceeds against the Liabilities in such order as Bank shall
determine in its sole discretion determined in good faith on a basis consistent
with the credit procedures of its Asset Based Lending Division. For purposes of
determining the amount of Loans available for borrowing purposes, (i) checks;
and (ii) cash or other immediately available funds from collections of items of
payment and proceeds of any Collateral shall be applied in whole or in part
against the Liabilities, in such order as Bank shall determine in its sole
discretion, on the day of receipt, subject to actual collection.
(d) Bank, in its sole discretion, determined in good faith on a
basis consistent with the credit procedures of its Asset Based Lending Division,
without waiving or releasing any obligation, liability or duty of Borrower under
this Agreement or the Other Agreements or any Event of Default, may at any time
or times hereafter, but shall not be obligated to, pay, acquire or accept an
assignment of any security interest, lien, encumbrance or claim asserted by any
Person in, upon or against the Collateral. All sums paid by Bank in respect
thereof and all costs, fees and expenses including, without limitation,
reasonable attorney fees, all court costs and all other charges relating thereto
incurred by Bank shall constitute Loans, payable by Borrower to Bank on demand
and, until paid, shall bear interest at the highest rate then applicable to
Loans hereunder.
(e) Promptly upon Borrower's receipt of any portion of the
Collateral evidenced by an agreement, Instrument or Document, including, without
limitation, any Chattel Paper, Borrower shall deliver the original thereof to
Bank together with an appropriate endorsement or other specific evidence of
assignment thereof to Bank (in form and substance acceptable to Bank). If an
endorsement or assignment of any such items shall not be made for any reason,
Bank is hereby irrevocably authorized, as Borrower's attorney and agent-in-fact,
to endorse or assign the same on Borrower's behalf.
8. SCHEDULES AND REPORTS.
(a) Within ten (10) days after the close of each calendar month, and
at such other times as may be requested by Bank from time to time hereafter,
Borrower shall deliver to Bank (i) a schedule identifying each Account and which
Accounts constitute Eligible Accounts together with copies of the invoices when
requested by Bank (with evidence of shipment attached) pertaining to each such
Account, for the month (or other applicable period) immediately preceding; (ii)
such additional schedules, certificates, reports and information with respect to
the Collateral as Bank may from time to time require. Bank, through its
officers, employees or agents, shall have the right, at any time and from time
to time in Bank's name, in the name of a nominee of Bank or in Borrower's name,
to verify the validity, amount or any other matter relating to any of Borrower's
Accounts, by mail, telephone, telegraph or otherwise. Borrower shall reimburse
Bank, on demand, for all costs, fees and expenses incurred by Bank in this
regard.
(b) Without limiting the generality of the foregoing, Borrower shall
deliver to Bank, at least once a month (or more frequently when requested by
Bank), a report with respect to Borrower's Inventory. Borrower shall immediately
notify Bank of any event causing loss or depreciation in value of Borrower's
Inventory (other than normal depreciation occurring in the ordinary course of
business) and which exceeds $50,000.00.
---------
(c) All schedules, certificates, reports, and other items delivered
by Borrower to Bank hereunder shall be executed by an authorized representative
of Borrower and shall be in such form and contain such information as Bank shall
specify.
9. TERMINATION. This Agreement shall be in effect from the date
hereof until May 27, 2001 (the "ORIGINAL TERM") and shall automatically renew
------ ----
itself from year to year thereafter (each such one-year renewal being referred
to herein as a "RENEWAL TERM") unless (a) Bank makes demand for repayment prior
to the end of the Original Term or the then current Renewal Term; (b) the due
date of the Liabilities is accelerated pursuant to paragraph 13 hereof; or (c)
Borrower elects to terminate this Agreement at the end of the Original Term or
at the end of any Renewal Term by giving Bank written notice of such election at
least ninety (90) days prior to the end of the Original Term or the then current
Renewal Term and by paying all of the Liabilities in full on the last day of
such term. If one or more of the events specified in clauses (a), (b) and (c)
occurs, then (i) Bank shall not make any additional Loans on or after the date
identified as the date on which the Liabilities are to be repaid and (ii) this
Agreement shall terminate on the date thereafter that the Liabilities are paid
in full. At such time as Borrower has repaid all of the Liabilities and this
Agreement has terminated, Borrower shall deliver to Bank a release, in form and
substance satisfactory to Bank, of all obligations and liabilities of Bank and
its officers, directors, employees, agents, parents, subsidiaries and affiliates
to Borrower, and if Borrower is obtaining new financing from another lender,
Borrower shall deliver such lender's indemnification of Bank, in form and
substance satisfactory to Bank, for checks which Bank has credited to Borrower's
account, but which subsequently are dishonored for any reason. If, during the
term of this Agreement, Borrower prepays all or any portion of the Liabilities
from any source other than income from the ordinary course operations of
Borrower's business. Borrower agrees to pay to Bank, as a prepayment fee, in
addition to the payment of all other Liabilities, an amount equal to the product
of (i) fifty percent (50%) of the average monthly interest earned by Bank on the
Loans made hereunder preceding the date of prepayment, multiplied by (ii) the
number of full and partial months remaining from the date of prepayment to the
end of the Original Term or the then current Renewal Term.
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10. REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrower hereby
represents, warrants and covenants that:
(a) the financial statements delivered or to be delivered by
Borrower to Bank at or prior to the date of this Agreement and at all times
subsequent thereto accurately reflect in all material respects the financial
condition of Borrower, and there has been no material adverse change in the
financial condition, the operations or any other status of Borrower since the
date of the financial statements delivered to Bank most recently prior to the
date of this Agreement;
(b) (i) the office where Borrower keeps its books, records and
accounts (or copies thereof) concerning the Collateral, Borrower's principal
place of business and all of Borrower's other places of business, locations of
Collateral and post office boxes are as set forth in Exhibit B; and (ii)
Borrower shall promptly (but in no event less than ten (10) days prior thereto)
advise Bank in writing of the proposed opening of any new place of business or
new location of Collateral, the closing of any existing place of business or
location of Collateral, any change in the location of Borrower's books, records
and accounts (or copies thereof) or the opening or closing of any post office
box of Borrower;
(c) the Collateral, including, without limitation, the Equipment
(except any part thereof which Borrower shall have advised Bank in writing
consists of Collateral normally used in more than one state) is and shall be
kept, or, in the case of vehicles, based, only at the addresses set forth on
Exhibit B, and at other locations within the continental United States of which
Bank has been advised by Borrower in writing;
(d) if any of the Collateral consists of Goods of a type normally
used in more than one state, whether or not actually so used, (i) Borrower shall
immediately give written notice to Bank of any use of any such Goods in any
state other than a state in which Borrower has previously advised Bank such
Goods shall be used; and (ii) such Goods shall not, unless Bank shall otherwise
consent in writing, be used outside of the continental United States;
(e) Borrower has not made, and shall not make, any loans or advances
to any Affiliate or other Person except for advances to employees, officers and
directors of Borrower for travel and other expenses arising in the ordinary
course of Borrower's business;
(f) each Account or item of Inventory which Borrower shall,
expressly or by implication, request Bank to classify as an Eligible Account or
as Eligible Inventory, respectively, shall, as of the time when such request is
made, conform in all respects to the requirements of such classification as set
forth in the respective definitions of "Eligible Account" and "Eligible
Inventory" as set forth herein and as otherwise established by Bank from time to
time, and Borrower shall promptly notify Bank in writing if any such Eligible
Account or Eligible Inventory shall subsequently become ineligible;
(g) Borrower is and shall at all times during the Original Term or
any Renewal Term be the lawful owner of all Collateral now purportedly owned or
hereafter purportedly acquired by Borrower, free from all liens, claims,
security interests and encumbrances whatsoever, whether voluntarily or
involuntarily created and whether or not perfected, other than the Permitted
Liens;
(h) Borrower has the right and power and is duly authorized and
empowered to enter into, execute and deliver this Agreement and the Other
Agreements and perform its obligations hereunder and thereunder. Borrower's
execution, delivery and performance of this Agreement and the Other Agreements
does not and shall not conflict with the provisions of any statute, regulation,
ordinance or rule of law, or any agreement, contract or other document which may
now or hereafter be binding on Borrower where such conflict would have a
material adverse effect on its business, property, assets, operations or
condition, financial or otherwise, and Borrower's execution, delivery and
performance of this Agreement and the Other Agreements shall not result in the
imposition of any lien or other encumbrance upon any of Borrower's property
(other than Permitted Liens) under any existing indenture, mortgage, deed of
trust, loan or credit agreement or other agreement or instrument by which
Borrower or any of its property may be bound or affected;
(i) except as previously disclosed to Bank in writing, there are no
actions or proceedings which are pending or, to the best of Borrower's
knowledge, threatened against Borrower which might result in any material
adverse change in its financial condition or materially adversely affect the
Collateral and Borrower shall, promptly upon becoming aware of any such pending
or threatened action or proceeding, give written notice thereof to Bank;
(j) (i) Borrower has obtained and shall maintain all licenses,
authorizations, approvals and permits, the lack of which would have a material
adverse effect on the operation of its business, and (ii) Borrower is and shall
remain in compliance in all material respects with all applicable federal,
state, local and foreign statutes, orders, regulations, rules and ordinances
(including, without limitation, Environmental Laws and statutes, orders,
regulations, rules and ordinances relating to taxes, employer and employee
contributions and similar items, securities, ERISA (as hereinafter defined), or
employee health and safety) the failure to comply with which would have a
material adverse effect on its business, property, assets, operations or
condition, financial or otherwise;
(k) all written information now, heretofore or hereafter furnished
by Borrower to Bank is and shall be true and correct in all material respects as
of the date with respect to which such information was or is furnished;
(l) Borrower is not conducting, permitting or suffering to be
conducted, nor shall it conduct, permit or suffer to be conducted, any
activities pursuant to or in connection with which any of the Collateral is now,
or will (while any Liabilities remain outstanding) be owned by any Affiliate;
provided, however, that Borrower may enter into transactions with Affiliates for
the purchase or sale of Inventory or services in the ordinary course of business
pursuant to terms that are no less favorable to Borrower than the terms upon
which such transfers or transactions would have been made had they been made to
or with a Person that is not an Affiliate and, in connection therewith, may
transfer cash or property to Affiliates for fair value;
(m) Borrower's name has always been as set forth on the first page
of this Agreement and Borrower uses no tradenames or division names in the
operation of its business, except as otherwise disclosed in writing to Bank;
Borrower shall notify Bank in writing within ten (10) days of the change of its
name or the use of any tradenames or division names not previously disclosed to
Bank in writing;
-6-
<PAGE>
(n) with respect to Borrower's Equipment: (i) Borrower has good and
indefeasible and merchantable title to and ownership of all Equipment; (ii)
Borrower shall keep and maintain the Equipment in good operating condition and
repair and shall make all necessary replacements thereof and repairs thereto so
that the value and operating efficiency thereof shall at all times be preserved
and maintained in all material respects; (iii) Borrower shall not permit any
such items to become a fixture to real estate or an accession to other personal
property; and (iv) Borrower, immediately on demand by Bank, shall deliver to
Bank any and all evidence of ownership of, including, without limitation,
certificates of title and applications of title to, any of the Equipment;
(o) this Agreement and the Other Agreements to which Borrower is a
party are the legal, valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their respective terms;
(p) Borrower is and shall remain solvent, is and shall be able to
pay its debts as they become due, has and shall continue to have capital
sufficient to carry on its business, now owns and shall continue to own property
having a value both at fair valuation and at present fair saleable value greater
than the amount required to pay its debts, and will not be rendered insolvent by
the execution and delivery of this Agreement or any of the Other Agreements or
by completion of the transactions contemplated hereunder or thereunder;
(q) Borrower is not now obligated, nor shall it create, incur,
assume or become obligated (directly or indirectly), for any loans or other
indebtedness for borrowed money other than the Loans, except that Borrower may
(i) borrow money from a Person other than Bank on an unsecured and subordinated
basis if a subordination agreement in favor of Bank and in form and substance
satisfactory to Bank is executed and delivered to Bank relative thereto; (ii)
maintain any present indebtedness to any Person which has been disclosed to Bank
in writing and consented to in writing by Bank; and (iii) incur unsecured
indebtedness to trade creditors in the ordinary course of Borrower's business;
(iv) incur purchase money indebtedness or capitalized lease obligations in
connection with capital expenditures pursuant to subparagraph 11(q) of this
Agreement, and (v) incur other lease obligations requiring payments not to
exceed $100,000.00 during any fiscal year of Borrower;
-----------
(r) Borrower does not own any margin securities, and none of the
proceeds of the Loans hereunder shall be used for the purpose of purchasing or
carrying any margin securities or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase any margin securities or
for any other purpose not permitted by Regulation G or Regulation U of the Board
of Governors of the Federal Reserve System as in effect from time to time;
(s) except as otherwise disclosed in writing to Bank, Borrower has
no Parents, Subsidiaries or other Affiliates or divisions, nor is Borrower
engaged in any joint venture or partnership with any other Person;
(t) if Borrower is a corporation, limited liability company or
partnership, Borrower is duly organized, validly existing and in good standing
in its state of organization and Borrower is duly qualified and in good standing
in all states where the nature and extent of the business transacted by it or
the ownership of its assets makes such qualification necessary or, if Borrower
is not so qualified, Borrower may cure any such failure without losing any of
its rights or affecting Bank's rights;
(u) Borrower is not in default under any material contract, lease or
commitment to which it is a party or by which it is bound, nor does Borrower
know of any dispute regarding any contract, lease or commitment which is
material to the continued financial success and well-being of Borrower;
(v) there are no controversies pending or, to the best of Borrower's
knowledge, threatened between Borrower and any of its employees, other than
employee grievances arising in the ordinary course of business which are not, in
the aggregate, material to the continued financial success and well-being of
Borrower, and Borrower is in compliance in all material respects with all
federal and state laws respecting employment and employment terms, conditions
and practices;
(w) Borrower possesses, and shall continue to possess, adequate
licenses, patents, patent applications, copyrights, service marks, trademarks,
trademark applications, tradestyles and tradenames to continue to conduct its
business as heretofore conducted by it;
(x) (i) Borrower has not generated, used, stored, treated,
transported, manufactured, handled, produced or disposed of any Hazardous
Materials on or off its premises (whether or not owned by it) in any manner
which at any time violates any Environmental Law or any license, permit,
certificate, approval or similar authorization thereunder and the operations of
the Borrower comply in all material respects with all Environmental Laws and
licenses, permits, certificates, approvals and similar authorizations
thereunder; (ii) there has been no investigation proceeding, complaint, order,
directive, claim, citation or notice by any governmental authority or any other
Person, nor is any pending or to the best of the Borrower's knowledge
threatened, and Borrower shall immediately notify Bank upon becoming aware of
any such investigation, proceeding, complaint, order, directive, claim, citation
or notice and take prompt and appropriate actions to respond thereto, with
respect to any non-compliance with or violation of the requirements of any
Environmental Law by the Borrower or the release, spill or discharge, threatened
or actual, of any Hazardous Material or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials or any other environmental, health or safety matter, which affects the
Borrower or its business, operations or assets or any properties at which the
Borrower has transported, stored or disposed of any Hazardous Materials; (iii)
Borrower has no material liability (contingent or otherwise) in connection with
a release, spill or discharge, threatened or actual, of any Hazardous Materials
or the generation, use, storage, treatment, transportation, manufacture,
handling, production or disposal of any Hazardous Materials; and (iv) without
limiting the generality of the foregoing, Borrower shall, following the
determination by Bank that there is non-compliance, or any condition which
requires any action by or on behalf of Borrower in order to avoid any
non-compliance, with any Environmental Law, at Borrower's expense, cause an
independent environmental engineer acceptable to Bank to conduct such tests of
the relevant site as are appropriate and prepare and deliver a report setting
forth the result of such tests, a proposed plan for remediation and an estimate
of the costs thereof; and
(y) Borrower has paid and discharged, and shall at all times
hereafter promptly pay and discharge all obligations and liabilities arising
under the Employee Retirement Income Security Act of 1974 (as amended, modified
or restated from time to time, "ERISA") of a character which if
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<PAGE>
unpaid or unperformed might result in the imposition of a lien against any of
its properties or assets and will promptly notify the Bank of (i) the occurrence
of any "reportable event" (as defined in ERISA) which might result in the
termination by the Pension Benefit Guaranty Corporation ("PBGC") of any employee
benefit plan ("Plan") covering any officers or employees of the Borrower, any
benefits of which are, or are required to be, guaranteed by PBGC; (ii) the
receipt of any notice from PBGC of its intention to seek termination of any Plan
or appointment of a trustee therefor; and (iii) its intention to terminate or
withdraw from any Plan; provided, that Borrower shall not terminate any Plan or
withdraw therefrom if such withdrawal or termination shall result in any
liability to Borrower.
Borrower represents, warrants and covenants to Bank that all representations and
warranties of Borrower contained in this Agreement (whether appearing in
paragraphs 10 or 11 hereof or elsewhere) shall be true at the time of Borrower's
execution of this Agreement, shall survive the execution, delivery and
acceptance hereof by the parties hereto and the closing of the transactions
described herein or related hereto, shall remain true until the repayment in
full and satisfaction of all of the Liabilities and termination of this
Agreement, and shall be remade by Borrower at the time each Loan is made
pursuant to this Agreement, provided, that representations and warranties made
as of a particular date shall be true and correct as of such date.
11. ADDITIONAL COVENANTS OF BORROWER. Until payment or satisfaction
in full of all Liabilities and termination of this Agreement, unless Borrower
obtains Bank's prior written consent waiving or modifying any of Borrower's
covenants hereunder in any specific instance, Borrower agrees as follows:
(a) Borrower shall at all times keep accurate and complete books,
records and accounts with respect to all of Borrower's business activities, in
accordance with sound accounting practices and generally accepted accounting
principles consistently applied, and shall keep such books, records and
accounts, and any copies thereof, only at the addresses indicated for such
purpose on Exhibit B;
(b) Borrower agrees to deliver to Bank the following financial
information, all of which shall be prepared in accordance with generally
accepted accounting principles consistently applied: (i) no later than twenty
(20) days after each calendar month, copies of internally prepared financial
statements, including, without limitation, balance sheets and statements of
income, retained earnings and cash flow of Borrower, certified by the Chief
Financial Officer of Borrower; (ii) no later than thirty (30) days after the end
of each of the first three quarters of Borrower's fiscal year a balance sheet,
operating statement and reconciliation of surplus of Borrower, which quarterly
financial statements may be unaudited but shall be certified by the Chief
Financial Officer of Borrower; and (iii) no later than seventy-five (75) days
after the end of each of Borrower's fiscal years, audited annual financial
statements with an unqualified opinion by independent certified public
accountants selected by Borrower and reasonably satisfactory to Bank, which
financial statements shall be accompanied by a letter from such accountants
acknowledging that they are aware that a primary intent of Borrower in obtaining
such financial statements is to influence Bank and that Bank is relying upon
such financial statements in connection with the exercise of its rights
hereunder and copies of any management letters sent to the Borrower by such
accountants;
(c) Borrower shall promptly advise Bank in writing of any material
adverse change in the business, assets or condition, financial or otherwise, of
Borrower, the occurrence of any Event of Default hereunder or the occurrence of
any event which, if uncured, will become an Event of Default hereunder after
notice or lapse of time (or both);
(d) Bank, or any Persons designated by it, shall have the right, at
any time, to call at Borrower's places of business at any reasonable times, and,
without hindrance or delay, to inspect the Collateral and to inspect, audit,
check and make extracts from Borrower's books, records, journals, orders,
receipts and any correspondence and other data relating to Borrower's business,
the Collateral or any transactions between the parties hereto, and shall have
the right to make such verification concerning Borrower's business as Bank may
consider reasonable under the circumstances. Borrower shall furnish to Bank such
information relevant to Bank's rights under this Agreement as Bank shall at any
time and from time to time request. Borrower authorizes Bank to discuss the
affairs, finances and business of Borrower with any officers, employees or
directors of Borrower or with any Affiliate or the officers, employees or
directors of any Affiliate, and to discuss the financial condition of Borrower
with Borrower's independent public accountants. Any such discussions shall be
without liability to Bank or to Borrower's independent public accountants.
Borrower shall pay to Bank all customary fees and out-of-pocket expenses
incurred by Bank in the exercise of its rights hereunder, and all of such fees
and expenses shall constitute Loans hereunder, shall be payable on demand and,
until paid, shall bear interest at the highest rate then applicable to Loans
hereunder;
(e) Borrower shall:
(i) keep the Collateral properly housed and insured for the
full insurable value thereof against loss or damage by fire, theft,
explosion, sprinklers, collision (in the case of motor vehicles) and such
other risks as are customarily insured against by Persons engaged in
businesses similar to that of Borrower, with such companies, in such
amounts, with such deductibles, and under policies in such form as shall
be satisfactory to Bank. Original (or certified) copies of such policies
of insurance have been or shall be delivered to Bank within ninety (90)
days after the date hereof, together with evidence of payment of all
premiums therefor, and shall contain an endorsement, in form and substance
acceptable to Bank, showing loss under such insurance policies payable to
Bank. Such endorsement, or an independent instrument furnished to Bank,
shall provide that the insurance company shall give Bank at least thirty
(30) days written notice before any such policy of insurance is altered or
canceled and that no act, whether willful or negligent, or default of
Borrower or any other Person shall affect the right of Bank to recover
under such policy of insurance in case of loss or damage. In addition,
Borrower shall cause to be executed and delivered to Bank an assignment of
proceeds of its business interruption insurance policies. Borrower hereby
directs all insurers under all policies of insurance to pay all proceeds
payable thereunder directly to Bank. Borrower irrevocably makes,
constitutes and appoints Bank (and all officers, employees or agents
designated by Bank) as Borrower's true and lawful attorney (and
agent-in-fact) for the purpose of making, settling and adjusting claims
under such policies of insurance, endorsing the name of Borrower on any
check, draft, instrument or other item of payment for the proceeds of such
policies of insurance and making all determinations and decisions with
respect to such policies of insurance, provided, however, that if no Event
of Default shall have occurred and is continuing, Borrower may make,
settle and adjust claims involving less than $50,000 in the aggregate
------
without Bank's consent; and
-8-
<PAGE>
(ii) maintain, at its expense, such public liability and third
party property damage insurance as is customary for Persons engaged in
businesses similar to that of Borrower with such companies and in such
amounts, with such deductibles and under policies in such form as shall be
satisfactory to Bank and original (or certified) copies of such policies
have been or shall be delivered to Bank within ninety (90) days after the
date hereof, together with evidence of payment of all premiums therefor;
each such policy shall contain an endorsement showing Bank as additional
insured thereunder and providing that the insurance company shall give
Bank at least thirty (30) days written notice before any such policy shall
be altered or canceled.
If Borrower at any time or times hereafter shall fail to obtain or
maintain any of the policies of insurance required above or to pay any premium
relating thereto, then Bank, without waiving or releasing any obligation or
default by Borrower hereunder, may (but shall be under no obligation to) obtain
and maintain such policies of insurance and pay such premiums and take such
other actions with respect thereto as Bank deems advisable. All sums disbursed
by Bank in connection with any such actions, including, without limitation,
court costs, expenses, other charges relating thereto and reasonable attorneys'
fees, shall constitute Loans hereunder, shall be payable on demand by Borrower
to Bank and, until paid, shall bear interest at the highest rate then applicable
to Loans hereunder;
(f) Borrower shall not use the Collateral, or any part thereof, in
any unlawful business or for any unlawful purpose or use or maintain any of the
Collateral in any manner that does or could result in material damage to the
environment or a violation of any applicable environmental laws, rules or
regulations; shall keep the Collateral in good condition, repair and order,
ordinary wear and tear excepted; shall permit Bank to examine any of the
Collateral at any time and wherever the Collateral may be located; shall not
permit the Collateral, or any part thereof, to be levied upon under execution,
attachment, distraint or other legal process; shall not sell, lease, grant a
security interest in or otherwise dispose of any of the Collateral except as
expressly permitted by this Agreement; shall not settle or adjust any Account
identified by Borrower as an Eligible Account or with respect to which the
Account Debtor is an Affiliate without the consent of Bank, provided, that
following the occurrence of an Event of Default, Borrower shall not settle or
adjust any Account without the consent of Bank; and shall not secrete or abandon
any of the Collateral, or remove or permit removal of any of the Collateral from
any of the locations listed on Exhibit B, except for the removal of Inventory
sold in the ordinary course of Borrower's business as permitted herein;
(g) all monies and other property obtained by Borrower from Bank
pursuant to this Agreement will be used solely for business purposes of
Borrower;
(h) Borrower shall, at the request of Bank, indicate on its records
concerning the Collateral a notation, in form satisfactory to Bank, of the
security interest of Bank hereunder;
(i) Borrower shall file all required tax returns and pay all of its
taxes when due subject to any extensions granted by the applicable taxing
authority, including, without limitation, taxes imposed by federal, state or
municipal agencies, and shall cause any liens for taxes to be promptly released;
provided, that Borrower shall have the right to contest the payment of such
taxes in good faith by appropriate proceedings so long as (i) the amount so
contested is shown on Borrower's financial statements; (ii) the contesting of
any such payment does not give rise to a lien for taxes; (iii) Borrower keeps on
deposit with Bank (such deposit to be held without interest) an amount of money
which, in the sole judgment of Bank, is sufficient to pay such taxes and any
interest or penalties that may accrue thereon or the Borrower maintains adequate
reserves on its balance sheet in accordance with generally accepted accounting
principles; and (iv) if Borrower fails to prosecute such contest with reasonable
diligence, Bank may apply the money so deposited in payment of such taxes. If
Borrower fails to pay any such taxes and in the absence of any such contest by
Borrower, Bank may (but shall be under no obligation to) advance and pay any
sums required to pay any such taxes and/or to secure the release of any lien
therefor, and any sums so advanced by Bank shall constitute Loans hereunder,
shall be payable by Borrower to Bank on demand, and, until paid, shall bear
interest at the highest rate then applicable to Loans hereunder;
(j) Borrower shall not assume, guarantee or endorse, or otherwise
become liable in connection with, the obligations of any Person, except by
endorsement of instruments for deposit or collection or similar transactions in
the ordinary course of business;
(k) Borrower shall not (i) enter into any merger or consolidation;
(ii) sell, lease or otherwise dispose of any of its assets other than in the
ordinary course of business; (iii) purchase all or substantially all of the
assets of any Person or division of such Person; or (iv) enter into any other
transaction outside the ordinary course of Borrower's business, including,
without limitation, any purchase, redemption or retirement of any shares of any
class of its stock or any other equity interest, and any issuance of any shares
of, or warrants or other rights to receive or purchase any shares of, any class
of its stock or any other equity interest;
(l) Borrower shall not declare or pay any dividend or other
distribution (whether in cash or in kind) on any class of its stock (if Borrower
is a corporation) or on account of any equity interest in Borrower (if Borrower
is a partnership, limited liability company or other type of entity);
(m) Borrower shall not purchase or otherwise acquire, or contract to
purchase or otherwise acquire, the obligations or stock of any Person, other
than direct obligations of the United States;
(n) Borrower shall not amend its organizational documents or change
its fiscal year unless such actions would not have an adverse effect on the
Borrower's business, property, assets, operations or condition, financial or
otherwise, as determined by Bank in its sole discretion, and Bank has received
ten (10) days prior written notice of such amendment or change, or enter into a
new line of business materially different from Borrower's current business;
(o) See Exhibit A
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<PAGE>
(p) Borrower shall reimburse Bank for all costs and expenses,
including, without limitation, legal expenses and reasonable attorneys' fees,
incurred by Bank in connection with (i) documentation and consummation of this
transaction and any other transactions between Borrower and Bank, including,
without limitation, Uniform Commercial Code and other public record searches,
lien filings, overnight courier or other express or messenger delivery,
appraisal costs, surveys, title insurance and environmental audit or review
costs; (ii) collection, protection or enforcement of any rights in or to the
Collateral; (iii) collection of any Liabilities; and (iv) administration and
enforcement of any of Bank's rights under this Agreement. Borrower shall also
pay all normal service charges with respect to all accounts maintained by
Borrower with Bank and any additional services requested by Borrower from Bank.
All such costs, expenses and charges shall constitute Loans hereunder, shall be
payable by Borrower to Bank on demand, and, until paid, shall bear interest at
the highest rate then applicable to Loans hereunder;
(q) Borrower shall not purchase or otherwise acquire (including,
without limitation, acquisition by way of capitalized lease), or commit to
purchase or acquire, any fixed asset if, after giving effect to such purchase or
other acquisition, the aggregate cost of all such fixed assets purchased or
otherwise acquired would exceed $100,000.00 during any fiscal year of Borrower;
----------
and
(r) Neither Borrower nor any Affiliate shall use any portion of the
proceeds of the Loans, either directly or indirectly, for the purpose of (i)
purchaisng any securities underwritten or privately placed by ABN AMRO
Securities (USA) Inc. ("AASI"), an affiliate of Bank; or (ii) purchasing from
AASI any securities in which AASI makes a market; or (iii) refinancing or making
payments of principal, interest or dividends on any securities issued by
Borrower or any Affiliate, and underwritten, privately placed or dealt in by
AASI.
12. DEFAULT. The occurrence of any one or more of the following
events shall constitute an "EVENT OF DEFAULT" by Borrower hereunder:
(a) the failure of any Obligor to pay when due, declared due,
or demanded by Bank, any of the Liabilities;
(b) the failure of any Obligor to perform, keep or observe any of
the covenants, conditions, promises, agreements or obligations of such Obligor
under this Agreement or any of the Other Agreements; provided that any such
failure by Borrower under subparagraphs 10(b)(ii), 10(g) (but only with respect
to involuntarily created liens, claims, security interests and encumbrances) and
10(j)(i) of this Agreement shall not constitute an Event of Default hereunder
until the fifteenth (15th) day following the occurrence thereof;
(c) the failure of any Obligor to perform, keep or observe (after
any applicable notice and cure period, if any) any of the covenants, conditions,
promises, agreements or obligations of such Obligor under any other agreement
with any Person if such failure may have a material adverse effect on such
Obligor's business, property, assets, operations or condition, financial or
otherwise;
(d) the making or furnishing by any Obligor to Bank of any
representation, warranty, certificate, schedule, report or other communication
within or in connection with this Agreement or the Other Agreements or in
connection with any other agreement between such Obligor and Bank, which is
untrue or misleading in any material respect as of date made;
(e) the loss, theft, damage or destruction of any of the Collateral
in an amount in excess of $_______ in the aggregate for all such events during
any year of the Original Term or any Renewal Term as determined by Bank in its
sole discretion, or (except as permitted hereby) sale, lease or furnishing under
a contract of service of, any of the Collateral;
(f) the creation (whether voluntary or involuntary) of, or any
attempt to create, any lien or other encumbrance upon any of the Collateral,
other than the Permitted Liens and involuntary liens securing amounts less than
_____________ and no/100 Dollars ($_______.00) and which are released or for
which a bond acceptable to Bank in its sole discretion has been posted within
ten (10) days of its creation, or the making or any attempt to make any levy,
seizure or attachment thereof, provided that with respect to states in which
creditors may obtain a prejudgment attachment without notice, such attachment
shall be an Event of Default only if the attachment remains in effect for ten
(10) days;
(g) the commencement of any proceedings in bankruptcy by or against
any Obligor or for the liquidation or reorganization of any Obligor, or alleging
that such Obligor is insolvent or unable to pay its debts as they mature, or for
the readjustment or arrangement of any Obligor's debts, whether under the United
States Bankruptcy Code or under any other law, whether state or federal, now or
hereafter existing for the relief of debtors, or the commencement of any
analogous statutory or non-statutory proceedings involving any Obligor;
provided, however, that if such commencement of proceedings against such Obligor
is involuntary, such action shall not constitute an Event of Default unless such
proceedings are not dismissed within thirty (30) days after the commencement of
such proceedings;
(h) the appointment of a receiver or trustee for any Obligor, for
any of the Collateral or for any substantial part of any Obligor's assets or the
institution of any proceedings for the dissolution, or the full or partial
liquidation, or the merger or consolidation, of any Obligor which is a
corporation, limited liability company or a partnership; provided, however, that
if such appointment or commencement of proceedings against such Obligor is
involuntary, such action shall not constitute an Event of Default unless such
appointment is not revoked or such proceedings are not dismissed within thirty
(30) days after the commencement of such proceedings;
(i) the entry of any judgment or order against any Obligor which
remains unsatisfied or undischarged and in effect for thirty (30) days after
such entry without a stay of enforcement or execution to extent such judgements
exceed $50,000.00 outstanding at any time;
---------
(j) the death of any Obligor who is a natural Person, or of any
partner of any Obligor which is a partnership, or any member of a limited
liability company or the dissolution of any Obligor which is a partnership
limited liability company or corporation;
(k) the occurrence of an event of default under, or the revocation
or termination of, any agreement, instrument or document executed and delivered
by any Person to Bank pursuant to which such Person has guaranteed to Bank the
payment of all or any of the Liabilities or has granted Bank a security interest
in or lien upon some or all of such Person's real and/or personal property to
secure the payment of all or any of the Liabilities;
(l) the institution in any court of a criminal proceeding for which
the possibility of a forfeiture of assets exists against any Obligor, or the
indictment of any Obligor for any crime other than traffic and boating tickets
and misdemeanors not punishable by jail terms; and
(m) Bank shall reasonably feel insecure for fear of removal or waste
of the Collateral, or any part thereof.
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<PAGE>
13. REMEDIES UPON AN EVENT OF DEFAULT.
(a) Upon the occurrence of an Event of Default described in
subparagraph 12(g) hereof, all of Borrower's Liabilities shall immediately and
automatically become due and payable, without notice of any kind. Upon the
occurrence of any other Event of Default, all Liabilities may, at the option of
Bank, upon demand but without legal process of any kind, be declared, and
immediately shall become, due and payable.
(b) Upon the occurrence of an Event of Default, Bank may exercise
from time to time any rights and remedies available to it under the Uniform
Commercial Code and any other applicable law in addition to, and not in lieu of,
any rights and remedies expressly granted in this Agreement or in any of the
Other Agreements and all of Bank's rights and remedies shall be cumulative and
non-exclusive to the extent permitted by law. In particular, but not by way of
limitation of the foregoing, Bank may, without notice, demand or legal process
of any kind, take possession of any or all of the Collateral (in addition to
Collateral of which it already has possession), wherever it may be found, and
for that purpose may pursue the same wherever it may be found, and may enter
onto any of Borrower's premises where any of the Collateral may be, and search
for, take possession of, remove, keep and store any of the Collateral until the
same shall be sold or otherwise disposed of, and Bank shall have the right to
store the same at any of Borrower's premises without cost to Bank. At Bank's
request, Borrower shall, at Borrower's expense, assemble the Collateral and make
it available to Bank at one or more places to be designated by Bank and
reasonably convenient to Bank and Borrower. Borrower recognizes that if Borrower
fails to perform, observe or discharge any of its Liabilities under this
Agreement or the Other Agreements, no remedy at law will provide adequate relief
to Bank, and agrees that Bank shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages. Any notification of intended disposition of any of the Collateral
required by law will be deemed reasonably and properly given if given at least
five (5) calendar days before such disposition. Any proceeds of any disposition
by Bank of any of the Collateral may be applied by Bank to the payment of
expenses in connection with the Collateral, including, without limitation, legal
expenses and reasonable attorneys' fees, and any balance of such proceeds may be
applied by Bank toward the payment of such of the Liabilities, and in such order
of application, as Bank may from time to time elect.
14. INDEMNIFICATION. Borrower agrees to defend (with counsel
satisfactory to Bank), protect, indemnify and hold harmless Bank, each affiliate
or subsidiary of Bank, and each of their respective officers, directors,
employees, attorneys and agents (each an "INDEMNIFIED PARTY") from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature (including, without limitation, the disbursements and the reasonable fees
of counsel for each Indemnified Party in connection with any investigative,
administrative or judicial proceeding, whether or not the Indemnified Party
shall be designated a party thereto), which may be imposed on, incurred by, or
asserted against, any Indemnified Party (whether direct, indirect or
consequential and whether based on any federal, state or local laws or
regulations, including, without limitation, securities, Environmental Laws and
commercial laws and regulations, under common law or in equity, or based on
contract or otherwise) in any manner relating to or arising out of this
Agreement or any Other Agreement, or any act, event or transaction related or
attendant thereto, the making or issuance and the management of the Loans or any
Letter of Credit or the use or intended use of the proceeds of the Loans or any
Letter of Credit; provided, however, that Borrower shall not have any obligation
hereunder to any Indemnified Party with respect to matters caused by or
resulting from the willful misconduct or gross negligence of such Indemnified
Party. To the extent that the undertaking to indemnify set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, Borrower shall satisfy such undertaking to the maximum extent
permitted by applicable law. Any liability, obligation, loss, damage, penalty,
cost or expense covered by this indemnity shall be paid to each Indemnified
Party on demand, and, failing prompt payment, shall, together with interest
thereon at the highest rate then applicable to Loans hereunder from the date
incurred by each Indemnified Party until paid by Borrower, be added to the
Liabilities of Borrower and be secured by the Collateral. The provisions of this
paragraph 14 shall survive the satisfaction and payment of the other Liabilities
and the termination of this Agreement.
15. NOTICE. All written notices and other written communications
with respect to this Agreement shall be sent by ordinary, certified or overnight
mail, by telecopy or delivered in person, and in the case of Bank shall be sent
to it at 135 South LaSalle Street, Chicago, Illinois 60603-4105, Attention:
Asset Based Lending Division, and in the case of Borrower shall be sent to it at
its principal place of business set forth on the first page of this Agreement or
as otherwise directed by Borrower in writing.
16. CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION. This
Agreement and the Other Agreements are submitted by Borrower to Bank for Bank's
acceptance or rejection at Bank's principal place of business as an offer by
Borrower to borrow monies from Bank now and from time to time hereafter, and
shall not be binding upon Bank or become effective until accepted by Bank, in
writing, at said place of business. If so accepted by Bank, this Agreement and
the Other Agreements shall be deemed to have been made at said place of
business. THIS AGREEMENT AND THE OTHER AGREEMENTS SHALL BE GOVERNED AND
CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS AS TO INTERPRETATION,
ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT AND IN ALL OTHER RESPECTS,
INCLUDING, WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER
CHARGES, BUT EXCLUDING PERFECTION OF THE SECURITY INTERESTS IN COLLATERAL
LOCATED OUTSIDE OF THE STATE OF ILLINOIS, WHICH SHALL BE GOVERNED AND CONTROLLED
BY THE LAWS OF THE RELEVANT JURISDICTION IN WHICH SUCH COLLATERAL IS LOCATED. If
any provision of this Agreement shall be held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or remaining provisions of this Agreement.
To induce Bank to accept this Agreement, Borrower irrevocably agrees that,
subject to Bank's sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY
WAY, MANNER OR RESPECT ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE
OTHER AGREEMENTS OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS
WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN
SAID CITY AND STATE. Borrower hereby irrevocably appoints and designates the
Secretary of State of Illinois, whose address is Springfield, Illinois (or any
other person having and maintaining a place of business in such state whom
Borrower may from time to time hereafter designate upon ten (10) days written
notice to Bank and whom Bank has agreed, in its sole discretion,
-11-
<PAGE>
in writing is satisfactory and who has executed an agreement in form and
substance satisfactory to Bank agreeing to act as such attorney and agent), as
Borrower's true and lawful attorney and duly authorized agent for acceptance of
service of legal process. Borrower agrees that service of such process upon such
person shall constitute personal service of such process upon Borrower. Bank
agrees to endeavor to provide a copy of such process to the law firm of
Sonnenschein Nath & Rosenthal by mail at the address of 8000 Sears Tower, 233 S.
Wacker Drive, Chicago, Illinois 60606 or by facsimile transmission at facsimile
number (312) 876-7934. Failure of Bank to provide a copy of such process shall
not impair Bank's rights hereunder. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE
TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY
BANK IN ACCORDANCE WITH THIS PARAGRAPH. Bank consents to the law firm of
Sonnenschein Nath & Rosenthal acting as Borrower's attorney and agent for the
acceptance of process so long as the law firm of Sonnenschein Nath & Rosenthal
maintains a place of business in the State of Illinois and executes an agreement
in form and substance satisfactory to Bank agreeing to act as such attorney and
agent.
17. MODIFICATION AND BENEFIT OF AGREEMENT. This Agreement and the
Other Agreements may not be modified, altered or amended except by an agreement
in writing signed by Borrower or such other person who is a party to such Other
Agreement and Bank. Borrower may not sell, assign or transfer this Agreement or
the Other Agreements or any portion thereof, including, without limitation,
Borrower's rights, titles, interest, remedies, powers or duties hereunder and
thereunder. Borrower hereby consents to Bank's sale, assignment, transfer or
other disposition, at any time and from time to time hereafter, of this
Agreement or the Other Agreements, or of any portion thereof, or participations
therein, including, without limitation, Bank's rights, titles, interest,
remedies, powers and/or duties and agrees that it shall execute and deliver such
documents as Bank may request in connection with any such sale, assignment,
transfer or other disposition.
18. HEADINGS OF SUBDIVISIONS. The headings of subdivisions in this
Agreement are for convenience of reference only, and shall not govern the
interpretation of any of the provisions of this Agreement.
19. POWER OF ATTORNEY. Borrower acknowledges and agrees that its
appointment of Bank as its attorney and agent-in-fact for the purposes specified
in this Agreement is an appointment coupled with an interest and shall be
irrevocable until all of the Liabilities are satisfied and paid in full and this
Agreement is terminated.
20. CONFIDENTIALITY. Borrower and Bank hereby agree and acknowledge
that any and all information relating to Borrower which is (i) furnished by
Borrower to Bank (or to any affiliate of Bank); and (ii) non-public,
confidential or proprietary in nature, shall be kept confidential by Bank or
such affiliate in accordance with applicable law; provided, however, that such
information and other credit information relating to Borrower may be distributed
by Bank or such affiliate to Bank's or such affiliate's directors, officers,
employees, attorneys, affiliates, assignees, participants, auditors and
regulators, and upon the order of a court or other governmental agency having
jurisdiction over Bank or such affiliate, to any other party. Borrower and Bank
further agree that this provision shall survive the termination of this
agreement.
21. WAIVER OF JURY TRIAL; OTHER WAIVERS.
(a) BORROWER AND BANK EACH HEREBY WAIVE ALL RIGHTS TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS
AGREEMENT, ANY OF THE OTHER AGREEMENTS, THE LIABILITIES, THE COLLATERAL, ANY
ALLEGED TORTIOUS CONDUCT BY BORROWER OR BANK OR WHICH, IN ANY WAY, DIRECTLY OR
INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWER AND
BANK. IN NO EVENT SHALL BANK BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR
CONSEQUENTIAL DAMAGES.
(b) Borrower hereby waives demand, presentment, protest and notice
of nonpayment, and further waives the benefit of all valuation, appraisal and
exemption laws.
(c) BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY
KIND PRIOR TO THE EXERCISE BY BANK OF ITS RIGHTS TO REPOSSESS THE COLLATERAL OF
BORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH
COLLATERAL; provided that in the event that Bank seeks to enforce its rights
hereunder by judicial process, Bank shall provide Borrower with such notices as
are required by law.
(d) Bank's failure, at any time or times hereafter, to require
strict performance by Borrower of any provision of this Agreement or any of the
Other Agreements shall not waive, affect or diminish any right of Bank
thereafter to demand strict compliance and performance therewith. Any suspension
or waiver by Bank of an Event of Default under this Agreement or any default
under any of the Other Agreements shall not suspend, waive or affect any other
Event of Default under this Agreement or any other default under any of the
Other Agreements, whether the same is prior or subsequent thereto and whether of
the same or of a different kind or character. No delay on the part of Bank in
the exercise of any right or remedy under this Agreement or any Other Agreement
shall preclude other or further exercise thereof or the exercise of any right or
remedy. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or any of the Other
Agreements and no Event of Default under this Agreement or default under any of
the Other Agreements shall be deemed to have been suspended or waived by Bank
unless such suspension or waiver is in writing, signed by a duly authorized
officer of Bank and directed to Borrower specifying such suspension or waiver.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the 27th day of May, 1998.
-- ---
Dorson Sports, Inc. LASALLE NATIONAL BANK
- ------------------------------
By /s/ Lawrence Geller By /s/ Robert S. Corsentino
--------------------------- -------------------------------
Title Assistant Secretary Title Senior Vice President
________________________ ________________________
and
By_________________________
Title___________________
-13-
<PAGE>
EXHIBIT B - BUSINESS AND COLLATERAL LOCATIONS
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between Dorson Sports, Inc. ("BORROWER") and LASALLE NATIONAL
-------------------
BANK ("BANK").
A. Borrower's Business Locations (please indicate which location is the
principal place of business and at which locations originals and all copies of
Borrower's books, records and accounts are kept).
1 One Roebling Court
Ronkonkoma, New York 11779
(leased property/principal place of business)
2.
3.
B. Other locations of Collateral (including, without limitation, warehouse
locations, processing locations, consignment locations) and all post office
boxes of Borrower. Please indicate the relationship of such location to Borrower
(i.e. public warehouse, processor, etc.).
1. 51 Roebling Court
Ronkonkoma, New York 11779
(leased property)
2. c/o Mary Haven Industries
101 County Road
Yaphank, New York 11980
(processor location)
3.
-14-
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS
----------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between DORSON SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
CREDIT TERMS
____________
(1) LOAN LIMIT: Bank may, in its sole discretion, advance an amount up to the
sum of the following sublimits (the "Loan Limit"):
(a) Subject to subparagraph (3)(a) of this Exhibit A, up to eighty-five
percent (85%) of the face amount (less maximum discounts, credits
and allowances which may be taken by or granted to Account Debtors
in connection therewith) of Borrower's Eligible Accounts, whichever
is less; plus
----
(b) Up to sixty percent (60%) of the lower of the cost or market
value of Borrower's Eligible Inventory or Six Million and No/100
Dollars ($6,000,000.00), whichever is less, MINUS the outstanding
-----
amount of all Loans to (I) Apple Golf Shoes, Inc. ("Apple Golf")
pursuant to subparagraph (1)(b) of Exhibit A of the Apple Golf
Agreement, as hereinafter defined; and (II) Apple Sports, Inc.
("Apple Sports") pursuant to subparagraph (1)(b) of Exhibit A of the
Apple Sports Agreement, as hereinafter defined;
provided, that the aggregate Loan Limit shall in no event exceed
THREE MILLION AND NO/100 DOLLARS ($3,000,000.00), except as such
amount may be increased or decreased by Bank, in its sole
discretion, from time to time; and
further provided, that the aggregate amount of Loans to (I) Borrower
under this Agreement; (II) Apple Golf under and as defined in that
certain Loan and Security Agreement entered into by and between
Apple Golf and Bank of even date herewith (the "Apple Golf
Agreement"); and (III) Apple Sports under and as defined in that
certain Loan and Security Agreement entered into by and between
Apple Sports and Bank of even date herewith (the "Apple Sports
Agreement") shall in no event exceed TWELVE MILLION AND NO/100
DOLLARS ($12,000,000.00).
BORROWER: DORSON SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
---------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ -------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 2
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between DORSON SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
(2) LETTERS OF CREDIT: Subject to the terms and conditions of this Agreement,
including Exhibit A, and the Other Agreements, during the Original Term or
any Renewal Term, Bank may, in its sole discretion from time to time
issue, upon Borrower's request, Commercial and/or Standby Letters of
Credit; provided, that the aggregate undrawn face amount of all such
Letters of Credit issued on behalf of Borrower, Apple Golf, and Apple
Sports shall at no time exceed Five Million and No/100 Dollars
($5,000,000.00). Bank's contingent liability under the Letters of Credit
shall automatically reduce, dollar for dollar, the amount which Borrower
may borrow based upon the Loan Limit. Payments made by Bank to any Person
on account of any Letter of Credit shall constitute Loans hereunder. At no
time shall the aggregate of direct Loans by Bank to Borrower plus the
contingent liability of Bank under the outstanding Letters of Credit be in
excess of the Loan Limit. Borrower shall remit to Bank a Letter of Credit
fee equal to one-fourth of one percent (1/4th of 1%) per month on the
aggregate undrawn face amount of all Letters of Credit outstanding, which
fee shall be payable monthly in arrears on each day that interest is
payable hereunder. Borrower shall also pay on demand Bank's normal and
customary administrative charges for issuance of any Letter of Credit.
(3) ADDITIONS TO ELIGIBLE ACCOUNTS CRITERIA:
(a) DATINGS: Invoices that otherwise meet the criteria for Eligible
Accounts and that are due and payable on or before a specified
due date shall be considered ineligible for borrowing purposes if
they are not paid within thirty (30) days of the date upon which
they are due. In the event any such invoice is not paid within
one hundred eighty (180) days of its invoice date, then all
Accounts payable by that Account Debtor may, at the sole option
of Bank, be considered ineligible.
(4) INTEREST RATE: Subject to the terms and conditions set forth below, the
Loans shall bear interest at the per annum rate of interest set forth in
subsection (a) or (b) below:
BORROWER: DORSON SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 3
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between DORSON SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
(a) Bank's publicly announced prime rate per annum (which is not
intended to be Bank's lowest or most favorable rate in effect at any
time) (the "Prime Rate") in effect from time to time, payable on the
last Business Day of each month in arrears. Said rate of interest
shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the effective date of each
such change in the Prime Rate.
(b) Two and one-half percent (2-1/2%) per annum in excess of the per
annum rate of interest at which U.S. Dollar deposits of an amount
comparable to the amount of the Loans and for a period equal to
the relevant Interest Period (as hereinafter defined) are offered
generally to Bank (rounded upward if necessary to the nearest
1/1000 of 1.00%) in the London Interbank Eurodollar market at
11:00 a.m. (London time) two (2) Business Days prior to the
commencement of each Interest Period ("LIBOR"), such rate to
remain fixed for such Interest Period. "Interest Period" shall
mean any continuous period of thirty (30), sixty (60), ninety
(90) or one hundred eighty (180) days, as selected from time to
time by Borrower by irrevocable notice (in writing, by telex,
telegram or cable) given to Bank not less than three (3) Business
Days prior to the first day of each respective Interest Period
commencing on the date hereof; provided that: (i) each such
period occurring after such initial period shall commence on the
day on which the immediately preceding period expires; (ii) the
final Interest Period shall be such that its expiration occurs on
or before the end of the Original Term or any Renewal Term; and
(iii) if for any reason Borrower shall fail to timely select a
period, then such Loans shall continue as, or revert to, Prime
Rate Loans. Interest shall be payable on the last Business Day
of each month and on the date of any payment hereon by Borrower.
Upon the occurrence of an Event of Default, the Loans shall bear
interest at the rate of two percent (2.0%) per annum in excess of
the interest rate otherwise payable thereon, which interest shall be
BORROWER: DORSON SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 4
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between DORSON SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
payable on demand. All interest shall be calculated on the basis of
a 360-day year.
(4).(1) OTHER LIBOR PROVISIONS:
(a) Subject to the provisions of this Agreement, Borrower
shall have the option (i) as of any date, to convert all or
any part of the Prime Rate Loans to, or request that new
Loans be made as, LIBOR Rate Loans of various Interest
Periods, (ii) as of the last day of any Interest Period, to
continue all or any portion of the relevant LIBOR Rate
Loans as LIBOR Rate Loans; (iii) as of the last day of any
Interest Period, to convert all or any portion of the LIBOR
Rate Loans to Prime Rate Loans; and (iv) at any time, to
request new Loans as Prime Rate Loans; provided, that Loans
may not be continued as or converted to LIBOR Rate Loans,
if the continuation or conversion thereof would violate the
provisions of subparagraphs (4).(1)(b) and (4).(1)(c) of
this Exhibit A or if an Event of Default has occurred.
(b) Bank's determination of LIBOR as provided above shall be
conclusive, absent manifest error. Furthermore, if Bank
determines, in good faith (which determination shall be
conclusive, absent manifest error), prior to the
commencement of any Interest Period that (i) U.S. Dollar
deposits of sufficient amount and maturity for funding the
Loans are not available to Bank in the London Interbank
Eurodollar market in the ordinary course of business, or
(ii) by reason of circumstances affecting the London
Interbank Eurodollar market, adequate and fair means do not
exist for ascertaining the rate of interest to be
applicable to the Loans requested by Borrower to be LIBOR
Rate Loans or the Loans bearing interest at the rates set
forth in subparagraph (4)(b) of this Exhibit A shall not
represent the effective pricing to Bank for U.S. Dollar
deposits of a comparable amount for the relevant period
(such as for example, but not limited to,
BORROWER: DORSON SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 5
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between DORSON SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
official reserve requirements required by Regulation D to
the extent not given effect in determining the rate), Bank
shall promptly notify Borrower and (x) all existing LIBOR
Rate Loans shall convert to Prime Rate Loans upon the end of
the applicable Interest Period, and (y) no additional LIBOR
Rate Loans shall be made until such circumstances are cured.
(c) If, after the date hereof, the introduction of, or any
change in any applicable law, treaty, rule, regulation or
guideline or in the interpretation or administration
thereof by any governmental authority or any central bank
or other fiscal, monetary or other authority having
jurisdiction over Bank or its lending offices (a
"Regulatory Change"), shall, in the opinion of counsel to
Bank, make it unlawful for Bank to make or maintain LIBOR
Rate Loans, then Bank shall promptly notify Borrower and
(i) the LIBOR Rate Loans shall immediately convert to Prime
Rate Loans on the last Business Day of the then existing
Interest Period or on such earlier date as required by law
and (ii) no additional LIBOR Rate Loans shall be made until
such circumstance is cured.
(d) If, for any reason, a LIBOR Rate Loan is paid prior to the
last Business Day of any Interest Period or if a LIBOR Rate
Loan does not occur on a date specified by Borrower in its
request (other than as a result of a default by Bank),
Borrower agrees to indemnify Bank against any loss
(including any loss on redeployment of the funds repaid),
cost or expense incurred by Bank as a result of such
prepayment.
(e) If any Regulatory Change (whether or not having the force
of law) shall (i) impose, modify or deem applicable any
assessment, reserve, special deposit or similar requirement
against assets held by, or deposits in or for the account
of or loans by, or any other acquisition of funds or
disbursements by, Bank; (ii) subject Bank or the LIBOR Rate
Loans to any tax, duty, charge, stamp tax or fee or change
the basis of
BORROWER: DORSON SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 6
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between DORSON SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
taxation of payments to Bank of principal or interest due
from Borrower to Bank hereunder (other than a change in the
taxation of the overall net income of Bank); or (c) impose
on Bank any other condition regarding the LIBOR Rate
Loans or Bank's funding thereof, and Bank shall determine
(which determination shall be conclusive, absent any
manifest error) that the result of the foregoing is to
increase the cost to Bank of making or maintaining the
LIBOR Rate Loans or to reduce the amount of principal or
interest received by Bank hereunder, then Borrower shall
pay to Bank, on demand, such additional amounts as Bank
shall, from time to time, determine are sufficient to
compensate and indemnify Bank from such increased cost or
reduced amount.
(f) Each request for LIBOR Rate Loans shall be in an amount not
less than Five Hundred Thousand and No/100 Dollars
($500,000.00), and in integral multiples of, Five Hundred
Thousand and No/100 Dollars ($500,000.00).
(g) Unless otherwise specified by Borrower, all Loans shall be
Prime Rate Loans.
(h) No more than six (6) Interest Periods may be in effect with
respect to outstanding LIBOR Rate Loans at any one time.
(5) FEES AND CHARGES:
(a) FACILITIES FEES: Borrower, Apple Golf, and Apple Sports shall
jointly pay to Bank an unused line fee of one-fourth of one percent
(1/4th of 1%) of the difference between Twelve Million and No/100
Dollars ($12,000,000.00) and the average monthly loan balance of
Borrower, Apple Golf, and Apple Sports plus the aggregate undrawn
face amount of all Letters of Credit issued by Bank on behalf of
Borrower, Apple Golf, and Apple Sports which fee shall be fully
earned by Bank and payable monthly in arrears on each day that
interest is
BORROWER: DORSON SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
-----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ ---------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 7
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between DORSON SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
payable hereunder. Said fee shall be calculated on the basis of
a 360 day year.
(b) CLOSING FEE: Borrower, Apple Golf, and Apple Sports shall jointly
pay to Bank a closing fee of Twenty Thousand and No/100 Dollars
($20,000.00) which fee shall be fully earned by Bank and payable on
the date of disbursement under the Agreement.
(c) PREPAYMENT FEE: Notwithstanding the provisions of Paragraph 9 of the
Agreement, in the event that Borrower prepays the Liabilities prior
to the end of the Original Term or any applicable Renewal Term and
the Agreement is terminated as a result thereof, Borrower shall pay
a prepayment fee, jointly and severally with Apple Golf and Apple
Sports, equal to (i) three percent (3%) of the maximum Loan Limit if
such prepayment occurs on or before the first anniversary of the
date hereof; (ii) two percent (2%) of the maximum Loan Limit if such
prepayment occurs after the first anniversary of the date hereof,
but on or before the second anniversary of the date hereof; and
(iii) one percent (1%) of the maximum Loan Limit if such prepayment
occurs after the second anniversary of the date hereof but prior to
the end of the Original Term or any applicable Renewal Term.
ADDITIONS AND CHANGES TO COVENANTS
- -----------------------------------
(6) PERMITTED DIVIDENDS: If (a) Borrower remains an S corporation for
federal income tax purposes; (b) an Event of Default has not occurred
and will not occur as a result of the distribution; and (c) Borrower
gives Bank sufficient documentation to verify compliance with this
paragraph fifteen (15) days prior to the distribution, Borrower may
distribute to its shareholders the excess, if any, of the Deemed Tax Due
over the sum of all distributions previously made pursuant to this
paragraph. Deemed Tax Due means the sum of the products of the taxable
income or loss of Borrower and the Deemed Tax Rate (the product of a
loss and the Deemed Tax Rate being a negative number), for each and
every taxable period which falls in the period beginning on the date
hereof and ending
BORROWER: DORSON SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 8
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between DORSON SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
on the last day of the last period with respect to which tax (including
estimated tax) is due. Deemed Tax Rate means the sum of the highest New
York and federal individual rates (but adjusting for deductibility of
state income taxes).
(7) CHECKING ACCOUNT PROVISIONS: Borrower shall maintain its controlled
disbursement account with Bank. Normal charges shall be assessed
thereon.
(8) TANGIBLE NET WORTH: Notwithstanding the provisions of subparagraph 11(o)
of the Agreement, Borrower, Apple Golf, and Apple Sports shall at all
times maintain an aggregate tangible net worth of not less than the
Minimum Tangible Net Worth, as hereinafter defined. At all times from the
date hereof through December 30, 1998, "Minimum Tangible Net Worth" shall
equal tangible net worth as shown on Borrower's unaudited financial
statement. At all times from December 31, 1998 through December 30, 1999,
"Minimum Tangible Net Worth" shall equal tangible net worth as shown on
Borrower's unaudited financial statement, plus $250,000.00. Thereafter,
from December 31st of each year through December 30th of the following
year (the "Measurement Period"), Minimum Tangible Net Worth shall be equal
to the greater of (1) Borrower's tangible net worth as shown on Borrower's
fiscal year end statement as of the first day of the Measurement Period
and (2) the Minimum Tangible Net Worth as of the last day of the
immediately preceding fiscal year, plus $250,000.00; and "Tangible Net
Worth" being defined for purposes of this subparagraph with respect to any
Person, such Person's shareholders' equity (including retained earnings)
less the book value of all intangible assets as determined solely by Bank
on a consistent basis plus the amount of any LIFO reserve plus the amount
of any debt subordinated to Bank, all as determined under generally
accepted accounting principle applied on a basis consistent with the
financial statement dated _________________, 19__ except as set forth
herein.
BORROWER: DORSON SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 9
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between DORSON SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
ADDITIONS AND CHANGES TO DEFAULT PROVISIONS
- -------------------------------------------
(9) ADDITIONAL CROSS DEFAULT: In addition to the Events of Default specified
in Paragraph 12 of the Agreement, it shall be an Event of Default
hereunder if Apple Golf and/or Apple Sports shall fail to perform, keep or
observe any of the covenants, conditions, promises, agreements or other
obligations of Apple Golf and/or Apple Sports to Bank under any agreements
now or hereafter existing between Apple Golf and/or Apple Sports and Bank,
including, without limitation, that certain Apple Golf Agreement and/or
Apple Sports Agreement or in the event of the termination of said Apple
Golf Agreement and/or Apple Sports Agreement.
(10) SPECIFIC CROSS DEFAULT: In particular, but not by way of limitation of
subparagraph 12(c) of the Agreement, a default under, termination of or
amendment (without the prior written consent of Bank) in any material
respect of that certain Trademark License Agreement entered into by and
between Borrower and Wilson Sporting Goods Co. dated May 31, 1996, shall
constitute an Event of Default. For purposes of this paragraph,
termination shall include the giving of notice of termination of said
agreement by either Borrower or Wilson Sporting Goods Co.
(11) CHANGE OF CONTROL DEFAULT: In addition to the Events of Default
specified in Paragraph 12 of the Agreement, it shall be an Event of
Default hereunder if Empire of Carolina, Inc. shall cease to own and
have voting control over at least 66 2/3% of the issued and outstanding
stock of Borrower.
(12) CHANGE OF MANAGEMENT DEFAULT: In addition to the Events of Default
specified in Paragraph 12 of the Agreement, it shall be an Event of
Default hereunder if any of ________________, ________________ or
__________________ shall cease to be the _________________,
______________________ or ___________________, respectively, of
Borrower.
BORROWER: DORSON SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
----------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ --------------------------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 10
-------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between DORSON SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
CONDITIONS TO CLOSING
- ----------------------
(13) ADDITIONAL CONDITIONS TO CLOSING: Bank shall be under no obligation to
consummate the transactions contemplated by this Agreement until each of
the conditions listed in this Paragraph (13) has been satisfied.
Whenever a condition contained herein requires delivery of an agreement
or other document to Bank, each such agreement or other document shall
be in form and substance satisfactory to Bank in its sole discretion.
(a) OWNER'S AGREEMENT: Borrower shall cause to be executed in favor of
Bank and delivered to Bank a Owner's Agreement from each owner of
property(ies) set forth on Exhibit B.
(b) GUARANTIES: Borrower shall cause to be executed in favor of Bank and
delivered to Bank the Continuing Unconditional Guaranties of each of
Apple Golf and Apple Sports of any and all indebtedness of Borrower
to Bank.
(c) PROCESSOR'S LETTERS: Bank hereby acknowledges that Eligible
Inventory is and from time to time may be delivered to a processor
for processing at the locations set forth in Exhibit B. Relative
thereto, Borrower shall cause each such party to execute and deliver
a Processor's Letter to Bank and shall cause each such party to
execute and deliver a Uniform Commercial Code Financing Statement to
Bank.
(d) TRADEMARK SECURITY AGREEMENT: Borrower shall execute and deliver to
Bank a Trademark Security Agreement.
(e) SERVICE OF PROCESS: Borrower shall execute and deliver and shall
cause Sonnenschein Nath & Rosenthal to execute and deliver to Bank
an agreement wherein Sonnenschein Nath & Rosenthal shall agree to
accept service of process on behalf of Borrower.
Borrower: DORSON SPORTS, INC.
Initialed For Borrower By: /s/ LG
---------
Date: May 27, 1998 Initialed For Bank By: /s/ RSC
------------ ----------
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 11
--------------------------------------
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between DORSON SPORTS, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
(f) ATTORNEY'S OPINION LETTER: Borrower shall cause to be executed and
delivered to Bank and Attorney's Opinion Letter.
OTHER PROVISIONS
- ----------------
(14) PERMITTED LIENS: Bank acknowledges that the liens evidenced by the
following filed financing statements and any amendments thereto, as said
financing statements exist as of ____________, 1998, shall constitute
Permitted Liens:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BORROWER: DORSON SPORTS, INC.
INITIALED FOR BORROWER BY: /s/ LG
---------------------
DATE: MAY 27, 1998 INITIALED FOR BANK BY: /s/ RSC
_______ -------------------------
EXHIBIT 21
EMPIRE OF CAROLINA, INC.
-----------------------
SUBSIDIARIES
------------
<TABLE>
<S> <C>
PERCENTAGE OF VOTING
COUNTRY OR STATE OF SECURITIES OWNED
NAME OF SUBSIDIARY INCORPORATION BY THE COMPANY
- ------------------- ------------------- ---------------------
Empire Industries, Inc. (1) (2) North Carolina 100%
Empire Toys (Hong Kong), Ltd. (2) (3) Hong Kong 99.9%
CLR Corporation Delaware 75%
Carnichi Limited Hong Kong 100%
Apple Sports, Inc. New York 100%
Apple Golf Shoes, Inc. New York 100%
(1) The name of this corporation was changed from Carolina Enterprises, Inc.
to Empire Industries, Inc. as of February 7, 1995. Empire Industries,
Inc. does business under the names "Empire of Carolina", "Empire
Manufacturing", "Marchon", and "Caldwell Button Company."
(2) Effective May, 1996, Empire Manufacturing, Inc. and Marchon, Inc.,
wholly-owned subsidiaries of Empire of Carolina, Inc., were merged into
Empire Industries, Inc., and Marchon, Inc.'s subsidiary, Marchon Toys,
Ltd., was dividend up to Empire of Carolina, Inc.
(3) The name of this Corporation was changed from Marchon Toys, Ltd. as of
March 6, 1998.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONSOLIDATED BALANCE SHEET AND THE UNAUDITED
STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,665
<SECURITIES> 0
<RECEIVABLES> 20,467
<ALLOWANCES> 5,140
<INVENTORY> 18,498
<CURRENT-ASSETS> 42,310
<PP&E> 39,648
<DEPRECIATION> 27,028
<TOTAL-ASSETS> 74,220
<CURRENT-LIABILITIES> 47,166
<BONDS> 0
<COMMON> 1,403
0
20
<OTHER-SE> 16,714
<TOTAL-LIABILITY-AND-EQUITY> 74,220
<SALES> 32,202
<TOTAL-REVENUES> 32,202
<CGS> 24,223
<TOTAL-COSTS> 24,223
<OTHER-EXPENSES> 10,128
<LOSS-PROVISION> 250
<INTEREST-EXPENSE> (2,080)
<INCOME-PRETAX> (4,479)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,479)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,479)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
