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 September 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-6633
FOR BETTER LIVING, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-2598411
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
13620 Lincoln Way, #380 95603-3236
Auburn, California (Zip code)
(Address of principal executive offices)
(916) 823-9600
(Registrant's telephone number, including area code)
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 twelve months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of November 7, 1997:
Common Stock, $.05 par value - 877,616 shares.
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FOR BETTER LIVING, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, September 27, 1997, and 3
December 28, 1996
Condensed Consolidated Statements of Operations for the Three 4
Months Ended September 27, 1997 and September 28, 1996 and for
the Nine Months Ended
September 27, 1997 and September 28, 1996
Condensed Consolidated Statements of Cash Flows for the Nine 5
Months Ended September 27, 1997 and September 28, 1996
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 7
Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 8
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FOR BETTER LIVING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 27, December 28,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,742,000 $ 1,518,000
Accounts receivable - trade (less allowance for doubtful accounts of $1,102,000
and $847,000 at September 27, 1997 and December 28, 1996 , respectfully) 18,173,000 17,259,000
Inventories 11,810,000 9,978,000
Deferred income taxes 1,480,000 1,873,000
Other 3,353,000 2,483,000
------------ ------------
Total current assets 38,558,000 33,111,000
------------ ------------
PROPERTY:
Property at cost 46,198,000 40,379,000
Less accumulated depreciation and amortization (29,289,000) (29,271,000)
------------ ------------
Property - net 16,909,000 11,108,000
------------ ------------
AVAILABLE-FOR-SALE SECURITIES -- 164,000
------------ ------------
OTHER ASSETS 3,017,000 2,633,000
------------ ------------
TOTAL $ 58,484,000 $ 47,016,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations $ 1,876,000 $ 1,624,000
Accounts payable - trade 5,033,000 4,647,000
Accrued salaries and wages 2,188,000 2,976,000
Deferred income 2,251,000 2,009,000
Other 3,045,000 2,273,000
------------ ------------
Total current liabilities 14,393,000 13,529,000
------------ ------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 26,756,000 15,565,000
------------ ------------
OTHER LIABILITIES (primarily deferred compensation) 786,000 893,000
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock - par value $1.00 per share (authorized, 150,000 shares;
outstanding, none)
Common stock - par value $.05 per share (authorized, 2,500,000
shares; outstanding, 877,616 shares) 44,000 44,000
Additional paid-in capital 1,083,000 1,083,000
Treasury stock, at cost, 200 shares (3,000) --
Unrealized net gains and losses on available-for-sale securities -- 33,000
Retained earnings 15,425,000 15,869,000
------------ ------------
Total stockholders' equity 16,549,000 17,029,000
------------ ------------
TOTAL $ 58,484,000 $ 47,016,000
============ ============
<FN>
See the accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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FOR BETTER LIVING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- ----------------------------
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES $ 28,316,000 $ 24,126,000 $ 75,959,000 $ 71,437,000
------------ ------------ ------------ ------------
COST AND EXPENSES:
Cost of sales 18,801,000 15,646,000 50,052,000 46,627,000
Selling, general and administrative expenses 9,244,000 7,927,000 26,674,000 22,859,000
Interest expense 589,000 396,000 1,472,000 1,161,000
------------ ------------ ------------ ------------
Total cost and expenses 28,634,000 23,969,000 78,198,000 70,647,000
------------ ------------ ------------ ------------
OTHER INCOME 1,643,000 -- 1,643,000 --
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR TAXES 1,325,000 157,000 (596,000) 790,000
PROVISION (BENEFIT) FOR TAXES 534,000 63,000 (239,000) 317,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 791,000 $ 94,000 $ (357,000) $ 473,000
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE: $ 0.90 $ 0.11 $ (0.41) $ 0.54
------------ ------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 877,749 877,816 877,794 877,816
============ ============ ============ ============
CASH DIVIDENDS PER COMMON SHARE $ 0.00 $ 0.00 $ 0.10 $ 0.10
============ ============ ============ ============
<FN>
See the accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
FOR BETTER LIVING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended
-----------------------------
September 27, September 28,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (357,000) 473,000
Depreciation, depletion and amortization 1,406,000 1,223,000
Other (3,197,000) (5,110,000)
NET CASH USED IN OPERATING ACTIVITIES $ (2,148,000) $ (3,414,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property (7,108,000) (1,917,000)
Purchases of available-for-sale securities -- (373,000)
Proceeds from the sale of property and available-for-sale securities 175,000 3,714,000
------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (6,933,000) 1,424,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 12,086,000 3,071,000
Proceeds from short-term borrowings 250,000 --
Payment of long-term debt and capital lease obligations (940,000) (1,219,000)
Dividends paid (88,000) (88,000)
Purchase of treasury shares (3,000) --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES
11,305,000 1,764,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,224,000 (226,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,518,000 1,528,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 3,742,000 1,302,000
============ ============
CASH PAID (REFUNDED) DURING THE PERIOD FOR THE FOLLOWING:
Interest $ 1,378,000 $ 1,028,000
============ ============
Income taxes ($ 326,000) $ 46,000
============ ============
<FN>
See the accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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FOR BETTER LIVING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and, in
the opinion of the Company, include all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the financial
position, results of operations and changes in cash flows of the Company as
of the dates and for the periods indicated. All significant intercompany
transactions have been eliminated. Certain amounts as previously reported
have been reclassified to conform to the current period presentation.
2. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full fiscal year.
3. Inventories consist of the following:
September 27, December 28,
1997 1996
---------------- ----------------
Finished Products $ 6,585,000 $ 6,550,000
Work-in-process 346,000 398,000
Raw Materials and supplies 4,914,000 2,995,000
---------------- ----------------
Total Inventories $ 9,978,000 $ 11,810,000
================ ================
3. The Company received, in prior periods, notices of proposed
assessments from the California Franchise Tax Board ("CFTB") relating to
its 1978-1981 tax years. The Company paid the assessed taxes of $379,000
and associated interest of $946,000 in 1992. The Company prevailed at the
California Court of Appeal and received a $2,036,000 return of tax and
interest in September 1997, recognizing $1,643,000 as other income and the
remainder as an adjustment to its tax provision.
Deductions similar to those disallowed by the CFTB for the 1978-1981
tax years were also taken by the Company in its subsequent tax years. The
CFTB has recently examined those subsequent periods and, as a result of its
examination, has issued a notice of proposed assessment of additional taxes
for tax years 1982-1987. The proposed assessment is for $272,000 in
additional taxes which would result in associated interest expense of
approximately $599,000 through the third quarter of 1997. In light of the
ruling in the 1978 through 1981 tax years the Company believes that these
assessments will be dismissed.
5. In August 1997 the Company amended its loan and security agreement with
its lender to provide for: (i) a seven-year term loan in the principal
amount of $6,000,000 used to finance equipment and repay existing debt,
(ii) a five-year revolving credit facility in an amount up to $30,000,000
used to refinance the Company's previously existing credit facility and to
provide working capital, (iii) an eight-year real property term facility in
an amount up to $4,500,000, and (iv) a five-year capital expenditure
facility not to exceed $3,000,000 (collectively, the "Quikset Loans").
The Quikset Loans provide $30,000,000 maximum credit availability, bear
interest at rates equal to the prime rate plus .25% to prime plus 1.00% and
are secured entirely by assets of The Quikset Organization.
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FOR BETTER LIVING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. In September 1997 the Company purchased the approximately 43 acre site
of the Quikset Associated Concrete Products Santa Ana plant for $3.8
million plus costs. The Company financed the purchase through a new loan
agreement using the site as collateral. The Company intends to continue to
operate the Quikset manufacturing facility at current capacity and will
evaluate options for any land surplus to its concrete manufacturing needs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Requirements
Over the first nine months of 1997 $2,148,000 of cash was used by
operations. Cash generated from financing and investment activities included
$7,586,000 proceeds from the Quikset Loans, $4,500,000 mortgage proceeds,
$250,000 of short-term borrowings and $175,000 from the sale of property and
available for sale securities. These funds were used to support cash used by
operations, $7,108,000 of capital expenditures, $940,000 of debt payments, and
$88,000 of dividend payments.
The Company's management believes that its liquidity position at September
27, 1997, together with funds anticipated to be generated from its operations
and available under its revolving credit, real estate term and equipment
financing facilities will provide sufficient cash resources to finance its
operating activities.
Results of Operations
For Better Living's net revenues for the nine months ended September 27,
1997 increased $4,522,000, or 6.3%, compared to the same period last year. Third
quarter revenues increased $4,190,000, or 17.4%. The increase in year to date
and third quarter revenues was largely due to increased demand at The Quikset
Organization's California concrete operations and its plastics operations and
continued growth in advertising and newsstand revenues at the Communications
Group.
For the nine months ended September 27, 1997, For Better Living's
income before taxes decreased $1,386,000, or 175.4%, compared to the same period
last year. Third quarter earnings before taxes increased $1,168,000 or 743.9%,
compared to the same period last year. The decrease in year to date earnings
before taxes was due primarily to increased selling, general and administrative
expenses at both The Quikset Organization and the Communications Group. The
Quikset Organization increased its selling, general and administrative expenses
to support continued growth in its revenue base. The Communications Group
continued to increase the level of spending in its new magazine, Inside Golf,
and in Bike Magazine in an effort to increase circulation growth and the demand
for advertising space. These investments are reflected in higher selling,
general and administrative expenses. Settlement of the dispute with the
California Franchise Tax Board in September 1997 resulted in other income of
$1,643,000 and was the primary contributor to the earnings growth of the third
quarter.
The Communications Group decided, in October 1997, to suspend
publication of its new magazine, Inside Golf.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Interest expense increased in 1997 primarily due to an increase in
borrowings under the line of credit arrangement from the comparable period
of the prior year.
Net gains recognized on the disposition of available-for-sale
securities for the nine months ended September 27, 1997 and September 28,
1996 were $52,000 and $318,000, respectively.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibits are filed as part of this Report: The numbers refer
to the Exhibit Table of Item 601 of Regulation S-K.
3.1 Certificate of Incorporation. Incorporated by reference to Exhibit
3.1 of the Registrant's Amended Form 10-K for the year ended
December 30, 1995.
3.2 By-Laws of the Registrant. Incorporated by reference to Exhibit 3.2
of the Registrant's Amended Form 10-K for the year ended December
30, 1995.
10 Amended and Restated Loan and Security Agreement with the CIT
Group/Credit Finance, dated August 14, 1997.
27 Financial Data Schedule
(b) There were no reports on Form 8-K filed for the three months ended
September 27, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOR BETTER LIVING, INC.
DATE: November 7, 1997 BY: Karl M. Stockbridge
----------------------- -------------------
Karl M. Stockbridge
Executive Vice President
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AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Amended and Restated Loan and Security Agreement is
entered into by and between the undersigned Borrowers and the undersigned Lender
in light of the following facts:
RECITALS
WHEREAS, Associated Concrete Products, Inc. ("Associated
Concrete"), DeKalb Concrete Products, Inc. ("DeKalb"), Dalworth Concrete
Products, Inc. ("Dalworth"), Associated Plastics, Inc. ("Associated Plastics")
and The Surfer Publications, Inc. ("Surfer") have entered into related and
affiliated Loan and Security Agreements with The CIT Group/Credit Finance, Inc.,
each dated as of June 27, 1995 and as subsequently amended (collectively, the
"Original Loan Agreements"), and certain other documents, guaranties,
instruments and agreements related thereto (collectively with the Original Loan
Agreements, the "Original Loan Documents"), whereby Lender provided collective
credit facilities to the above companies; and
WHEREAS, Lender is willing to provide additional credit
facilities to Associated Concrete, DeKalb, Dalworth and Associated Plastics
(collectively, "Borrowers") as more particularly set forth herein; and
WHEREAS, Borrowers are executing this Amended and Restated
Loan and Security Agreement jointly and severally as co-borrowers on the terms
and conditions provided herein; and
WHEREAS, Surfer and Lender are also entering into an agreement
terminating their Loan and Security Agreement dated as of June 27, 1995; and
WHEREAS, the operations of Borrower are interrelated and the
financial success of each Borrower is dependent upon the financial success of
each other Borrower; and
WHEREAS, Borrowers have determined that it is in their mutual
best interest and convenience to obtain financing from Lender on a joint and
several basis; and
WHEREAS, Borrowers and Lender do hereby jointly and severally,
individually and collectively, enter into this Amended and Restated Loan and
Security Agreement (this "Agreement") concerning the loans and other credit
accommodations made or to be made by Lender to Borrowers in place and stead of
the Original Loan Agreement.
NOW, THEREFORE, Borrowers and Lender agree as follows:
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SECTION 1. PARTIES
1.1 The "Borrowers" are the persons, firms, corporations or
other entities identified as the Borrowers in the foregoing recitals and with
more particularity in Section 10, jointly and severally, individually and
collectively, together with their respective successors and assigns.
1.2 The "Lender" is The CIT Group/Credit Finance, Inc., and
its successors and assigns.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
2.1 Revolving Loans. Lender shall, subject to the terms and
conditions contained herein, make revolving loans to Borrowers ("Revolving
Loans") in amounts requested by Borrowers from time to time, but not in excess
of the Net Availability existing immediately prior to the making of the
requested Revolving Loan and provided the requested Revolving Loan would not
cause the outstanding Obligations to exceed the Maximum Credit.
(a) The "Maximum Credit" is set forth in Section
10.1(a) hereof.
(b) The "Gross Availability" shall be calculated at
any time as the sum of
(i) the product obtained by multiplying the
then-outstanding amount of Eligible Accounts, net of all
taxes, discounts, allowances and credits given or claimed, by
the Eligible Accounts Percentage set forth in Section
10.1(b),
plus: (ii) the product obtained by multiplying the
applicable Eligible Inventory Percentages, if any, set forth
in Section 10.1(b) by the values (as reasonably determined by
Lender based on the lower of cost or market) of Eligible
Inventory, but the amount so added shall not exceed any
sublimits set forth in Section 10.1(c),
minus: (iii) any Reserves.
(c) The "Net Availability" shall be calculated at any
time as an amount equal to the Gross Availability minus the aggregate
amount of all then-outstanding Obligations of Borrowers to Lender.
(d) "Eligible Accounts" are accounts created by
Borrowers in the ordinary course of their respective businesses which
are and remain acceptable to Lender for lending purposes. General
criteria for Eligible Accounts are set forth below but may be revised
from time to time by Lender, in its reasonable credit judgment, on
fifteen (15) days' prior written notice to Borrowers. Lender shall, in
general, deem accounts to be Eligible Accounts if: (1) such accounts
arise from bona fide completed transactions and
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have not remained unpaid for more than the number of days after the
invoice date or the number of days past due set forth in Section
10.1(d); (2) the amounts of the accounts reported to Lender are
absolutely owing to Borrowers and do not arise from sales on
consignment, guaranteed sale or other terms under which payment by the
account debtors may be conditional or contingent; (3) the account
debtor's chief executive office or principal place of business is
located in the United States or Canada or payment of the account is
fully supported by a letter of credit assigned to Lender and in form
and substance acceptable to Lender; (4) such accounts do not arise from
progress billings (i.e., partial billings based on percentage of
completion of construction or other projects), consignments, retainages
or bill and hold sales (other than bill and hold sales not in excess of
$200,000 in the aggregate outstanding at any time) unless the
applicable Borrower provides a bill and hold letter in form
satisfactory to Lender; (5) there are no contra relationships, setoffs,
counterclaims or disputes existing with respect thereto and, where
Lender deems appropriate, it is furnished with a non-offset letter in
form and substance satisfactory to Lender, and there are no other facts
existing or threatened which would impair or delay the collectability
of all or any portion thereof; (6) the goods giving rise thereto were
not at the time of the sale subject to any liens except those permitted
in this Agreement; (7) such accounts are not accounts with respect to
which the account debtor or any officer or employee thereof is an
officer, employee or agent of or is affiliated with any Borrower,
directly or indirectly, whether by virtue of family membership,
ownership, control, management or otherwise; (8) such accounts are not
accounts with respect to which the account debtor is the United States
or any State or political subdivision thereof or any department, agency
or instrumentality of the United States, any State or political
subdivision, unless there has been compliance with the Assignment of
Claims Act or any similar State or local law, if applicable; (9)
Borrowers have delivered to Lender or Lender's representative such
documents as Lender may have requested pursuant to Section 5.8 hereof
in connection with such accounts and Lender shall have received a
verification of such account, satisfactory to it, if sent to the
account debtor or any other obligor or any bailee pursuant to Section
5.4 hereof; (10) there are no facts, existing or threatened, which
might result in any material adverse change in the account debtor's
financial condition; (11) such accounts owed by a single account debtor
or its affiliates do not represent more than thirty percent (30%) of
all otherwise Eligible Accounts for Borrowers (provided that accounts
excluded from Eligible Accounts solely by reason of this subsection
(11) shall nevertheless be considered Eligible Accounts to the extent
of the amount of such accounts which does not exceed thirty percent
(30%) of all otherwise Eligible Accounts for Borrowers); (12) such
accounts are not owed by an account debtor whose accounts or whose
affiliates' accounts greater than one hundred twenty (120) days past
invoice date comprise more than fifty percent (50%) of the accounts of
such account debtor or its affiliates owed to Borrowers; (13) such
accounts are owed by account debtors whose total indebtedness to any
Borrower does not exceed the amount of any customer credit limits as
established, and changed, from time to time by Lender on notice to
Borrowers (accounts excluded from Eligible Accounts solely by reason of
this subsection (13) shall nevertheless be considered Eligible Accounts
to the extent the amount of such accounts does not exceed such customer
credit limit); (14) such accounts
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are owed by account debtors deemed creditworthy at all times by Lender;
and (15) where applicable, Borrowers have complied with all mechanics
lien laws.
(e) "Eligible Inventory" is inventory owned by a
Borrower valued at the lower of cost or market which is and remains
acceptable to Lender as Lender shall reasonably determine for lending
purposes and is located at one of the addresses set forth in Section
10.6(d).
(f) Lender shall have a continuing right to deduct
reserves in determining the Gross Availability ("Reserves"), and to
increase and decrease such Reserves from time to time, if and to the
extent that, in Lender's reasonable judgment, such Reserves are
necessary to protect Lender against any state of facts which does, or
would, with notice or passage of time or both, constitute an Event of
Default or have a material adverse effect on any Collateral. Lender
may, at its option, implement Reserves by designating as ineligible a
sufficient amount of accounts or inventory which would otherwise be
Eligible Accounts or Eligible Inventory so as to reduce Gross
Availability by the amount of the intended Reserve. Promptly upon
Lender's actual receipt of information which it determines eliminates
the need for a particular Reserve, Lender shall reduce the total
Reserves accordingly; provided, however, that nothing herein shall
affect Lender's right to establish and maintain Reserves as provided in
the first sentence of this subsection 2.1(f).
(g) Subject to the terms and conditions hereof,
including, but not limited to, the existence of sufficient Gross and
Net Availability, Borrowers agree to borrow amounts from time to time
such that the aggregate outstanding principal amount of all Revolving
Loans, Accommodations, Real Property Term Loans, Capital Expenditure
Loans and the Equipment Loan to Borrowers shall at all times equal or
exceed the principal amount set forth in Section 10.1(e) as the Minimum
Borrowing; provided, that the only consequence of a breach of the
foregoing shall be the required payment set forth in the following
sentence. If the average aggregate outstanding principal amount of
Revolving Loans, Accommodations, Real Property Term Loans, Capital
Expenditure Loans and the Equipment Loan to Borrowers for any month is
less than the Minimum Borrowing, Borrowers shall jointly and severally
pay Lender a fee equal to the amount of interest that would have
accrued during such month on such difference. Such fee shall be payable
at the per annum interest rate provided in Section 10.4(a) and in the
manner provided herein for the payment of such interest.
2.2 Intentionally Deleted.
2.3 Accommodations.
(a) Subject to the terms and conditions contained
herein, Lender shall issue or cause to be issued, from time to time at
a Borrower's request and on terms and conditions and for purposes
satisfactory to Lender, credit accommodations consisting of
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letters of credit, bankers' acceptances, merchandise purchase
guaranties or other guaranties or indemnities for such Borrower's
account (collectively, "Accommodations"). Any Borrower requesting an
Accommodation shall execute and perform additional agreements relating
to such Accommodation in form and substance acceptable to Lender as
Lender may reasonably determine and the issuer of such Accommodation,
all of which shall supplement the rights and remedies granted herein.
Any payments made by Lender or any affiliate of Lender in connection
with the Accommodations shall constitute additional Revolving Loans to
Borrowers.
(b) In addition to the fees and costs of any issuer
in connection with issuing or administering Accommodations, Borrowers
shall pay monthly to Lender from the date of issuance of any
Accommodation until termination or payment thereof, on the first day of
each month for the preceding month, a charge on the face amount of all
outstanding Accommodations computed daily at the rate set forth in
Section 10.3(a) (the "Accommodation Charges").
(c) No Accommodation will be issued unless the full
amount of the Accommodation requested, plus fees and costs for
issuance, is less than the Net Availability existing immediately prior
to the issuance of the requested Accommodation, or if the requested
Accommodation would cause the sum of the outstanding Obligations to
exceed the Maximum Credit, or cause the sum of the open amount of
Accommodations to exceed, at any time, the Accommodation sublimit set
forth in Section 10.3(b).
(d) All indebtedness, liabilities and obligations of
any sort whatsoever, however arising, whether present or future, fixed
or contingent, secured or unsecured, due or to become due, paid or
incurred or otherwise arising in connection with any Accommodation
shall be included in the term "Obligations" as defined in Section 4.2
below, and shall include, without limitation, (i) all amounts due or
which may become due under such Accommodation; (ii) all amounts charged
or chargeable to Borrowers or to Lender by any bank, other financial
institution or correspondent bank which opens, issues or is involved
with such Accommodation; (iii) Lender's Accommodation Charges and all
fees, costs and other charges of any issuer of such Accommodation; and
(iv) all duties, freight, taxes, costs, insurance and all such other
charges and expenses which may pertain directly or indirectly to any
Obligations or such Accommodation or to the goods or documents relating
thereto.
(e) Borrowers unconditionally agree to indemnify and
hold Lender harmless from any and all loss, claim or liability
(including reasonable attorneys' fees) arising from any transactions or
occurrences relating to any Accommodation established or opened for a
Borrower's account, the Collateral relating thereto and any drafts or
acceptance thereunder, including any such loss or claim due to any
action taken by the issuer of such Accommodation, other than any loss,
claim or liability to the extent arising from Lender's gross negligence
or wilful misconduct. Borrowers further agree to indemnify and hold
Lender harmless for any errors or omissions in connection with the
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Accommodations, whether caused by Lender, by the issuer of any
Accommodation or otherwise, other than errors resulting from Lender's
gross negligence or wilful misconduct. Borrowers' unconditional
obligation to indemnify and hold Lender harmless under this provision
shall not be modified or diminished for any reason or in any manner
whatsoever, except as set forth herein. Borrowers agree that any
charges made to Lender by any issuer of any Accommodation shall be
conclusive on Borrowers, except in the case of manifest error, and may
be charged to Borrowers' loan account.
(f) Lender shall not be responsible for the
conformity of any goods to the documents presented, the validity or
genuineness of any documents or delay, default, or fraud by any
Borrower or shipper and/or anyone else in connection with the
Accommodations or any underlying transaction.
(g) Borrowers agree that any action taken by Lender,
if taken in good faith, or any action taken by an issuer of any
Accommodation, under or in connection with any Accommodation, shall be
binding on Borrowers and shall not create any resulting liability to
Lender. In furtherance thereof Lender shall, upon and during the
continuance of an Event of Default, have the full right and authority
to clear and resolve any questions of non-compliance of documents; to
give any instructions as to acceptance or rejection of any documents or
goods; to execute for Borrowers' account any and all applications for
steamship or airway guarantees, indemnitees or delivery orders; to
grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, if in
Lender's discretion such action is reasonably necessary for the
protection or preservation of the Collateral; and to agree to any
amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the
applications or Accommodations. All of the foregoing actions may be
taken in Lender's sole name, and the issuer thereof shall be entitled
to comply with and honor any and all such documents or instruments
executed by or received solely from Lender, all without notice to or
any consent from any Borrower. None of the foregoing actions described
in this subsection 2.3 (g) may be taken by any Borrower without
Lender's express written consent.
2.4 Real Property Term Loans. Upon Borrowers' request therefor, and
subject to the satisfaction of the conditions to such loans set forth in this
Section 2.4 and in any other agreement between Borrowers and Lender, Lender
shall make up to eight (8) separate term loans to Borrowers on the basis of the
Real Property as defined in Section 4.3(f) below (collectively, the "Real
Property Term Loans"). Each Real Property Term Loan shall be in an original
principal amount not to exceed seventy percent (70%) of the appraised "quick
sale value" of the Real Property (as determined by one or more appraisers
acceptable to Lender in its sole discretion) and shall be evidenced by, and
payable in accordance with the terms of, a promissory note, substantially in the
form of Exhibit 2.4 attached hereto, executed by Borrowers to the order of
Lender, providing for, among other terms, amortization of principal on a
straight-line basis over ninety-six (96) months (each, a "Real Property Term
Loan Note", and collectively, the "Real Property Term Loan Note"). The original
principal amount of all Real Property Term Loans in
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the aggregate shall not exceed Four Million Five Hundred Thousand Dollars
($4,500,000). Borrowers may prepay, in whole or in part, any or all of the Real
Property Terms Loans without premium or penalty provided such prepayments are
made with the proceeds of either (i) a sale of the Real Property which is the
basis for such Real Property Term Loan or (ii) a refinance loan provided to
Borrowers by an independent, third-party lender. Lender promptly shall release
its lien on the Real Property relating to any such loan which is prepaid by
Borrowers as permitted by the preceding sentence. Lender also shall release its
lien on all or any portion of the Real Property to facilitate Borrowers' sale of
the Real Property or obtaining of financing on the basis thereof if at the time
of Borrowers' request for such release there exists no Event of Default
(including, without limitation, any overadvance under the Revolving Loans
facility -- i.e., Borrowers do not have Revolving Loans outstanding in excess of
the maximum applicable percentage or dollar limitations set forth in Sections
2.1 or 10.1).
2.5 Equipment Term Loan. Upon completion of satisfactory due diligence
with respect to the Equipment conducted by Lender, Lender shall make a term loan
to Borrowers, on the basis of the Equipment as described in the June 1997
Accuval appraisal, in an original principal amount of Six Million Dollars
($6,000,000) (the "Equipment Term Loan"). Borrowers shall utilize a portion of
the proceeds of the Equipment Term Loan to repay, in full, their outstanding
term loan obligations to The CIT Group/Equipment Financing, Inc. The Equipment
Term Loan shall be evidenced by, and payable in accordance with the terms of, a
promissory note, substantially in the form of Exhibit 2.5 attached hereto,
executed by Borrower to the order of Lender, providing for, among other terms,
amortization of principal on a straight-line basis over eight-four (84) months
(the "Equipment Term Loan Note").
2.6 Capital Expenditures Loan Facility. Upon Borrowers' request
therefor from time to time, Lender shall, subject to the terms and conditions
set forth in this Section 2.6, make term loans to Borrowers (individually, a
"Capital Expenditure Loan" and collectively, the "Capital Expenditure Loans"),
all of which shall not exceed in the aggregate Three Million Dollars
($3,000,000) at any time outstanding, to facilitate Borrowers' acquisition of
new Equipment (i.e., Equipment purchased by a Borrower within three (3) months
before Borrowers' request for a related Capital Expenditure Loan) for uses
directly related to Borrowers' business operations as conducted consistent with
the terms of this Agreement. Each Capital Expenditure Loan shall be evidenced by
and payable in accordance with the terms of a promissory note, substantially in
the form of Exhibit 2.6 attached hereto, executed by Borrower to the order of
Lender, providing for, among other terms, amortization of principal on a
straight-line basis over sixty (60) months and for permitted voluntary
prepayments of principal, in whole or in part, at any time, without premium or
penalty (each, a "Capital Expenditure Loan Note, and collectively, the "Capital
Expenditure Loan Notes"). Lender may, at any time and from time to time in its
sole discretion for any purpose, (i) consolidate multiple, or all of the,
Capital Expenditure Loan Notes into a single promissory note, or (ii)
consolidate multiple, or all of the, Capital Expenditure Loan Notes with the
Equipment Term Loan Note. All terms and provisions of all such promissory notes
so consolidated shall remain the same as immediately prior to consolidation.
Upon approval by Lender, each Capital Expenditure Loan shall
be in an amount requested by Borrowers up to eighty percent (80%) of the cost of
the Equipment as reflected in
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the invoice therefor; provided, however, Capital Expenditure Loans shall be
limited to the cost of the purchased Equipment itself, and shall not include any
ancillary costs or expenses associated with the acquisition of such Equipment,
such as, but not limited to, freight and other transportation charges,
installation and delivery charges, brokerage commissions, sales taxes, and
similar "soft" costs and expenses.
Lender shall not be required to make any Capital Expenditure
Loan hereunder unless on the date such loan is to be funded by Lender all of the
following conditions have been satisfied:
(a) Supplement. Borrower shall have executed and
delivered to Lender a supplement, in form and substance acceptable to
Lender, describing in a manner satisfactory to Lender the Equipment to
be financed by such loan;
(b) Note. The Capital Expenditure Note evidencing
such loan shall have been duly executed and delivered to Lender;
(c) Equipment Delivery. The Equipment being financed
by such loan shall have been duly delivered to and accepted by a
Borrower;
(d) Invoice and Title. If requested by Lender, Lender
shall have received copies of the invoice or invoices covering the
acquisition of the items of Equipment being financed with such loan
together with copies of the bills of sale, if any, conveying such items
to a Borrower;
(e) Payment of Equipment Cost.Lender shall be
satisfied that the cost of each item of Equipment being financed by
such loan has been, or concurrently with the making of such loan will
be, fully paid.
(f) Insurance. Lender shall have received evidence
satisfactory to it that the Equipment being financed by such loan is
insured in accordance with the provisions of this Agreement.
(g) Security Interest. All filings, recordings and
other actions deemed necessary or desirable by Lender in order to
establish, protect, preserve and perfect its security interest in the
Equipment being financed by such loan as a valid perfected first
priority security interest shall have been duly effected, including,
without limitation, the filing of financing statements and the
recordation of landlord and/or mortgagee waivers or disclaimers and/or
severance agreements, all in from and substance satisfactory to Lender
and all fees, taxes and other charges relating to such filings and
recordings shall be or shall have been paid by Borrowers.
2.7 Obligations In Excess of Limitations; Certain Amounts Due
Without Demand. Lender may, in the exercise of its reasonable judgment, make or
permit Revolving
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Loans, Accommodations, Real Property Term Loans, Capital Expenditure Loans, or
the Equipment Term Loans or other Obligations in excess of the Maximum Credit,
Gross Availability or applicable sublimits. To the extent such excess is
permitted by Lender, all or any portion of such excess shall become due and
payable upon Lender's demand therefor. To the extent the aggregate amount of
Revolving Loans, Accommodations, Real Property Term Loans, Capital Expenditure
Loans, the Equipment Term Loans or other Obligations at any time exceeds,
without the consent of Lender, the Maximum Credit, Gross Availability or
applicable sublimits, all of such excess shall be due and payable within ten
(10) days of Lender's demand therefor (during which time Lender reserves the
right to stop making additional loans or Accommodations).
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Interest on all Obligations other than the
Equipment Term Loan and the Capital Expenditure Loans shall be payable
by Borrowers on the first day of each month, calculated upon the
closing daily outstanding principal balances in the loan account(s) of
Borrowers for each day during the immediately preceding month, at the
per annum rate set forth as the Interest Rate in Section 10.4(a).
Interest on the Equipment Term Loan and the Capital Expenditure Loans
shall be payable by Borrowers on the first day of each month,
calculated upon the closing daily outstanding principal balances in the
loan account(s) of Borrower for each day during the immediately
preceding month, at the per annum rate set forth as the Interest Rate
(Equipment Loans) in Section 10.4(b). The respective Interest Rates
provided in Sections 10.4(a) and (b) shall increase or decrease by an
amount equal to each increase or decrease, respectively, in the Prime
Rate (as defined below), effective as of the date of each such change.
Interest shall be calculated on the basis of actual days elapsed over a
360-day year. Notwithstanding the foregoing provisions of this Section
3.1(a) regarding the rates of interest applicable to the respective
Obligations:
(i) If at any time the amount of interest
computed on the basis of Section 10.4(a) or (b) (as
applicable, the "Annual Rate") would exceed the amount of
interest computed upon the basis of the maximum rate of
interest (the "Maximum Legal Rate") permitted by applicable
state or federal law in effect from time to time hereafter,
after taking into account, to the extent required by
applicable law, any and all fees, payments, charges and
calculations provided for in this Agreement or in any other
agreement between Borrowers and Lender, the interest payable
under this Agreement shall be computed on the basis of the
Maximum Legal Rate, but any subsequent reduction in the Annual
Rate shall not reduce such interest thereafter payable
hereunder below the amount computed on the basis of the
Maximum Legal Rate until the aggregate amount equals the total
amount of interest which would have accrued if such interest
had been at all times computed solely on the basis of the
Annual Rate.
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(ii) No agreements, conditions, provisions
or stipulations contained in this Agreement or any other
instrument, document or agreement between Borrowers and
Lender, or default of Borrowers, or the exercise by Lender of
the right to accelerate the payment or the maturity of
principal and interest, or to exercise any option whatsoever
contained in this Agreement or any other agreement between
Borrowers and Lender, or the arising of any contingency
whatsoever, shall entitle Lender to collect, in any event,
interest exceeding the Maximum Legal Rate and in no event
shall Borrowers be obligated to pay interest exceeding such
Maximum Legal Rate, and all agreements, conditions or
stipulations, if any, which may in any event or contingency
whatsoever operate to bind, obligate or compel Borrowers to
pay a rate of interest exceeding the Maximum Legal Rate, shall
be without binding force or effect, at law or in equity, to
the extent only of the excess of interest over such Maximum
Legal Rate. In the event that any interest is charged in
excess of the Maximum Legal Rate ("Excess"), Borrowers
acknowledge and stipulate that any such charge shall be the
result of an accidental and bona fide error, and such Excess
shall be, first, applied to reduce the principal of the
Revolving Loans then unpaid hereunder; second, applied to
reduce Borrowers' other Obligations hereunder; and third,
returned to Borrowers, it being the intention of the parties
hereto not to enter at any time into a usurious or otherwise
illegal relationship. Borrowers recognize that, with
fluctuations in the Annual Rate and the Maximum Legal Rate,
such an unintentional result could inadvertently occur. By the
execution of this Agreement, Borrowers covenant that (x) the
credit or return of any Excess shall constitute the acceptance
by Borrowers of such Excess, and (y) Borrowers shall not seek
or pursue any other remedy, legal or equitable, against
Lender, based in whole or in part upon the charging or
receiving of any interest in excess of the maximum authorized
by applicable law. For the purpose of determining whether or
not any Excess has been contracted for, charged, or received
by Lender, all interest at any time contracted for, charged or
received by the Lender in connection with this Agreement shall
be amortized, prorated, allocated and spread in equal parts
during the entire term of this Agreement.
(iii) The provisions of Section 3.1(a)(ii)
shall be deemed to be incorporated into every document or
communication relating to the Obligations which sets forth or
prescribes any account, right or claim or alleged account,
right or claim of Lender with respect to Borrowers (or any
other obligor in respect of the Obligations), whether or not
any provision of Section 3.1 is referred to therein. All such
documents and communications and all figures set forth therein
shall, for the sole purpose of computing the extent of the
liabilities and obligations of Borrowers (or any other
obligor) asserted by Lender thereunder, be automatically
recomputed by Borrowers or such obligor, and by any court
considering the same, to give effect to the adjustments or
credits required by Section 3.1.(a)(ii).
(iv) If the applicable state or federal law
is amended in the future
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to allow a greater rate of interest to be charged under this
Agreement or any other loan documents than is presently
allowed by applicable state or federal law, then the
limitation of interest hereunder shall be increased to the
maximum rate of interest allowed by applicable state or
federal law, as amended, which increase shall be effective
hereunder on the effective date of such amendment, and all
interest charges owing to Lender by reason thereof shall be
payable upon demand.
(b) Anything herein to the contrary notwithstanding,
interest shall not be due or payable on the face amount of any
outstanding Accommodations, but shall be due on any amounts drawn on
Accommodations.
(c) The "Prime Rate" is the rate of interest publicly
announced by The Chase Manhattan Bank in New York, New York as its
prime rate or similar such designation (such rate is not intended to be
the lowest rate of interest charged by such bank to its borrowers).
3.2 Intentionally Omitted.
3.3 Intentionally Omitted.
3.4 Unused Line Fee. Borrowers, jointly and severally, shall
pay Lender on the first day of each month, in arrears, during the initial and
any renewal term an Unused Line Fee at the rate per annum set forth in Section
10.4(d), calculated on the amount, if any, by which the Maximum Credit exceeds
the average outstanding principal balance of all Revolving Loans,
Accommodations, Real Property Terms Loans, Capital Expenditure Loans and the
Equipment Term Loan outstanding during the preceding month.
3.5 Charges to Loan Account. At Lender's option, all payments
of principal, interest, fees, costs, expenses and other charges provided for in
this Agreement, or in any other agreement now or hereafter existing between
Lender an Borrowers, may be charged on the date when due as principal to any
loan account(s) of Borrowers maintained by Lender, and shall thereafter bear
interest at the rate and payable in the manner provided herein for the accrual
and payment of interest on outstanding Obligations.
SECTION 4. GRANT OF SECURITY INTEREST
4.1 Grant of Security Interest. To secure the payment and
performance in full of all Obligations, Borrowers hereby grant to Lender a
continuing security interest in and lien upon, and a right of setoff against,
and Borrowers hereby assign and pledge to Lender, all of the Collateral,
including any Collateral not deemed eligible for lending purposes.
4.2 Obligations. "Obligations" shall mean any and all
Revolving Loans, Accommodations, Real Property Term Loans, Capital Expenditure
Loans, the Equipment Term Loan and all other indebtedness, liabilities and
obligations of every kind, nature and description
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owing by Borrowers to Lender, including principal, interest, charges, fees and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal Term or after the commencement of any case with respect
to any Borrower under the United States Bankruptcy Code or any similar statute,
whether direct or indirect, absolute or contingent, joint or several, due or not
due, primary or secondary, liquidated or unliquidated, secured or unsecured,
original, renewed or extended and whether arising directly or howsoever acquired
by Lender including from any other entity outright, conditionally or as
collateral security, by assignment, merger with any other entity, participations
or interests of Lender in the obligations of Borrowers to others, assumption,
operation of law, subrogation or otherwise and shall also include all amounts
chargeable to Borrowers under this Agreement or in connection with any of the
foregoing.
4.3 Collateral. "Collateral" shall mean all of the following
property of Borrowers:
(a) All now owned and hereafter acquired right, title
and interest of Borrowers in, to and in respect of all: accounts,
including without limitation all interests in goods represented by
accounts, returned, reclaimed or repossessed goods with respect thereto
and rights as an unpaid vendor; chattel paper; general intangibles
(including, but not limited to, tax and duty claims and refunds,
registered and unregistered patents, trademarks, service marks,
copyrights, trade names, applications for the foregoing, trade secrets,
goodwill, processes, drawings, blueprints, customer lists, license
agreements and licenses (to the extent a security interest may be
granted therein), whether as licensor or licensee, computer software
programs and systems (to the extent a security interest may be granted
therein), choses in action and other claims, and existing and future
leasehold interests in equipment, real estate and fixtures); documents;
instruments; letters of credit, bankers' acceptances or guaranties;
cash monies, deposits, securities (other than investment grade
securities held as of the date hereof for investment purposes only, and
the proceeds therefrom), bank accounts, deposit accounts, credits and
other property now or hereafter held in any capacity by Lender, its
affiliates or any entity which, at any time, participates in Lender's
financing of Borrowers or at any other depository or other institution
(but excluding, in any event, cash monies, deposits, securities, bank
accounts and deposit accounts held outside the United States or Canada,
provided the foregoing is not the proceeds of Collateral); and
agreements or property securing or relating to any of the items
referred to above;
(b) All now owned and hereafter acquired right, title
and interest of Borrowers in, to and in respect of goods, including,
but not limited to:
(i) All inventory, wherever located, whether
now owned or hereafter acquired, of whatever kind, nature or
description, including all raw materials, work-in-process,
finished goods (including, without limitation, hardware) and
materials to be used or consumed in any Borrower's business;
and
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all names or marks affixed to or to be affixed thereto for
purposes of selling same by the seller, manufacturer, lessor
or licensor thereof;
(ii) All equipment and fixtures, wherever
located, whether now owned or hereafter acquired, including,
without limitation, all machinery, equipment, motor vehicles,
furniture and fixtures, and any and all additions,
substitutions, replacements (including spare parts) and
accessions thereof and thereto (collectively, the
"Equipment");
(iii) All consumer goods, farm products,
crops, timber, minerals or the like (including oil and gas),
wherever located, whether now owned or hereafter acquired, of
whatever kind, nature or description;
(c) All now owned and hereafter acquired right, title
and interest of any Borrower in, to and in respect of any other
personal property or any fixtures in or upon which Lender has or may
hereafter have a security interest, lien or right of setoff;
(d) All present and future books and records relating
to any of the above, including, without limitation, all computer
programs (to the extent a security interest may be granted therein),
printed output and computer readable data, in any media, in the
possession or control of any Borrower, any computer service bureau or
other third party;
(e) All notes, security interests and deeds of trust
or mortgages in favor of any Borrower;
(f) All right, title and interest of any Borrower in,
to and in respect of the parcels of real property and the related
improvements thereto identified in Schedule F and any parcels of real
property and related improvements, if any, thereto hereafter acquired
in fee by any Borrower (collectively, the "Real Property"); and
(g) All products and proceeds of the foregoing in
whatever form and wherever located, including, without limitation, all
insurance proceeds and all claims against third parties for loss or
destruction of or damage to any of the foregoing.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Collections. Borrowers shall, at Borrowers' expense and in
the manner requested by Lender from time to time, direct that remittances and
all other proceeds of accounts and other Collateral shall be directly deposited
into a bank account maintained in the name of Lender under arrangements with the
depository bank under which all funds deposited to such bank account are
required to be transferred solely to Lender. Borrowers shall bear all risk of
loss of any funds deposited into such account. In connection therewith,
Borrowers shall execute such bank account agreements as Lender shall specify.
Any collections or other proceeds received by
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any Borrower shall be held in trust for Lender and immediately remitted to
Lender, in kind.
5.2 Payments. All Obligations shall be payable at Lender's
office set forth below or at Bank of America, NT & SA, in Los Angeles,
California, or such substitute bank as Lender may determine ("Lender's Bank") or
such other place as Lender may designate from time to time. For purposes of
determining Gross and Net Availability, remittances and other payments with
respect to the Collateral and Obligations will be treated as credited to the
loan account of Borrowers maintained by Lender and Collateral balances to which
they relate, upon the date of Lender's receipt of advice from Lender's Bank that
such remittances or other payments have been credited to Lender's account, which
advice shall be deemed received not more than one business day from the date any
such remittance or other payment is credited to Lender's account, or in the case
of remittances or other payments, received directly in kind by Lender, upon the
date of Lender's deposit thereof at Lender's Bank, subject to final payment and
collection. In computing interest charges, the loan account of Borrowers
maintained by Lender will be credited with remittances and other payments two
(2) Business Days after Lender has received advice of receipt of remittances in
Lender's account at Lender's Bank. For purposes of this Agreement, "Business
Day" shall mean any day other than a Saturday, Sunday or any other day on which
banks located in Los Angeles, California, or New York, New York are authorized
to close.
5.3 Loan Account Statements. Lender shall deliver to Borrowers
monthly a joint loan account statement. Each statement shall be considered
correct and binding upon Borrowers as an account stated, except as to manifest
error or to the extent that Lender receives, within sixty (60) days after the
mailing of such statement, written notice from Borrowers of any specific
exceptions by Borrowers to that statement.
5.4 Direct Collections. Lender may, at any time, after and
during the continuance of an Event of Default or if at any time in its sole
judgment Lender has a reasonable belief that Borrowers are or may be in
violation of the Agreement, whether or not an Event of Default has actually
occurred, without notice to or consent of Borrowers, (a) notify any account
debtor that the accounts and other Collateral which includes a monetary
obligation have been assigned to Lender by Borrowers and that payment thereof is
to be made to the order of and directly to Lender; (b) send, or cause to be sent
by its designee, requests (which may identify the sender by a pseudonym) for
verification of accounts and other Collateral directly to any account debtor or
any other obligor or any bailee with respect thereto; and (c) demand, collect or
enforce payment of any accounts or such other Collateral, but without any duty
to do so, and Lender shall not be liable for any failure to collect or enforce
payment thereof. At Lender's request, all invoices and statements sent to any
account debtor, other obligor or bailee, shall state that the accounts and such
other Collateral have been assigned to Lender and are payable directly and only
to Lender.
5.5 Attorney-in-Fact. Borrowers hereby appoint Lender and any
designee of Lender as Borrowers' attorney-in-fact and authorize Lender or such
designee, at Borrowers' sole expense, to exercise at any time in Lender's or
such designee's discretion all or any of the following powers, which powers of
attorney, being coupled with an interest, shall be irrevocable
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until all Obligations have been paid in full: (a) receive, take, endorse,
assign, deliver, accept and deposit, in the name of Lender or Borrowers, any and
all cash, checks, commercial paper, drafts, remittances and other instruments
and documents relating to the Collateral or the proceeds thereof; (b) transmit
to account debtors, other obligors or any bailee's notice of the interest of
Lender in the Collateral or request from account debtors or such other obligors
or bailees at any time, in the name of Borrowers or Lender or any designee of
Lender, information concerning the Collateral and any amounts owing with respect
thereto; (c) notify account debtors or other obligors to make payment directly
to Lender to the extent permitted in Section 5.4, or notify bailees as to the
disposition of Collateral; (d) during the continuance of an Event of Default or
if Borrowers so agree, take or bring, in the name of Lender or Borrowers, all
steps, actions, suits or proceedings deemed by Lender necessary or desirable to
effect collection of or other realization upon the accounts and other
Collateral; (e) during the continuance of an Event of Default, change the
address for delivery of mail to Borrowers and to receive and open mail addressed
to any Borrower; (f) during the continuance of an Event of Default, extend the
time of payment of, compromise or settle for cash, credit, return of
merchandise, and upon any terms or conditions, any and all accounts or other
Collateral which includes a monetary obligation and discharge or release the
account debtor or other obligor, without affecting any of the Obligations; and
(g) execute in the name of Borrowers and file against Borrowers in favor of
Lender financing statements or amendments with respect to the Collateral.
5.6 Liability. Borrowers hereby release and exculpate Lender,
its officers, employees and designees, from any liability arising from any acts
under this Agreement or in furtherance thereof, whether as attorney-in-fact or
otherwise, whether of omission or commission, and whether based upon any error
of judgment or mistake of law or fact, except for gross negligence or wilful
misconduct. In no event will Lender have any liability to Borrowers for lost
profits or other special or consequential damages.
5.7 Administration of Accounts. After written notice by Lender
to Borrowers upon or during the continuance of an Event of Default, Borrowers
shall not, without the prior written consent of Lender in each instance, (a)
grant any extension of time of payment of any of the accounts or any other
Collateral which includes a monetary obligation; (b) compromise or settle any of
the accounts or any such other Collateral for less than the full amount thereof;
(c) release in whole or in part any account debtor or other person liable for
the payment of any of the accounts or any such other Collateral; or (d) grant
any credits, discounts, allowances, deductions, return authorizations or the
like with respect to any of the accounts or any such other Collateral.
5.8 Documents. At such times as Lender may reasonably request
and in the manner specified by Lender, Borrowers shall deliver to Lender or
Lender's representative, as Lender shall designate, copies or originals of
invoices, agreements, proofs of rendition of services and delivery of goods and
other documents evidencing or relating to the transactions which gave rise to
accounts or other Collateral, together with customer statements, schedules
describing the accounts or other Collateral and/or statements of account and
confirmatory assignments to Lender of the accounts or other Collateral, in form
and substance satisfactory to Lender and duly executed by Borrowers. Without
limiting the provisions of Section 5.7, any Borrower's granting of credits,
discounts, allowances, deductions, return authorizations or the like will
promptly be
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reported to Lender in writing. In no event shall any such schedule or
confirmatory assignment (or the absence thereof or omission of any of the
accounts or other Collateral therefrom) limit or in any way be construed as a
waiver, limitation or modification of the security interests or rights of Lender
or the warranties, representations and covenants of Borrowers under this
Agreement. Any documents, schedules, invoices or other paper delivered to Lender
by any Borrower may be destroyed or otherwise disposed of by Lender six (6)
months after receipt by Lender, unless such Borrower requests their return in
writing in advance and makes prior arrangements for their return, at its
expense.
5.9 Access. From time to time as reasonably requested by
Lender, Lender or its designee shall have complete access to all of the premises
where Collateral is located for the purposes of inspecting the Collateral,
including Borrowers' books and records, and Borrowers shall permit Lender or its
designee to make such copies of such books and records or extracts therefrom as
Lender may request. Without expense to Lender, Lender may use such of Borrowers'
personnel, equipment, including computer equipment, programs, printed output and
computer readable media, supplies and premises as Lender shall request for the
collection of accounts and realization on other Collateral. Borrowers hereby
irrevocably authorize all accountants and third parties, with the exception of
Borrowers' attorneys with respect to information for which a privilege is
asserted, to disclose and deliver to Lender at Borrowers' expense all financial
information, books and records, work papers, management reports and other
information in their possession regarding Borrowers. Borrowers shall reimburse
Lender for its reasonable expenses incurred under this Section.
5.10 Environmental Audits. If Lender has a reasonable belief
that any premises or property of a Borrower where a material part of the
Collateral is located is in material violation of any law relating to the
storage, release or manufacture of hazardous or toxic substances, at the sole
expense of Borrowers, Borrowers shall provide Lender, or its designee, from time
to time upon reasonable request, complete access to the affected facilities for
the purpose of conducting an environmental audit of such facilities as Lender or
its designees may deem necessary. Borrowers agree to cooperate with Lender with
respect to any environmental audit conducted by Lender or its designee pursuant
to this Section 5.10.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Borrowers hereby represent, warrant and covenant to Lender the
following, the truth and accuracy of which, and compliance with which, shall be
continuing conditions of the making of loans or other credit accommodations by
Lender to Borrowers. Each statement below shall be deemed a warranty or
representation if so specified, and otherwise shall be deemed a covenant.
6.1 Financial and Other Reports. Each Borrower shall keep and
maintain its books and records in accordance with generally accepted accounting
principles, consistently applied. Borrowers shall, at their sole expense,
deliver to Lender (a) weekly, on or before the end of the following week,
accurate and complete perpetual inventory reports if Borrowers' Net
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Availability is less than $1,000,000; (b) monthly, on or before the tenth (10th)
day of each month, accurate and complete accounts receivable and accounts and
notes payable agings; (c) monthly, on or before the twentieth (20th) day of each
month, internally prepared income statements and a monthly inventory report for
the prior month (provided Net Availability is not less than $1,000,000); (d)
quarterly, on or before the twentieth (20th) day of each fiscal quarter of
Borrowers, internally prepared interim financial statements for the previous
fiscal quarter; (e) annually, as soon as available, but in no event later than
one hundred twenty (120) days after the end of Borrowers' respective fiscal
years, audited financial statements of Borrowers (prepared on a consolidated and
consolidating basis along with the affiliates of Borrowers and any guarantor)
accompanied by the report and opinion thereon of independent certified public
accountants acceptable to Lender; and (f) with such frequency as Lender shall
request, cash flow projections in a form acceptable to lender. All of the
foregoing shall be in such form and together with such information with respect
to the business of Borrowers or any guarantor, as Lender may in each case
reasonably request. Borrowers shall also provide to Lender, within ten (10) days
after Borrowers' delivery thereof to the Securities and Exchange Commission,
accurate and complete copies of any reports, forms or other documents (including
Forms 10-K and 10-Q) prepared or delivered by any Borrower to the Securities and
Exchange Commission.
6.2 Trade Names. Each Borrower may from time to time render
invoices to account debtors under its trade name(s) set forth in Section 10.6(f)
after Lender has received prior written notice from such Borrower of the use of
such trade name(s) and as to which, such Borrower agrees that: (a) such trade
name does not refer to another corporation or other legal entity; (b) all
accounts and proceeds thereof (including any returned merchandise) invoiced
under any such trade names are owned exclusively by such Borrower and are
subject to the security interest of Lender and the other terms of this
Agreement; and (c) all schedules of accounts and confirmatory assignments
including any sales made or services rendered using the trade name shall show
such Borrower's name as assignor and Lender is authorized to receive, endorse
and deposit to any loan account of such Borrower maintained by Lender all checks
or other remittances made payable to any trade name of such Borrower
representing payment with respect to such sales or services.
6.3 Losses. Borrowers shall promptly notify Lender in writing
of any loss, damage, investigation, action, suit, proceeding or claim relating
to a material portion of the Collateral or which may result in any material
adverse change in any Borrower's business, assets, liabilities or condition,
financial or otherwise.
6.4 Books and Records. Each Borrower's books and records
concerning accounts and its chief executive office are and shall be maintained
only at its address set forth in Section 10.6(c). Each Borrower's only other
places of business and the only other locations of Collateral, if any, are and
shall be the addresses set forth in Sections 10.6(d) and 10.6(e) hereof,
provided that such Borrower may change such locations or open a new place of
business upon thirty (30) days' prior written notice to Lender (except in case
of damage or destruction, in which case notice shall be given concurrently with
the change of location). Prior to any change in location or opening of any new
place of business, the applicable Borrower shall execute and
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deliver or cause to be executed and delivered to Lender such financing
statements, financing documents and security and other agreements as Lender may
reasonably require, including, without limitation, those described in Section
6.14.
6.5 Title. Borrowers warrant and represent that they have and
at all times will continue to have good and marketable title, free from defects,
to all of the Collateral, free and clear of all liens, security interests,
claims or encumbrances of any kind except (i) sales of inventory in the ordinary
course of business, (ii) purchase money equipment liens in favor of the sellers
of such equipment or the lenders financing such sale, (iii) non-delinquent tax
liens, (iv) involuntary liens released or discharged within 30 days after
Borrowers' discovery thereof, (v) liens in favor of Lender, (vi) those set forth
on Schedule A hereto, and (vii) as to any Real Property, any easements, leases
or other encumbrances not having any material and adverse effect on the value of
such Real Property.
6.6 Disposition of Assets. Except as otherwise allowed
hereunder, no Borrower shall directly or indirectly, without Lender's prior
written consent: (a) sell, lease, transfer, assign, abandon or otherwise dispose
of any part of the Collateral or any material portion of its other assets (other
than sales of inventory to buyers and use or other disposition of inventory by
such Borrower, all in the ordinary course of such Borrower's business and,
provided no Event of Default has occurred and is continuing, sales or other
dispositions of equipment in the ordinary course of such Borrower's business,
provided that such sale or disposition would not have a material adverse effect
on such Borrower); or (b) consolidate with or merge with or into any other
entity, or permit any other entity to consolidate with or merge with or into
such Borrower, other than as permitted under Section 7.1(e); or (c) form or
acquire any interest in any firm, corporation or other entity.
6.7 Insurance. Borrowers shall at all times maintain, at
Borrowers' expense, with financially sound and reputable insurers, casualty
insurance (including, without limitation, at the option of Lender if available
at commercially reasonable rates, earthquake insurance) with respect to the
Collateral and other assets. All such insurance policies shall be in such form,
substance, amounts and coverage as may be satisfactory to Lender and shall
provide for thirty (30) days' prior written notice to Lender of cancellation,
reduction or other alteration of coverage. Borrowers hereby irrevocably appoint
Lender and any designee of Lender as attorney-in-fact for Borrowers to obtain
such insurance at Borrowers' expense, if Borrowers do not do so, and, after and
during the continuance of an Event of Default, to adjust or settle any claim or
other matter under or arising pursuant to such insurance or to amend or replace
such insurance. Borrowers shall deliver to Lender evidence of such insurance and
a lender's loss payable endorsement satisfactory to Lender as to all existing
and future insurance policies with respect to the Collateral. Borrowers shall
deliver to Lender, in kind, all instruments representing proceeds of insurance
received by Borrowers. Lender may apply any insurance proceeds received at any
time to the cost of repairs to or replacement of any portion of the Collateral
and/or, at Lender's option, to payment of or as security for any of the
Obligations, whether or not due, in any order or manner as Lender determines.
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6.8 Compliance With Laws. Each Borrower warrants and
represents that it is and at all times will continue to be in material
compliance with the requirements of all applicable material laws, rules,
regulations and orders of any governmental authority relating to its business
(including laws, rules, regulations and orders relating to taxes, payment and
withholding of payroll taxes, employer and employee contributions and similar
items, securities, employee retirement and welfare benefits, employee health and
safety or environmental matters), other than laws, rules, regulations or orders
being contested in good faith, which contest does not materially and adversely
affect such Borrowers' business, financial condition or the Collateral, and all
material agreements or other material instruments binding on such Borrower or
its property. All of Borrower's inventory shall be produced in accordance with
the requirements of the Federal Fair Labor Standards Act of 1938, as amended,
and all rules, regulations and orders related thereto. Borrower shall pay and
discharge all taxes, assessments and governmental charges against any Borrower
or any Collateral prior to the date on which penalties are imposed or liens
attach with respect thereto, unless the same are being contested in good faith
and, at Lender's option (if, in Lender's reasonable judgment, such contest is
likely to have a material adverse effect on such Borrower's business, financial
condition or the Collateral), Reserves are established for the amount contested
and penalties which may accrue thereon.
6.9 Accounts. Borrowers warrant and represent that with
respect to each account deemed an Eligible Account, except as reported in
writing to Lender, Borrowers have no knowledge that any of the criteria for
eligibility are not or are no longer satisfied. As to each account, except as
disclosed in writing to Lender at the time such account arises and except for
possible claims for defect or breach of warranty (a) each is valid and legally
enforceable and represents an undisputed bona fide indebtedness incurred by the
account debtor for the sum reported to Lender; (b) each arises from an absolute
and unconditional sale of goods, without any right of return or consignment, or
from a completed rendition of services; (c) each is not, at the time such
account arises, subject to any defense, offset, dispute, contra relationship,
counterclaim, or any given or claimed credit, allowance or discount; and (d) all
statements made and all unpaid balances and other information appearing in the
invoices, agreements, proofs of rendition of services and delivery of goods and
other documentation relating to the accounts, and all confirmatory assignments,
schedules, statements of account and books and records with respect thereto, are
true and correct and in all respects what they purport to be.
6.10 Use of Equipment; Maintenance Identification.
(a) Borrowers will not move any of the Equipment from
the locations specified on Schedules B and C without the prior written
consent of Lender (except that this restriction shall not apply to
motor vehicles used to transport other Equipment, inventory or
materials, or to any Equipment while in transit to a location specified
on Schedule B or C).
(b) Borrowers will use the Equipment in a careful and
proper manner, will comply with and conform in all material respects to
all governmental laws, rules and regulations relating thereto, and will
cause the Equipment to be operated materially in
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accordance with the manufacturer's or supplier's instructions or
manuals and only by competent and duly qualified personnel.
(c) Borrowers will, at their own expense, keep and
maintain the Equipment in good repair, condition and working order and
furnish all parts, replacements, mechanisms, devices and servicing
required therefor so that the value, condition and operating efficiency
thereof will at all times be maintained and preserved, reasonable wear
and tear and damage by casualty excepted. All such repairs, parts,
mechanisms, devices and replacements shall immediately, without further
act, become part of the Equipment and subject to the security interest
created by this Agreement. Borrowers will not make or authorize any
improvement, change, addition or alteration to the Equipment if such
improvement, change, addition or alteration will materially impair the
originally intended function or use of the Equipment or materially
impair the value of the Equipment as it existed immediately prior to
such improvement, change, addition or alteration. Any part added to the
Equipment in connection with any improvement, change, addition or
alteration shall immediately, without further act, become part of the
Equipment and subject to the security interest created by this
Agreement.
(d) If requested by Lender in writing, Debtor shall,
at its expense, attach to each item of Equipment a notice satisfactory
to Lender disclosing Lender's security interest in such item of
Equipment.
6.11 Intentionally Deleted.
6.12 Affiliate Transactions. Except as permitted below, no
Borrower will, directly or indirectly: (a) lend or advance money or property to,
guarantee or assume indebtedness of, or invest (by capital contribution or
otherwise) in any person, firm, corporation or other entity in excess of $75,000
(inclusive of any outstanding loans or advances permitted pursuant to clause (d)
of this Section 6.12; or (b) declare, pay or make any dividend or other
distribution on account of any shares of any class of stock of such Borrower now
or hereafter outstanding except, if such Borrower is an "S corporation" as
defined in the Internal Revenue Code of 1986, as amended, for dividends to
shareholders in an amount equal to their state and federal tax liabilities
associated with such status from time to time; or (c) except as set forth in any
subordination agreement between Lender and the applicable party, make any
payment of the principal amount of or interest on any indebtedness owing to any
officer, director, shareholder or affiliate of such Borrower; or (d) make any
loans or advances to any officer, director, employee, shareholder or affiliate
of such Borrower in a principal amount outstanding in excess of $75,000 in the
aggregate at any time; or (e) enter into any sale, lease or other transaction
with any officer, director, employee, shareholder or affiliate of such Borrower
on terms that are less favorable to such Borrower than those which might be
obtained at the time from persons who are not an officer, director, employee,
shareholder or affiliate of such Borrower. Notwithstanding the foregoing: (i) so
long as Borrowers maintain a net worth on a consolidated basis (as determined in
accordance with generally accepted accounting principles, consistently applied)
in the amount set forth in Section 10.5(a), Borrowers shall not be subject to
the restrictions provided in 6.12(a) or
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(b); (ii) on or after the date of this Agreement and prior to January 1, 2001,
Borrowers may from time to time make principal repayments to For Better Living,
Inc. ("FBLI") of up to $2,500,000 in the aggregate plus accrued interest in
accordance with the terms of the Promissory Note, dated August 12, 1997, in the
original principal amount of $4,500,000, executed by Borrowers to the order of
FBLI in respect of Borrowers' outstanding inter-company indebtedness to such
affiliate evidenced by the FBLI Note, and from and after January 1, 2001,
Borrowers may from time to time make additional principal repayments of up to
$2,000,000 in the aggregate plus accrued interest in accordance with the FBLI
Note to FBLI in respect of Borrowers' outstanding inter-company indebtedness to
such affiliate evidenced by the FBLI Note ; and (iii) Borrowers may make the
payments to For Better Living, Inc. required by the Management Services
Agreement by and among Borrowers and such affiliate as such agreement is in
effect on the date hereof.
6.13 Fees and Expenses. Borrowers shall pay, on Lender's
demand, all reasonable costs, expenses, fees, filing fees and taxes payable in
connection with the preparation, execution, delivery, recording, administration
(including Lender's standard wire transfer and returned check fees as Lender
shall, from time to time, advise Borrowers), collection, liquidation,
enforcement and defense of the Obligations, Lender's rights in the Collateral,
this Agreement, and all other existing and future agreements or documents
contemplated herein or related hereto, including any amendments, waivers,
supplements or consents which may hereafter be made or entered into in respect
hereof, or in any way involving claims by or against Lender directly or
indirectly arising out of or related to the relationship between Borrowers and
Lender or any guarantor and Lender (unless Lender is not the prevailing party in
any litigation initiated by any Borrower against Lender), including, but not
limited to, the following, whether incurred before, during or after the initial
or any renewal Term or after the commencement of any case with respect to any
Borrower or any guarantor under the United States Bankruptcy Code or any similar
statute: (a) all costs and expenses of filing or recording (including Uniform
Commercial Code financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all
title insurance and other insurance premiums, appraisal fees, search fees and
fees incurred in connection with any environmental report, audit, survey, or
remediation; (c) all fees as then in effect relating to the wire transfer of
loan proceeds and all other funds and fees then in effect for returned checks
and credit reports; (d) all expenses and costs heretofore and from time to time
hereafter incurred by Lender during the course of periodic, field examinations
of the Collateral and Borrowers' operations, plus a per diem charge at the then
prevailing rate (currently $650.00 per person per day) for Lender's examiners in
the field and office; and (e) the costs, fees and disbursements of in-house and
outside counsel to Lender, including but not limited to such fees and
disbursements incurred as a result of litigation between the parties hereto
(unless Lender is not the prevailing party in any litigation initiated by any
Borrower against Lender), any third party and in any appeals arising therefrom.
Anything herein to the contrary notwithstanding, Borrowers shall not be
obligated to reimburse Lender for fees of Lender's in-house counsel relating to
the drafting, negotiating or closing of the transaction described in this
Agreement.
6.14 Further Assurances. At the request of Lender, at any time
and from time to time, at Borrowers' sole expense, Borrowers shall execute and
deliver or cause to be executed
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and delivered to Lender, such agreements, documents and instruments, including
waivers, consents and subordination agreements from landlords, bailees,
mortgagees or other holders of property of any Borrower or of loans due from
Borrowers or security interests or liens in the Collateral, and do or cause to
be done such further acts as Lender, in its reasonable discretion, deems
necessary or desirable to create, preserve, perfect or validate any security
interest of Lender or the priority thereof in the Collateral and otherwise to
effectuate the provisions and purposes of this Agreement. Borrowers hereby
authorize Lender to file financing statements or amendments against Borrowers in
favor of Lender with respect to the Collateral, without Borrowers' signature and
to file as financing statements any carbon, photographic or other reproductions
of this Agreement or any financing statements signed by Borrowers.
6.15 Environmental Condition. Each Borrower warrants and
represents that to the best of its knowledge, none of its properties or assets
has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute except as identified in Phase I environmental assessments
acceptable to Lender performed by Dames & Moore Group or as otherwise disclosed
to Lender in writing. No lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by any
Borrower, except as disclosed in Schedule E. No Borrower has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal or state governmental agency concerning any action or omission by
such Borrower resulting in the releasing, or otherwise disposing of hazardous
waste or hazardous substances into the environment. Subject to Schedule E, each
Borrower is in compliance in all material respects with all statutes,
regulations, ordinances and other legal requirements pertaining to the
production, storage, handling, treatment, release, transportation or disposal of
any hazardous waste or hazardous substance.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. All Obligations shall be immediately
due and payable, without notice or demand, and any provisions of this Agreement
as to future loans and credit accommodations by Lender shall terminate
automatically, upon the termination or non-renewal of this Agreement or, at
Lender's option, upon or at any time after the occurrence or existence of any
one or more of the following (each, an "Event of Default"):
(a) Borrowers fail to pay when due any of the
Obligations or fails to perform any of the terms of this Agreement, any
deeds of trust or mortgages executed in favor of Lender, any note or
any other existing or future agreement between Borrowers and Lender or
any affiliate of Lender, provided that Borrowers shall have five days
from the date of breach to cure non-monetary breaches which, in
Lender's judgment, would not have a material adverse effect on
Borrowers, the Collateral or the prospect of repayment of the
Obligations, or which, in Lender's judgment, are not material breaches;
(b) Any representation, warranty or statement of
material fact made by
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any Borrower to Lender in this Agreement or any other agreement,
schedule, confirmatory assignment or otherwise, or to any affiliate of
Lender, shall prove materially inaccurate or misleading when made;
(c) Any guarantor or subordinated creditor of a
Borrower revokes, terminates or fails to perform within ten (10) days
of when required, any of the terms of any guaranty, endorsement,
subordination agreement or other agreement of such party with or in
favor of Lender or any affiliate of Lender;
(d) Any judgment(s) in excess of $250,000 in the
aggregate or any injunction (the enforcement of which would materially
and adversely affect any Borrower's business, the Collateral or
Lender's security interest therein, or such Borrower's ability to repay
the Obligations as provided in this Agreement) or attachment is
obtained against such Borrower or any guarantor and is either enforced
or remains unstayed for a period of twenty (20) days unless fully
covered by insurance without reservation of rights or fully paid under
an insurance policy (regardless of reservation of rights);
(e) Any guarantor which is a natural person dies, or
any Borrower or any guarantor which is a partnership or corporation is
dissolved, or any Borrower or any guarantor which is a corporation
fails to maintain its corporate existence in good standing (other than
through merger with another affiliate or any guarantor, or any other
merger specifically permitted hereunder), or the usual business of any
Borrower or any guarantor ceases or is suspended;
(f) Any change occurs in the controlling ownership of
any Borrower or any guarantor which is a corporation;
(g) (i) Borrowers and their affiliates, on a
consolidated basis, become insolvent, or (ii) any Borrower, any
affiliate or any guarantor makes an assignment for the benefit of
creditors, makes or sends notice of a bulk transfer or calls a general
meeting of its creditors or principal creditors;
(h) Any petition or application for any relief under
the bankruptcy laws of the United States now or hereafter in effect or
under any insolvency, reorganization, receivership, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction now
or hereafter in effect (whether at law or in equity) is filed by or
against any Borrower or any guarantor and in the case of an involuntary
petition in bankruptcy, is not dismissed within sixty (60) days from
the date of the filing thereof;
(i) Any indictment or threatened indictment of any
Borrower or any guarantor occurs under any criminal statute, or
criminal or civil proceedings are commenced or threatened against any
Borrower or any guarantor, pursuant to which statute or proceedings the
penalties or remedies sought or available include forfeiture of any
material portion of the property of such Borrower or guarantor;
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(j) Lender in its reasonable credit judgment believes
that either (i) the prospect of payment or performance of the
Obligations is materially impaired; or (ii) the Collateral is not
sufficient to fully secure the Obligations, and such condition has not
been cured within ten (10) days after Lender's written notice thereof
to Borrowers;
(k) Any material change occurs in the type of
business in which any Borrower or any guarantor is engaged as of the
date of this Agreement; or
(l) Any default or event of default occurs on the
part of any Borrower under any agreement, document or instrument to
which such Borrower is a party or by which such Borrower or any of its
property is bound, creating or relating to any indebtedness of such
Borrower to any person or entity other than Lender in a principal
amount exceeding $500,000, if the effect of such default is to
accelerate the maturity of all or any part of such indebtedness, or all
or any part of any such indebtedness shall be declared to be due and
payable or required to be prepaid for any other reason, in either event
prior to the stated maturity thereof.
7.2 Remedies. Upon the occurrence of an Event of Default and
at any time during the continuance thereof, Lender shall have all the default
rights and remedies provided in this Agreement, any other agreements between
Borrower and Lender, the Uniform Commercial Code or other applicable law, all of
which rights and remedies may be exercised without notice to Borrowers, all such
notices being hereby waived, except such notice as is expressly provided for
hereunder or is not waivable under applicable law. All rights and remedies of
Lender are cumulative and not exclusive and are enforceable, in Lender's
discretion, alternatively, successively or concurrently on any one or more
occasions and in any order Lender may determine. Without limiting the foregoing,
Lender may (a) accelerate the payment of all Obligations and demand immediate
payment thereof to Lender; (b) with or without judicial process or the aid or
assistance of others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral;
(c) require Borrower, at Borrowers' expense, to assemble and make available to
Lender any part or all of the Collateral at any place and time designated by
Lender; (d) collect, foreclose, receive, appropriate, set off and realize upon
any and all Collateral; (e) extend the time of payment of, compromise or settle
for cash, credit, return of merchandise, and upon any terms or conditions, any
and all accounts or other Collateral which includes a monetary obligation and
discharge or release the account debtor or other obligor, without affecting any
of the Obligations; and (f) sell, lease, transfer, assign, deliver or otherwise
dispose of any and all Collateral (including, without limitation, entering into
contracts with respect thereto, by public or private sales at any exchange,
broker's board, any office of Lender or elsewhere) at such prices or terms as
Lender may deem reasonable, for cash, upon credit or for future delivery, with
the Lender having the right to purchase the whole or any part of the Collateral
at any such public sale, all of the foregoing being free from any right or
equity of redemption of Borrowers, which right or equity of redemption is hereby
expressly waived and released by Borrowers. If any of the Collateral is sold or
leased by Lender upon credit terms or for future delivery, the Obligations shall
not be reduced as a result thereof until payment
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therefor is finally collected by Lender. If notice of disposition of Collateral
is required by law, five (5) days' prior notice by Lender to Borrowers
designating the time and place of any public sale or the time after which any
private sale or other intended disposition of Collateral is to be made shall be
deemed to be reasonable notice thereof and Borrowers waive any other notice. If
Lender institutes an action to recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, Borrowers waive the posting of any bond
which might otherwise be required.
7.3 Application of Proceeds. Lender may apply the cash
proceeds of Collateral actually received by Lender from any sale, lease,
foreclosure or other disposition of the Collateral to payment of any of the
Obligations, in whole or in part (including reasonable attorneys' fees and legal
expenses incurred by Lender with respect thereto or otherwise chargeable to
Borrowers) and in such order as Lender may elect, whether or not then due.
Borrowers shall remain liable to Lender for the payment of any deficiency
together with interest at the highest rate provided for herein and all costs and
expenses of collection or enforcement, including reasonable attorneys' fees and
legal expenses.
7.4 Lender's Cure of Third Party Agreement Default. Upon and
during the continuance of an Event of Default Lender may, at its option, cure
any default by Borrowers under any agreement with a third party or pay or bond
on appeal any judgment entered against Borrowers, discharge taxes, liens,
security interests or other encumbrances at any time levied on or existing with
respect to the Collateral and pay any amount, incur any expense or perform any
act which, in Lender's sole judgment, is necessary or appropriate to preserve,
protect, insure, maintain or realize upon the Collateral. Lender may charge
Borrowers' loan account(s) for any amounts so expended, such amounts to be
repayable by Borrowers on demand. Lender shall be under no obligation to effect
such cure, payment, bonding or discharge, and shall not, by doing so, be deemed
to have assumed any obligation or liability of Borrowers.
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS
8.1 Jury Trial Waiver. BORROWERS AND LENDER EACH WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM
AGAINST THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE
OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWERS OR
LENDER, OR, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE
RELATIONSHIP BETWEEN BORROWERS AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR
LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
8.2 Counterclaims. Borrowers waive all rights to interpose any
claims, deductions, setoffs or counterclaims of any kind, nature or description
in any action or proceeding instituted by Lender with respect to this Agreement,
the Obligations, the Collateral or any matter arising therefrom or relating
thereto, except compulsory counterclaims.
-25-
<PAGE>
8.3 Jurisdiction. Borrowers hereby irrevocably submit and
consent to the non-exclusive jurisdiction of the State and Federal Courts
located in the State of California and any other State where any Collateral is
located, with respect to any action or proceeding arising out of this Agreement,
the Obligations, the Collateral or any matter arising therefrom or relating
thereto. In any such action or proceeding, Borrowers waive personal service of
the summons and complaint or other process and papers therein and agree that the
service thereof may be made by mail directed to Borrowers at their respective
chief executive offices set forth herein or other address thereof of which
Lender has received notice as provided herein or as otherwise permitted by law,
service to be deemed complete five (5) days after mailing, or as permitted under
the rules of either of said Courts. Any such action or proceeding commenced by
Borrowers against Lender will be litigated only in a federal court located in
the Central District of California, or a state court in the County of Los
Angeles, California.
8.4 No Waiver by Lender. Lender shall not, by any act, delay,
omission or otherwise be deemed to have expressly or impliedly waived any of its
rights or remedies unless such waiver shall be in writing and signed by an
authorized officer of Lender. A waiver by Lender of any right or remedy on any
one occasion shall not be construed as a bar to or waiver of any such right or
remedy which Lender would otherwise have on any future occasion, whether similar
in kind or otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective upon
execution and delivery by Borrowers and Lender and shall continue in full force
and effect for a term of five (5) years from the date hereof and shall be deemed
automatically renewed for successive terms of two (2) years thereafter unless
terminated as of the end of the initial or any renewal term (each a "Term") by
either party giving the other written notice at least sixty (60) days prior to
the end of the then-current Term.
9.2 Early Termination. Borrowers may also terminate this
Agreement by giving Lender at least thirty (30) days' prior written notice at
any time and upon payment in full of all of the Obligations as provided herein,
including the early termination fee provided below. Lender shall also have the
right to terminate this Agreement at any time upon or during the continuance of
an Event of Default. If Lender terminates this Agreement upon or during the
continuance of an Event of Default, or if Borrowers shall terminate this
Agreement as permitted herein effective prior to the end of the then current
Term, in addition to all other Obligations, Borrowers shall jointly and
severally pay to Lender, upon the effective date of termination, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits, an early termination fee equal to the following applicable percentage
of the Maximum Credit:
(a) three percent (3%), if such early termination
occurs on or prior to the first anniversary of this Agreement;
-26-
<PAGE>
(b) two percent (2%), if such early termination
occurs on or prior to the second anniversary of this Agreement;
(c) one percent (1%), if such early termination
occurs on or prior to the third anniversary of this Agreement; and
(d) zero percent (0%), if such early termination
occurs at any time after the third anniversary of this Agreement.
9.3 Additional Cash Collateral. Upon any termination of this
Agreement by Borrowers as permitted herein, in addition to payment of all
Obligations which are not contingent, Borrowers shall deposit such amount of
cash collateral as Lender determines is necessary to secure Lender from loss,
cost, damage or expense, including reasonable attorneys' fees, in connection
with any open Accommodations or remittance items or other payments provisionally
credited to the Obligations or with respect to which Lender has not yet received
final payment. All other security interests shall be released (and Lender shall
promptly take all action necessary to effect such release) upon termination of
this Agreement, termination of any commitments of Lender hereunder and full and
final payment to Lender of all the Obligations. The unused portion of all sums
deposited pursuant to this Section 9.3 shall be promptly returned to Borrowers
when any Accommodation terminates, any remittance item or other credited payment
is verified, or when Lender receives full and final payment on any provisionally
credited amount (as the case may be). In the event that Lender has a reasonable
basis to believe that any final payment made to Lender may be subject to
contingency or defeasance, or if Lender in its reasonable judgment determines
that Lender may be subject to some other contingent liability or expense that is
the responsibility of Borrowers hereunder (and not otherwise covered under the
first sentence of this Section 9.3), then Lender may, as a condition to the
release of security interests hereunder, require the provision of appropriate
indemnities, letters of credit, cash collateral or other similar security
reasonably acceptable to Lender to cover any such possible defeasance,
contingent liability or expense.
9.4 Notices. Except as otherwise provided, all notices,
requests and demands hereunder shall be in writing and shall be (a) made to
Lender at its address set forth in Section 10.6(a) and to Borrowers as set forth
in Section 10.6(c), or to such other address as either party may designate by
written notice to the other in accordance with this provision; and (b) deemed to
have been given or made: if by hand, immediately upon delivery; if by telex,
telegram or facsimile, immediately upon receipt; if by overnight delivery
service, one (1) day after dispatch; and if by first class or certified mail,
three (3) days after deposit in the U.S. Mail, postage prepaid and addressed as
set forth herein.
9.5 Severability. If any provision of this Agreement is held
to be invalid or unenforceable, such provision shall not affect this Agreement
as a whole, but this Agreement shall be construed as though it did not contain
the particular provision held to be invalid or unenforceable.
-27-
<PAGE>
9.6 Entire Agreement; Amendments; Assignments. This Agreement
contains the entire agreement of the parties as to the subject matter hereof,
all prior commitments, proposals and negotiations concerning the subject matter
hereof being merged herein. Neither this Agreement nor any provision hereof
shall be amended, modified or discharged orally or by course of conduct, but
only by a written agreement signed by an authorized officer of Lender. This
Agreement shall be binding upon and inure to the benefit of each of the parties
hereto and their respective successors and assigns, except that any obligation
of Lender under this Agreement shall not be assignable or inure to the
successors and assigns of Borrowers.
9.7 Discharge of Borrower. Except as otherwise provided in
Section 9.3, no termination of this Agreement shall relieve or discharge
Borrowers of their obligations, grants of Collateral, duties and covenants
hereunder or otherwise until such time as all Obligations to Lender have been
fully and finally paid and satisfied, including, without limitation, the
continuation and survival in full force and effect of all security interests and
liens of Lender in and upon all then existing and thereafter-arising or acquired
Collateral and all warranties and waivers of Borrowers.
9.8 Usage. All terms used herein which are defined in the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement and all references to the singular or plural herein
shall also mean the plural or singular, respectively.
9.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
agreements made and entirely performed therein by California residents.
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1 (a) Maximum Credit: $30,000,000 inclusive of
all Revolving Loans, Accommodations,
Real Property Term Loans, the
Equipment Loan and all
Capital Expenditure Loans
(b) Gross Availability Formulas:
Eligible Accounts Percentage: 90%(1)
Eligible Inventory Percentages
Raw Materials: 60%
- --------
(1) Provided that if dilution exceeds 6%, the advance rate shall be reduced 1%
for each percent of dilution above 6%.
-28-
<PAGE>
Finished Goods (including finished goods described as 60%
"build to order" manufactured pursuant to signed
purchase orders)
Hardware: 60%
(c) Inventory Sublimit(s): $8,000,000
(d) Maximum days
for Eligible Accounts: 120 days from invoice date
(e) Minimum Borrowing: $1,000,000
10.2 Intentionally Deleted.
10.3 Accommodations:
(a) Lender's Charge for Accommodations: 1.00% over a
360-day
year
(b) Sublimit for Accommodations: $2,000,000
10.4 Fees:
(a) Interest Rate: Prime Rate plus 1.00%
over a 360-day year
(b) Interest Rate (Equipment Loans):
Prime Rate plus 0.25%
over a 360-day year
(c) Intentionally Omitted
(d) Unused Line Fee: 0.25%
10.5 Financial Covenants:
(a) Borrower's consolidated net worth as at
September 30, 1997 shall not deteriorate more
than $2,500,000 in the aggregate over the initial
Term measured on a quarterly basis. If by
September 30, 1997 Borrowers have not made
the full $2,500,000 of principal payments to FBLI
permitted under Section 6.12, the difference
-29-
<PAGE>
between $2,500,000 and the actual aggregate
amount of such payments made to FBLI shall be
figured into the calculation of Borrowers'
consolidated net worth as at September 30, 1997.
10.6 (a) Lender's Office: 300 South Grand Avenue
Third Floor
Los Angeles, CA 90071
(b) Borrowers Associated Concrete Products, Inc.
DeKalb Concrete Products, Inc.
Dalworth Concrete Products, Inc.
Associated Plastics, Inc.
(c) Borrowers' Chief
Executive Office: 2301 Dupont Drive, Suite 100
Irvine, California 92612
(d) Locations of
Eligible Inventory
Collateral: See Schedule "B".
(e) Borrowers' Other
Offices and
Locations of
Collateral: See Schedule "C".
(f) Borrowers' Trade
Names for
Invoicing: See Schedule "D".
Section 11. SURETYSHIP WAIVERS AND CONSENTS
(a) The Obligations of each Borrower are independent
of the Obligations of each other Borrower. Each Borrower expressly waives all
suretyship rights and defenses, including any right to require Lender to proceed
against any other Borrower, to proceed against or exhaust any Collateral or any
other security for the Obligations or to pursue any remedy Lender may have at
any time. Each Borrower agrees that Lender may proceed against any one or more
Borrower and/or the Collateral in such order and manner as Lender shall
determine in its sole and absolute discretion. A separate action or actions may
be brought and prosecuted against any one or more of the Borrowers whether an
action is brought or prosecuted against any other Borrower or with respect to
any Collateral or whether any other person shall be joined in any such action or
actions. Each Borrower expressly waives the benefit of any statute(s)
-30-
<PAGE>
of limitations affecting its liability under this Agreement or the enforcement
of the Obligations or any rights of Lender created or granted under this
Agreement. Lender's rights hereunder shall be reinstated and revived, and the
obligations and liability of each Borrower hereunder shall continue, with
respect to any amount at any time paid on account of the Obligations which
thereafter shall be required to be restored or returned by Lender upon the
bankruptcy, insolvency or reorganization of any Borrower, or otherwise, all as
though such amount had not been paid.
(b) Each Borrower expressly waives any and all
suretyship defenses including without limitation, those now or hereafter arising
or asserted by reason of (i) any disability or other defense of any other
Borrower or with respect to the Obligations; (ii) the cessation for any cause
whatsoever of the liability of any other Borrower and (iii) any act or omission
of Lender or others that directly or indirectly results in or aids the discharge
or release of any other Borrower or the Obligations or any Collateral or any
guaranty therefor by operation of law or otherwise. Each Borrower agrees that
any amounts received by Lender from whatever source on account of the
Obligations may be applied by Lender toward the payment of such of the
Obligations and in such order of application as Lender may from time to time
elect; and, notwithstanding any payments made by any Borrower, such Borrower
shall have no right of subrogation, reimbursement, exoneration, indemnity,
contribution or any other rights that would result in such Borrower being deemed
a creditor of any other Borrower under the federal Bankruptcy Code or any other
law or for any other purpose and such Borrower hereby irrevocably waives all
such rights, the right to assert any such rights and any right to enforce any
remedy which Lender now or may hereafter have against any Borrower and hereby
irrevocably waives any benefit of and any right to participate in, any security
now or hereafter held by Lender, whether any of the foregoing rights arise in
equity, at law or by contract.
(c) Each Borrower represents and warrants to Lender
that it has established adequate means of obtaining from each other Borrower, on
a continuing basis, financial and other information pertaining to the
businesses, operations and condition (financial and otherwise) of each other
Borrower and its properties, and each Borrower now is and hereafter will be
completely familiar with the businesses, operations and condition (financial and
otherwise) or each other Borrower and its properties. Each Borrower hereby
expressly waives and relinquishes any duty on the part of Lender (should any
such duty exist) to disclose to any Borrower any matter, fact or thing related
to the businesses, operations or condition (financial or otherwise) of each
Borrower or its properties, whether now known or hereafter known by Lender.
(d) Each Borrower represents and warrants that each
waiver set forth herein is made with each Borrower's full knowledge of its
significance and consequences, and that under the circumstances each waiver is
reasonable and not contrary to public policy or law. If any of such waivers is
determined to be contrary to any applicable law or public policy, such waiver
shall be effective only to the maximum extent permitted by law.
IN WITNESS WHEREOF, Borrowers and Lender have duly executed this
-31-
<PAGE>
Agreement this 13th day of August, 1997.
LENDER: BORROWERS:
THE CIT GROUP/CREDIT ASSOCIATED CONCRETE PRODUCTS, INC.
FINANCE, INC.
By:_________________________ By:____________________________
Title:______________________ Title:_________________________
DEKALB CONCRETE PRODUCTS, INC.
By: ___________________________
Title: ________________________
DALWORTH CONCRETE PRODUCTS, INC.
By: ___________________________
Title: ________________________
ASSOCIATED PLASTICS, INC.
By: ___________________________
Title: ________________________
-32-
<PAGE>
SCHEDULE A
Permitted Liens
NONE
<PAGE>
SCHEDULE B
Locations of Eligible Inventory Collateral
1. Associated Concrete Products, Inc.
a. 4301 W. MacArthur Boulevard
Santa Ana, California 92704
b. 999 West Mission Rock Road
Santa Paula, California 93060
c. 10050 Black Mountain Road
San Diego, California 92126
d. 1901 Isabel
Livermore, California 94550
e. 4491-A South "K" Street
Tulare, California 93274
f. 91-059 Hanua Street
Kapolei, Hawaii 96707,
subject to Lender's receipt of
satisfactory agreements with the
owner of such facility
2. Associated Plastics, Inc.
a. 3521 Airport Road
Jonesboro, Arkansas
b. 2626 Kansas Street
Riverside, California 92507
3. Dalworth Concrete Products, Inc.
a. 7818 South Cooper
Arlington, Texas 76017
b. 1002 Vulcan Road
Haskell, Arkansas 72015
<PAGE>
c. 5250 F.M. 2855
Katy, Texas 77493
d. 1900 Rilling Road
San Antonio, Texas 78214
e. 3330 North Zaragosa
El Paso, Texas 79938
4. DeKalb Concrete Products, Inc.
a. Turner Road
Eastonollee, Georgia 30538
b. 3408 Highway 17 N.
Green Cove Springs, Florida 32043
c. 5951 Covington Highway
Decatur, Georgia 30035
<PAGE>
SCHEDULE C
Borrowers' Other Offices and Locations of Collateral
1. 2301 Dupont Drive, Suite 100
Irvine, California 92612
2. 500 S. Florida Avenue, Suite 600
Lakeland, Florida 33801
<PAGE>
SCHEDULE D
Borrowers' Trade Names for Invoicing
The Quikset Organization
<PAGE>
SCHEDULE E
Governmental Notices and Directives
Monitoring wells are being operated at the Santa Paula
facility pursuant to orders and directives of the State of California, in
connection with the monitoring of underground fuel contaminants.
<PAGE>
SCHEDULE F
Real Property
1. 3408 Highway 17 North
Green Cove Springs, Florida
2. 5951 Covington Highway
Decatur, Georgia
3. 1900 Rilling Road
San Antonio, Texas
4. 1002 Vulcan Road
Haskell, Arkansas
5. 5250 Farm to Market Road 2855
Katy, Texas
6. 3330 North Zaragoza
El Paso, Texas
7. 7818 South Cooper Street
Arlington, Texas
8. Turner Road
Toccoa, Georgia
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule for For Better Living, Inc.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> SEP-27-1997
<CASH> 3,742,000
<SECURITIES> 0
<RECEIVABLES> 18,173,000
<ALLOWANCES> 1,102,000
<INVENTORY> 11,810,000
<CURRENT-ASSETS> 38,558,000
<PP&E> 46,198,000
<DEPRECIATION> 29,289,000
<TOTAL-ASSETS> 58,484,000
<CURRENT-LIABILITIES> 14,393,000
<BONDS> 0
0
0
<COMMON> 44,000
<OTHER-SE> 16,505,000
<TOTAL-LIABILITY-AND-EQUITY> 58,484,000
<SALES> 28,259,000
<TOTAL-REVENUES> 28,316,000
<CGS> 18,801,000
<TOTAL-COSTS> 28,634,000
<OTHER-EXPENSES> 9,833,000
<LOSS-PROVISION> (7,000)
<INTEREST-EXPENSE> 589,000
<INCOME-PRETAX> 1,325,000
<INCOME-TAX> 534,000
<INCOME-CONTINUING> 791,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 791,000
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.90
</TABLE>
