UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1998
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____ to ____
Commission file number: 0-22663
BANDO McGLOCKLIN CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-1364345
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
W239 N1700 Busse Road
P.O. Box 190 53072-0190
Pewaukee, Wisconsin (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (414) 523-4300
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ___
On August 14, 1998 there was 3,689,102 shares outstanding of the
Registrant's common stock, 6 2/3 cents par value.
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION
FORM 10-Q INDEX
PART I.FINANCIAL INFORMATION
Item 1.Financial Statements
Consolidated Balance Sheet as of June 30, 1998 and
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . 3-4
Consolidated Statement of Operations - For the
Three Months and Six Months Ended June 30, 1998
and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6
Consolidated Statement of Cash Flows - For the
Six Months Ended June 30, 1998 and 1997 . . . . . . . . . . . . 7-8
Notes to the Consolidated Financial Statements . . . . . . . . . 9-10
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . 11-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 18
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . 18
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . 18
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 18
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 18
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 19
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, 1998 December 31, 1997
ASSETS
Consumer Products:
Cash $ 562,929 $ -
Accounts receivable, net
of allowance of $88,003
and $268,796 as of
June 30, 1998 and
December 31, 1997,
respectively 1,067,803 1,958,672
Inventory 3,957,508 3,280,172
Prepaid expenses 2,688,995 320,339
--------- ---------
Total current assets 8,277,235 5,559,183
--------- ---------
Fixed assets, net of
accumulated depreciation
of $875,760 and $756,901
as of June 30, 1998 and
December 31, 1997,
respectively 1,857,512 1,666,399
Other assets 1,083,516 943,402
Goodwill, net of
accumulated amortization
of $5,164 and $0 as of
June 30, 1998 and
December 31, 1997,
respectively 614,589 -
--------- ---------
Total Consumer Products
assets 11,832,852 8,168,984
--------- ---------
Financial Services:
Cash 438,777 197,576
Interest receivable 844,457 844,840
Other current assets 186,215 144,700
---------- ----------
Total current assets 1,469,449 1,187,116
---------- ----------
Loans 128,130,333 130,413,277
Less: reserve for loan
losses (437,577) (450,000)
Leased properties:
Buildings, net 1,041,738 -
Land 395,682 395,843
Construction in progress 717,548 4,001
Fixed assets, net of
accumulated depreciation
of $284,126 and $236,869
as of June 30, 1998
and December 31, 1997,
respectively 384,471 427,999
Other assets, net 215,784 190,010
---------- ----------
Total Financial Services 131,917,428 132,168,246
assets ----------- -----------
Total Assets $143,750,280 $140,337,230
=========== ===========
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET-(Continued)
(Unaudited)
June 30, 1998 December 31, 1997
LIABILITIES, MINORITY
INTEREST, PREFERRED STOCK
AND SHAREHOLDERS' EQUITY
Consumer Products:
Short-term borrowings $ 4,480 $ -
Accounts payable 541,801 948,075
Accrued liabilities 1,043,067 1,179,476
----------- ----------
Total current
liabilities 1,589,348 2,127,551
Long-term debt - 22,936
----------- ----------
Total Consumer Products
liabilities 1,589,348 2,150,487
----------- ----------
Financial Services:
Commercial paper 39,849,800 25,009,972
Notes payable to banks 3,100,000 7,500,000
----------- ----------
Short-term borrowings 42,949,800 32,509,972
Accrued liabilities 967,994 1,090,965
----------- ----------
Total current
liabilities 43,917,794 33,600,937
State of Wisconsin
Investment Board notes
payable 15,666,667 6,000,000
Loan participations with
repurchase options 50,086,260 69,250,467
Other note payable 5,000,000 -
----------- ----------
Total Financial Services
liabilities 114,670,721 108,851,404
----------- -----------
Minority interest in
subsidiaries 11,415 1,684,512
Redeemable Preferred stock,
1 cent par value,
3,000,000 shares
authorized in 1998 and
1997; 674,791 shares
issued and outstanding
after deducting 15,209
shares in treasury as of
June 30, 1998 and
December 31, 1997 16,908,025 16,908,025
Shareholders' Equity
Common stock, 6 2/3 cents
par value, 15,000,000
shares authorized in 1998
and 1997, 4,001,540 shares
issued and outstanding as
of June 30, 1998 and
December 31, 1997, before
deducting shares in
treasury 266,769 266,769
Additional paid-in capital 13,671,947 13,671,947
Retained earnings 484,566 656,597
Treasury stock, at cost
(312,438 shares as of
June 30, 1998 and
December 31, 1997) (3,852,511) (3,852,511)
----------- -----------
Total Shareholders'
Equity 10,570,771 10,742,802
----------- -----------
Total Liabilities,
Minority Interest,
Preferred Stock and
Shareholders' Equity $ 143,750,280 $140,337,230
============ ===========
<PAGE>
<TABLE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Consumer Products:
Net sales $ 3,808,899 $ 4,625,296 $ 7,240,666 $ 7,654,936
Cost of sales 1,949,684 2,421,389 3,769,124 4,058,523
---------- ---------- ---------- ----------
Gross profit 1,859,215 2,203,907 3,471,542 3,596,413
Operating expenses:
Sales and marketing 683,494 568,094 1,353,349 946,195
New product
development 141,142 81,212 272,725 155,543
General and
administrative 407,709 419,751 962,574 794,220
---------- ---------- ---------- ----------
Total operating
expenses 1,232,345 1,069,057 2,588,648 1,895,958
Other income
(expense):
Interest expense (10,852) (65) (15,644) (5,488)
Other income, net 85,862 23,370 95,516 35,806
---------- ---------- ---------- ----------
Total other income
(expense) 75,010 23,305 79,872 30,318
Net income before
income taxes and
minority interest 701,880 1,158,155 962,766 1,730,773
Provision for income
taxes (238,786) (461,983) (378,940) (687,808)
Minority interest in
earnings of
subsidiaries (98,543) (388,203) (207,151) (578,037)
---------- ---------- ---------- ----------
Net income 364,551 307,969 376,675 464,928
---------- ----------- ---------- ----------
Financial Services:
Revenues:
Interest on loans 2,893,220 2,720,098 5,731,377 5,147,208
Rental income 12,690 - 12,690 -
Other income 83,917 624,176 171,177 597,404
---------- ---------- ---------- ----------
Total Revenues 2,989,827 3,344,274 5,915,244 5,744,612
---------- ---------- ----------- ----------
Expenses:
Interest expense 2,240,502 1,600,068 4,408,448 2,858,961
Other operating
expenses 413,677 749,432 727,425 1,416,104
----------- ---------- ---------- -----------
Total Expenses 2,654,179 2,349,500 5,135,873 4,275,065
Net income 335,648 994,774 779,371 1,469,547
----------- ----------- ---------- -----------
Total Company:
Net income before
income taxes and
minority interest 1,037,528 2,152,929 1,742,137 3,200,320
Provision for income
taxes (238,786) (461,983) (378,940) (687,808)
Minority interest in
earnings of
subsidiaries (98,543) (388,203) (207,151) (578,037)
---------- ---------- ---------- ----------
Net income $ 700,199 $ 1,302,743 $ 1,156,046 $ 1,934,475
=========== =========== =========== ===========
Basic Earnings Per
Share $ 0.19 $ 0.35 $ 0.31 $ 0.52
Diluted Earnings Per
Share $ 0.19 $ 0.35 $ 0.31 $ 0.52
</TABLE>
<PAGE>
<TABLE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Six months ended Six months ended
June 30, 1998 June 30, 1997
Consumer Financial Consumer Financial
Products Services Products Services
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net income $ 376,675 $ 779,371 $ 464,928 $ 1,469,547
Adjustments to reconcile net
cash (used) provided by
operating activities:
Change in appreciation on
investment swaps - 32,875 - 217,232
Depreciation and
amortization 124,023 74,198 40,512 87,611
Change in minority
interest in subsidiaries (1,673,097) - 578,037 -
Increase (decrease) in
cash due to change in:
Accounts receivable 890,869 - (845,238) -
Inventory (677,336) - (550,242) -
Interest receivable - 383 - 162,295
Other assets (2,508,770) (140,449) (462,727) 126,281
Accounts payable (406,274) - 342,312 -
Other liabilities (136,409) (122,971) 430,658 667,467
--------- ---------- ---------- ----------
Net Cash (Used) Provided by
Operations (4,010,319) 623,407 (1,760) 2,730,433
--------- ---------- ---------- ---------
Cash Flows from Investing
Activities:
Loans made - (41,776,831) - (24,973,379)
Principal collected on loans - 44,059,775 - 17,580,922
Loans purchased - - - (49,647,182)
Loan and interest charge off - (12,423) - -
Premium expense net - 13,344 - 60,457
Construction of leased
properties - (1,755,124) - -
Land sold - - 74,575 -
Purchase of short-term
securities - - - (2,625,000)
Proceeds from maturity of
securities - - - 175,000
Purchase of fixed assets (309,972) (3,729) (326,226) (166,117)
Acquisition of minority
interest in subsidiary (619,753) - - -
--------- ----------- --------- ----------
Net Cash (Used) Provided
by Investing (929,725) 525,012 (251,651) (59,595,299)
--------- ----------- --------- ----------
Cash Flows from Financing
Activities:
Increase in short term
borrowings 4,480 10,439,828 - 841,309
Proceeds from loan
participations with
repurchase options
net - (19,164,207) - 57,370,739
Proceeds from SWIB
note net - 9,666,667 - (333,334)
(Decrease) Increase in
other notes payable (22,936) 5,000,000 (5,034) -
Dividends paid - (1,328,077) - (661,979)
Proceeds from exercise of
stock options - - - 245,153
Repurchase of common stock - - - (589,898)
--------- ---------- ---------- ----------
Net Cash (Used) Provided by (18,456) 4,614,211 (5,034) 56,871,990
Financing --------- ---------- --------- ----------
Net intercompany transactions 5,521,429 (5,521,429) (195,383) 195,383
Net increase (decrease)
in cash 562,929 241,201 (453,828) 202,507
Cash, beginning of period - 197,576 663,936 673,620
--------- ----------- --------- ----------
Cash, end of period $ 562,929 $ 438,777 $ 210,108 $ 876,127
========= =========== ========= ==========
</TABLE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 NATURE OF BUSINESS
The consolidated financial statements of Bando McGlocklin Capital
Corporation (the "Company") include two segments of business: financial
services and consumer products. The consolidated financial statements as
of and for the periods presented include the accounts of the Company and
Bando McGlocklin Small Business Lending Corporation ("BMSBLC") as
financial services companies and Bando McGlocklin Investment Corporation,
Lee Middleton Original Dolls, Inc. ("Middleton Doll") and License
Products, Inc. ("License Products") as consumer product companies. On
April 30, 1998 the Company acquired the remaining 49% interest of
Middleton Doll and the right to produce certain dolls for $5 million in
cash. All significant intercompany accounts and transactions have been
eliminated in consolidation.
NOTE 2 RECLASSIFICATION
Certain amounts in the June 30, 1997 financial statements have been
reclassified to conform to the June 30, 1998 presentation. These
reclassifications have no effect on the retained earnings or net income
previously reported.
NOTE 3 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the
Company and its majority-owned subsidiaries have been prepared in
accordance with the instructions to Form 10-Q and do not include all of
the other information and disclosures required by generally accepted
accounting principles. These statements should be read in conjunction
with the consolidated financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
The accompanying consolidated financial statements have not been audited
by independent accountants in accordance with generally accepted auditing
standards, but in the opinion of management such financial statements
include all adjustments, consisting only of normal recurring accruals,
necessary to summarize fairly the Company's financial position and results
of operations. The results of operations for the three months ended June
30, 1998 may not be indicative of the results that may be expected for the
year ending December 31, 1998.
NOTE 4 INVENTORY
Inventories of Middleton Doll and License Products are valued at the lower
of cost or market. Middleton Doll and License Products utilize the
average cost method to determine cost. The components of inventory are as
follows:
June 30, December 31,
1998 1997
Raw materials $2,109,829 $1,975,002
Work in process 285,376 282,484
Finished goods 1,749,036 1,230,298
Inventory reserve (186,733) (207,612)
--------- ---------
Total $3,957,508 $3,280,172
NOTE 5 SHORT-TERM BORROWINGS
BMSBLC entered into one loan agreement with four participating banks as of
March 11, 1998. As of June 9, 1998 the agreement was amended to add a
fifth participant bank. The current loan agreement provides for a maximum
of $60,000,000 less the outstanding principal amount of commercial paper.
The facility bears interest at the prime rate or at the 30-, 60- or 90-day
LIBOR plus one and three-eighths percent. Interest is payable monthly,
and the loan agreement expires on April 30, 1999. BMSBLC is also required
to pay a commitment fee equal to 1/2 of 1% per year on the unused amount of
the loan commitment. At June 30, 1998, under this agreement, the
outstanding principal balance was $3,100,000.
On April 30, 1998, BMCC entered into a credit agreement with one of its
correspondent banks providing for a note of $5,000,000 bearing interest at
the prime rate. The credit agreement expires on April 30, 1999. The
proceeds from the new note was for the purchase of the remaining 49%
interest in Middleton Doll and the right to produce certain dolls.
NOTE 6 LONG-TERM DEBT
On June 12, 1998, BMSBLC borrowed an additional $10,000,000 from the State
of Wisconsin Investment Board pursuant to a term note which bears interest
at a fixed rate of 6.98% per year through its maturity. The note is
payable in equal quarterly installments of $166,667 with a final payment
of unpaid principal due on June 1, 2013, and is secured by specific loans.
At June 30, 1998, the outstanding principal balance was $10,000,000.
NOTE 7 EARNINGS PER SHARE
See Exhibit 11
NOTE 8 SUBSEQUENT EVENTS
On July 14, 1998 BMSBLC completed an acquisition of $19 million of leased
properties and other assets through a merger with Bando McGlocklin Real
Estate Investment Corporation, an independently owned and operated real
estate investment trust. The leased portfolio, which has a cost of
approximately $18 million, consists of 18 owner-occupied properties in the
greater Milwaukee area that are leased to a variety of manufacturing and
service businesses.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Amounts presented as of June 30, 1998 and December 31, 1997, and for the
three months and the six months ended June 30, 1998 and June 30, 1997
include the consolidation of two segments. The financial services segment
includes Bando McGlocklin Capital Corporation (the "Company") and Bando
McGlocklin Small Business Lending Corporation ("BMSBLC"), a 100% owned
subsidiary of the Company. The consumer products segment includes Bando
McGlocklin Investment Corporation ("BMIC"), a 99%-owned subsidiary of the
Company; Lee Middleton Original Dolls, Inc. ("Middleton Doll") and License
Products, Inc. ("License Products"), 100% and 51%-owned subsidiaries of
BMIC, respectively. As of April 30, 1998 BMIC owned 100% of Middleton
Doll; prior to that date BMIC owed 51% of Middleton Doll.
Results of Operations
For the three months ended June 30, 1998 and June 30, 1997
The Company's total net income after income taxes and minority interest
for the quarter ended June 30, 1998 equaled $0.70 million or $0.19 per
share (diluted) as compared to $1.30 million or $0.35 per share (diluted)
for the quarter ended June 30, 1997, a 46% decrease.
Consumer Products
Net income from consumer products after income taxes and minority interest
for the quarter ended June 30, 1998 was $0.36 million compared to $0.31
million for the quarter ended June 30, 1997, a 16% increase. However, as
of April 30, 1998 BMIC owned 100% of Middleton Doll as compared with the
quarter ended June 30, 1997 when BMIC owned only 51% of Middleton Doll.
Net sales from consumer products for the quarter ended June 30, 1998
decreased 18% to $3.81 million from $4.63 million in the corresponding
prior year period. This decrease was due to decreased sales of $0.75
million at Middleton Doll and $0.07 million at License Products for the
quarter ended June 30, 1998. Cost of sales also decreased 19% to $1.95
million for the quarter ended June 30, 1998 from $2.42 million for the
prior year quarter. Gross profit margin increased slightly to 49% for the
quarter ended June 30, 1998 from 48% for the quarter ended June 30, 1997.
Total operating expenses of consumer products for the quarter ended June
30, 1998 were $1.23 million compared to $1.07 million for the quarter
ended June 30, 1997, a 15% increase. Sales and marketing expense
increased $0.12 million, a 20% increase. $0.07 million of this increase
was a result of Middleton Doll hiring additional sales and customer
service personnel and increasing the company's participation in trade
shows, and increased promotions. In addition, Middleton Doll's payment of
commissions increased $0.09 million due to dealer sales being up nearly
40% in the quarter ended June 30, 1998. Offsetting these increases,
Middleton Doll's payment of royalties decreased by $0.08 million. License
Products' sales and marketing expense increased $0.04 million. New
product development expense increased $0.03 million at Middleton Doll
because of two new artists that were introduced late in 1997 and increased
$0.03 million at License Products because of the reformation of its
product lines into new catalogs. General and administrative expenses
decreased $0.01 million to $0.41 million for the quarter ended June 30,
1998 compared to $0.42 million for the quarter ended June 30, 1997.
Middleton Doll's expense increased $0.01 million due to related expenses
stemming from the continued growth of the company. License Products'
expense decreased $0.03 million due to non-recurring professional fees
that were expenses in the prior period and BMIC's expense increased
$0.01million as a result of additional expenses for officers.
The consumer products' consolidated net income was reduced by the minority
interest ownership in the net earnings of Middleton Doll and the net
consolidated earnings of BMIC. The minority interest in earnings of
subsidiaries equaled $0.10 million for the quarter ended June 30, 1998 and
$0.38 million for the quarter ended June 30, 1997. The decrease is the
result of BMIC owing 100 % of the stock of Middleton Doll as of April 30,
1998. The consumer products' consolidated net income was reduced by a
provision for income taxes of $0.24 million and $0.46 million for the
quarters ended June 30, 1998 and 1997, respectively.
Financial Services
Net income from financial services for the quarter ended June 30, 1998 was
$0.34 million compared to $0.99 million for the quarter ended June 30,
1997, a 66% decrease.
Total revenues were $2.99 million for the quarter ended June 30, 1998
compared to $3.34 million for the quarter ended June 30, 1997, a 10%
decrease. Interest on loans increased 6% to $2.89 million for the quarter
ended June 30, 1998 from $2.72 million for the comparative quarter as a
result of the repurchase of loans that were previously sold to a third
party. However, some of the increase is offset by the decreasing yield on
the portfolio of loans due to the market's competitive pricing.
Other income decreased $0.54 million. Of this amount, $0.50 million was
the result of receiving the proceeds of an executive's life insurance
policy where BMCC was the beneficiary in the second quarter of 1997. In
addition, during the quarter ended June 30, 1998 financial services had
premium expense of $8,690 relating to repurchasing of loans from third
parties compared to income of $8,270 for the quarter ended June 30, 1997.
Interest expense increased to $2.24 million for the quarter ended June 30,
1998 as compared to $1.60 million for the quarter ended June 30, 1997.
Interest expense increased approximately $0.29 million as a result of the
repurchase of loans by BMSBLC that had been previously sold. Those
repurchased loans were funded with new debt. Average debt increased
approximately $23 million during the quarter ended June 30, 1998 as
compared to the quarter ended June 30, 1997. This repurchase had minimal
impact on net operating income as both interest income and interest
expense increased. Interest expense, which is offset by swap income,
increased by $0.35 million because of a decline in swap income due to
investment swaps maturing and no new agreements being entered into.
Operating expenses decreased 45% to $0.41 million for the quarter ended
June 30, 1998 from $0.75 million for the prior year quarter. All employees
of the Company terminated their employment with the Company on September
8, 1997 to become employees of InvestorsBank (the "Bank"), a wholly owned
subsidiary of InvestorsBancorp, Inc., except for certain executive
officers who are employees of both the Company and the Bank. The Company
and the Bank entered into a Management Services and Allocation of
Operating Expenses Agreement (the "Agreement"). The effect of such
agreement has been to reduce the level of operating expenses of the
Company. Salaries were reduced by $0.11 million and other operating
expenses were reduced by $0.23 million. A portion of the other operating
expenses was reduced as a result of non-recurring professional fees that
were incurred in 1997 due to the restructuring. In addition the expense
resulting from the change in appreciation on investment swaps decreased
$0.07 million for the three months ended June 30, 1998. No new investment
swaps were entered into during the quarter ended June 30, 1998.
The financial services segment is comprised of two entities that intend to
qualify as a real estate investment trust ("REIT") under the code. Under
REIT status, the Company, together with its qualified REIT subsidiary,
BMSBLC, will continue to not be subject to income tax on taxable income
which is distributed to shareholders. The taxable income was $660,564 or
$0.18 per share for the quarter ended June 30, 1998, which differs from
book earnings of $335,648 or $0.09 per share due to the impact of the
elimination of intercompany revenue and expenses from the consumer
products segment and normal book/tax adjustments. For the quarter ended
June 30, 1997 the taxable income was $539,709 or $0.15 per share, which
differs from book earnings of $994,774 or $0.27 per share due to impact of
the elimination of intercompany revenue and expenses from the consumer
products segment and normal book/tax adjustments.
For the six months ended June 30, 1998 and June 30, 1997
The Company's total net income after income taxes and minority interest
for the six months ended June 30, 1998 equaled $1.16 million or $0.31 per
share (diluted) as compared to $1.93 million or $0.52 per share (diluted)
for the six months ended June 30, 1997, a 40% decrease.
Consumer Products
Net income from consumer products after income taxes and minority interest
for the six months ended June 30, 1998 was $0.38 million compared to $0.46
million for the six months ended June 30, 1997, a 17% decrease.
Net sales from consumer products for the six months ended June 30, 1998
decreased 5% to $7.24 million from $7.65 million in the corresponding
prior year period. This decrease was due to decreased sales of $0.41
million at Middleton Doll. License Products' sales were flat for the six
months ended June 30, 1998. Cost of sales also decreased 7% to $3.77
million for the six months ended June 30, 1998 from $4.06 million for the
prior year period. The decrease is the result of Middleton Doll's
decrease in sales. License Products' cost of sales remained constant.
Gross profit margin increased slightly to 48% for the six months ended
June 30, 1998 from 47% for the six months ended June 30, 1997.
Total operating expenses of consumer products for the six months ended
June 30, 1998 were $2.59 million compared to $1.90 million for the six
months ended June 30, 1997, a 36% increase. Sales and marketing expense
increased $0.41 million, a 43% increase. The majority of this increase
was a result of Middleton Doll hiring additional sales personnel and
implementing major expansion of trade shows, including more advertising
and more leased space per show and additional promotions. License
Products' sales and marketing expense increased $0.10 million. New
product development expense increased $0.07 million at Middleton Doll
because of two new artists that were introduced late in 1997 and increased
$0.05 million at License Products because of the reformation of its
product lines into new catalogs. General and administrative expenses
increased $0.17 million to $0.96 million for the six months ended June 30,
1998 compared to $0.79 million for the six months ended June 30, 1997.
Middleton Doll's expense increased $0.11 million due to a new collector
club that was started in April 1997 and increased personnel and related
expenses stemming from the continued growth of the company. License
Products' general and administrative expense remained flat and BMIC's
expense increased $0.06 million as a result of additional salaries for
officers.
The consumer products' consolidated net income was reduced by the minority
interest ownership in the net earnings of Middleton Doll and the net
consolidated earnings of BMIC. The minority interest in earnings of
subsidiaries equaled $0.21 million for the six months ended June 30, 1998
and $0.58 million for the six months ended June 30, 1997. The 64%
decrease is the result of BMIC owing 100% of the stock of Middleton Doll
as of April 30, 1998. The consumer products' consolidated net income was
reduced by a provision for income taxes of $0.38 million and $0.69
million for the six months ended June 30, 1998 and 1997, respectively.
Financial Services
Net income from financial services for the six months ended June 30, 1998
was $0.78 million compared to $1.47 million for the six months ended June
30, 1997, a 47% decrease.
Total revenues were $5.92 million for the six months ended June 30, 1998
compared to $5.74 million for the six months ended June 30, 1997, a 3%
increase. Interest on loans increased 11% to $5.73 million for the six
months ended June 30, 1998 compared to $5.15 million for the comparative
six months as a result of the repurchase of $25 million of loans on May 1,
1997 that were previously sold to a third party. However, some of the
increase is offset by the decreasing yield on the portfolio of loans due
to the market's competitive pricing.
Other income decreased $0.43 million. Of this amount, $0.50 million was
the result of receiving the proceeds of an executive's life insurance
policy where BMCC was the beneficiary in the second quarter of 1997.
Rental income and interest from short-term securities was up $0.02
million. In addition, during the six months ended June 30, 1998 financial
services had premium expense of $0.01 million relating to repurchasing of
loans from third parties compared to expense of $0.06 million for the six
months ended June 30, 1997.
Interest expense increased to $4.41 million from $2.86 million for the six
months ended June 30, 1998 as compared with the six months ended June 30,
1997. Interest expense increased approximately $0.80 million as a result
of the repurchase of loans by BMSBLC that had been previously sold. Those
repurchased loans were funded with new debt. Average debt increased $27
million during the six months ended June 30, 1998 as compared to the six
months ended June 30, 1997. This repurchase had minimal impact on net
operating income as both interest income and interest expense increased.
Interest expense, which is offset by swap income, increased by $0.75
million because of a decline in swap income due to investment swaps
maturing and no new agreements being entered into.
Operating expenses decreased 48% to $0.73 million for the six months ended
June 30, 1998 from $1.42 million for the prior year six months. All
employees of the Company terminated their employment with the Company on
September 8, 1997 to become employees of InvestorsBank (the "Bank"), a
wholly owned subsidiary of InvestorsBancorp, Inc., except for certain
executive officers who are employees of both the Company and the Bank. The
Company and the Bank entered into a Management Services and Allocation of
Operating Expenses Agreement (the "Agreement"). The effect of such
agreement has been to reduce the level of operating expenses in the
Company. Salaries were reduced by $0.20 million and other operating
expenses were reduced by $0.49 million. A portion of the other operating
expenses was reduced as a result of non-recurring professional fees that
were incurred in 1997 due to the restructuring. In addition the expense
resulting from the change in appreciation on investment swaps decreased
$0.05 million for the six months ended June 30, 1998. No new investment
swaps were entered into during the six months ended June 30, 1998.
The financial services segment is comprised of two entities that intend to
qualify as a real estate investment trust ("REIT") under the code. Under
REIT status, the Company, together with its qualified REIT subsidiary,
BMSBLC, will continue to not be subject to income tax on taxable income
which is distributed to shareholders. The taxable income was $1,185,551
or $0.32 per share for the six months ended June 30, 1998, which differs
from book earnings of $779,371 or $0.21 per share due to the impact of the
elimination of intercompany revenue and expenses from the consumer
products segment and normal book/tax adjustments. For the six months
ended June 30, 1997 the taxable income was $1,127,738 or $0.31 per share,
which differs from book earnings of $1,469,547 or $0.40 per share due to
impact of the elimination of intercompany revenue and expenses from the
consumer products segment and normal book/tax adjustments.
Liquidity and Capital
Consumer Products
Total assets of consumer products were $11.83 million as of June 30, 1998
and $8.17 million as of December 31, 1997, a 45% increase.
Cash increased to $0.56 million at June 30, 1998 from zero at December 31,
1997.
Accounts receivable, net of the allowance, decreased to $1.07 million at
June 30, 1998 from $1.96 million at December 31, 1997. A decrease of
$0.82 million is attributable to Middleton Doll, and the remaining $0.07
million is attributable to License Products. Both companies are seasonal
and typically have lower sales in the first and second quarter of the
year, which corresponds to lower accounts receivable balances.
Inventory was $3.96 million at June 30, 1998 compared to $3.28 million at
December 31, 1997. $0.36 million is the result of Middleton Doll's
anticipated sales for the third and fourth quarter and $0.32 million is
the result of License Products' anticipated sales in a new merchandise
line. Both companies are seasonal and typically report their highest
sales in the third and fourth quarter of the year.
Prepaid assets increased significantly in the second quarter to $2.69
million from $0.32 million as of December 31, 1997. On April 30, 1998
Middleton Doll bought the licensing agreement to produce Lee Middleton
dolls for $2.5 million which was capitalized and will amortize over the
remaining life of the agreement.
Fixed assets, net of accumulated depreciation, increased by $0.19 million
or 11% as of June 30, 1998 compared to December 31, 1997. $0.16 million
is the result of Middleton Doll's construction of a new addition to the
manufacturing plant in Ohio.
Goodwill was created when the company purchased the remaining 49% of the
stock from the estate of Lee Middleton, the company founder, on April 30,
1998. The purchase price exceeded book value by $0.61 million. Other
assets increased to $1.08 million as of June 30, 1998 from $0.94 million
as of December 31, 1997.
Middleton Doll increased its short-term borrowings by borrowing $4,480 on
a line of credit with InvestorsBank during the quarter ended June 30,
1998. Middleton Doll also paid off a long-term note payable of $0.02
million with another bank during the first quarter.
Accounts payable decreased by $0.41 million as of June 30, 1998 compared
to December 31, 1997. Middleton Doll's accounts payable decreased $0.32
million while License Products' accounts payable decreased $0.09 million.
Other liabilities decreased by $0.14 million.
Financial Services
Total assets of financial services were $131.92 million as of June 30,
1998 and $132.17 million as of December 31, 1997, a minimal decrease.
Total loans on the balance sheet decreased by $2.28 million, or 2%, to
$128.13 million at June 30, 1998 from $130.41 million at December 31,
1997. The Company's loan loss reserve decreased by $0.01 million due to a
charge off of a loan. The Company's loans under management increased to
$138.2 million as of June 30, 1998 from $134.6 million as of December 31,
1997. Leased properties under construction increased by $1.76 million as a
result of two new buildings. One of the buildings was complete as of June
1 and the other building is expected to be completed as of September 1.
Cash increased to $0.44 million at June 30, 1998 from $0.20 million at
December 31, 1997.
Interest receivable remained unchanged at $0.84 million as of June 30,
1998 and December 31, 1997. Fixed assets, investment swaps and other
assets, in aggregate increased by only $0.02 million.
The financial services' total consolidated indebtedness at June 30, 1998
increased $5.94 million. $5 million of the increase was for the purchase
of the remaining 49% interest in Lee Middleton Original Doll Company, Inc.
and related right to produce certain dolls from the estate of company
founder Lee Middleton. As of June 30, 1998, financial services had $70.75
million outstanding in long-term debt and $42.95 million outstanding in
short-term borrowings compared to$75.25 million outstanding in long-term
debt and $32.51 million outstanding in short-term borrowings as of
December 31, 1997. Financial services' short-term facility increased from
$50 million to $60 million during the quarter ended June 30, 1998. BMSBLC
also entered into a $10 million long-term note payable secured with real
estate. BMCC entered into a $5 million annually renewable note secured by
the stock of Middleton Doll. As a result of the increase in the short-
term facility and long-term facility, the Company paid off some higher
cost participations during the quarter. The additional $20 million in debt
allowed financial services to purchase $18 million in leased property
during July 1998.
Year 2000 Compliance
The Company utilizes and is dependent upon data processing systems and
software to conduct its business. The data processing systems and
software include those developed and maintained by the Company's data
processing provider and purchased software which is run on in-house
computer networks. In 1997, the Company initiated a review and assessment
of all hardware and software to confirm that it will function properly in
the year 2000. The Company's data processing provider and those vendors
who have been contacted indicate that their hardware and/or software will
be Year 2000 compliant by the end of 1998. This will allow time for
compliance testing. Some of the providers have completed their testing
while others will be testing this fall. Additionally, alarms, heating and
cooling systems and other computer-controlled mechanical devices on which
the Company relies have been evaluated. Those found not to be in
compliance will be modified or replaced with a compliant product. The
Company has identified four computers that will need to be replaced and
the operating system will be upgraded to become Year 2000 compliant. The
costs associated with these upgrades are approximately $5,000.
An unknown element at this time is the impact of the Year 2000 on the
Company's borrowing customers and their ability to repay. The Company has
initiated a program to communicate with key customers to ensure they are
properly prepared for the year 2000 and will not suffer serious adverse
consequences. The Company has also added new covenants to its loan
documents that the borrower be Year 2000 compliant. Nevertheless, if not
properly addressed, Year 2000 related computer issues could result in
interruptions to the operations of the Company and have a material adverse
effect on the Company's results of operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes
accounting and reporting standards for derivative instruments. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for all fiscal
years beginning after June 15, 1999. The Company does not believe this
statement will have a material impact.
Safe Harbor Statement under the Private Securities Litigation Reform Act
of 1995
This report contains certain forward looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Exchange Act. The Company intends such forward-looking statements
to be covered by the safe harbor provisions for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995, and is
including this statement for purposes of these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and
describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "may," "will," "could,"
"believe," "expect," "intend," "anticipate," "estimate," "project," or
similar expressions. The Company's ability to predict results or the
actual effect of future plans or strategies is inherently uncertain.
Factors which could have a material adverse effect on the operations and
future prospects of the Company and the subsidiaries include, but are not
limited to, changes in: interest rates, general economic conditions,
including the condition of the local real estate market,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal
Reserve Board, the quality or composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand
for financial services in the Company's market area, demand for the
Company's consumer products and accounting principles and policies. These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not a defendant in any material pending legal
proceeding and no such material proceedings are known to be
contemplated.
Item 2. CHANGES IN SECURITIES
No material changes have occurred in the securities of the
Registrant.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At an annual meeting of shareholders of the Company held on May
7, 1998, the Bando McGlocklin Capital Corporation 1997 Stock
Option Plan was approved by the shareholders. The results of
the balloting were as follows:
Shares Voted
Shares Voted For Against Broker Non-Votes
2,610,105 127,600 950,956
Item 5. OTHER INFORMATION
The deadline for submission of shareholder proposals pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, for inclusion in the Company's proxy statement for its
1999 Annual Meeting of Shareholders is December 9, 1998.
Additionally, if the Company receives notice of a shareholder
proposal after February 22, 1999, the persons named in proxies
solicited by the Board of Directors of the Company for its 1999
Annual Meeting of Shareholders may exercise discretionary voting
power with respect to such proposals.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
The Exhibits to this Quarterly Report on Form 10-Q are
identified on the Exhibit Index hereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunder duly authorized.
BANDO McGLOCKLIN CAPITAL CORPORATION
(Registrant)
/s/ George R. Schonath
Date: August 14, 1998 George R. Schonath
President and Chief Executive Officer
/s/ Susan J. Hauke
Date: August 14, 1998 Susan J. Hauke
Chief Accounting Officer
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
EXHIBIT INDEX
Exhibit
Number Exhibit
4.1 Third Amended and Restated Credit Agreement, dated as
of June 1, 1998, by and among, State of Wisconsin
Investment Board, Bando McGlocklin Small Business
Lending Corporation and Bando McGlocklin Capital
Corporation.
4.2 First Amendment to Master Note Purchase Agreement,
dated as of June 1, 1998, by and among, State of
Wisconsin Investment Board, Bando McGlocklin Small
Business Lending Corporation and Bando McGlocklin
Capital Corporation.
4.3 First Amendment to Credit Agreement, dated as of June
9, 1998, amends and supplements that certain Credit
Agreement dated as of March 11, 1998, by and among,
Bando McGlocklin Small Business Lending Corporation,
the financial institutions from time to time party
thereto and Firstar Bank Milwaukee.
4.4 Second Amendment to Credit Agreement, dated as of July
14, 1998, amends and supplements that certain Credit
Agreement dated as of March 11, 1998, by and among,
Bando McGlocklin Small Business Lending Corporation,
the financial institutions from time to time party
thereto and Firstar Bank Milwaukee.
4.5 Credit Agreement dated as of April 30, 1998, by and
among, Bando McGlocklin Capital Corporation and Firstar
Bank Milwaukee
4.6 First Amendment to Credit Agreement, dated as of June
16, 1998, amends and supplements that certain Credit
Agreement dated as of April 30, 1998, by and among,
Bando McGlocklin Capital Corporation and Firstar Bank
Milwaukee
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule (EDGAR version only)
[EXECUTION COPY]
THIRD AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of June 1, 1998
Between
STATE OF WISCONSIN INVESTMENT BOARD
AND
BANDO McGLOCKLIN SMALL BUSINESS LENDING CORPORATION
AND
BANDO McGLOCKLIN CAPITAL CORPORATION
<PAGE>
THIRD AMENDED AND RESTATED
CREDIT AGREEMENT
This Third Amended and Restated Credit Agreement (the "Agreement") is
dated as of June 1, 1998, between BANDO McGLOCKLIN SMALL BUSINESS LENDING
CORPORATION, a Wisconsin corporation (the "Company"), whose address is
P.O. Box 190 (W239 N 1700 Busse Road & Highway J), Pewaukee, Wisconsin
53072-0190, BANDO McGLOCKLIN CAPITAL CORPORATION (the "Parent"), whose
address is P.O. Box 190 (W239 N 1700 Busse Road & Highway J), Pewaukee,
Wisconsin 53072-0190, and the STATE OF WISCONSIN INVESTMENT BOARD (the
"Board"), whose address is P.O. Box 7842 (121 East Wilson Street),
Madison, WI 53707-7842.
PRELIMINARY STATEMENT
This Third Amended and Restated Credit Agreement amends that certain
Second Amended and Restated Credit Agreement dated as of November 7, 1991
between the Company and the Board, as amended by that certain Amendment to
Second Amended and Restated Credit Agreement dated as of January 27, 1993,
and as further amended by that certain Second Amendment to Second
Amendment and Restated Credit Agreement dated as of January 1, 1997
(collectively, the "Credit Agreement"). The Second Amended and Restated
Credit Agreement dated as of November 7, 1991 provided for the extension
of a Ten Million Dollar ($10,000,000) loan, as evidenced by a $10,000,000
Promissory Note dated July 9, 1990 (the "1990 Note"), and a Ten Million
Dollar ($10,000,000) loan by the Board to the Company, as evidenced by a
$10,000,000 Promissory Note dated November 7, 1991 (the "1991 Note"). The
1990 Note has been repaid in full and retired. The purpose of this
Agreement is to: (i) provide for the extension of an additional Ten
Million Dollar ($10,000,000) loan by the Board to the Company; and (ii) to
integrate the obligations, rights, and responsibilities of the parties
with regard to all loans made by the Board to the Company. The Credit
Agreement dated as of November 7, 1991, as amended, is restated solely for
the convenience of the parties and, except as specifically modified
herein, its terms and conditions as set forth herein shall continue in
full force and effect. The Company and the Board agree, subject to the
terms and conditions of this Agreement, that the Credit Agreement shall be
amended and restated in its entirety as follows:
ARTICLE 1
DEFINITIONS
1.01. "Affiliate" shall mean the Company and any Person (other than
the Company) which directly or indirectly through one or more
intermediaries control, or are controlled by, or are under common control
with the Company.
1.02. "Agreement" shall mean this Third Amended and Restated Credit
Agreement, as it may be amended from time to time.
1.03. "Banks" shall mean Firstar Bank Milwaukee, N.A., U.S. Bank
National Association, LaSalle National Bank, Harris Trust and Savings
Bank, Huntington Bank and such other lender who qualifies as a "Lender"
under the terms of the Revolving Credit Agreement (as hereinafter
defined). Any such lender who ceases to be subject to the Revolving
Credit Agreement shall cease being considered one of the "Banks" under the
terms of this Agreement.
1.04. "Board" shall mean the State of Wisconsin Investment Board,
an independent agency of the State of Wisconsin, located at P.O. Box 7842,
(121 East Wilson Street), Madison, WI 53707-7842.
1.05. "Business Day" shall mean with respect to borrowing, payment,
prepayment and for all other purposes under this Agreement a day on which
banks are not required or authorized to close in the State of Wisconsin.
1.06. "Closing Date" shall mean November 7, 1991 with respect to
the 1991 Loan (as hereinafter defined) and any Business Day on or after
June 1, 1998 with respect to the 1998 Loan (as hereinafter defined).
1.07. "Collateral" shall mean the property defined as "Collateral"
in the Security Agreements and any other property or proceeds now or
hereafter securing the Loans.
1.08. "Collateral Assignment" shall mean that certain collateral
assignment of contracts of even date herewith, executed by the Company in
favor of the Board, pursuant to which the Company collaterally assigns to
the Board all rights under its servicing agreement with InvestorsBank,
N.A. with respect to the servicing of Third Party Loans.
1.09. "Company" shall mean Bando McGlocklin Small Business Lending
Corporation, a Wisconsin corporation, with its principal offices at P.O.
Box 190 (W239 N 1700 Busse Road & Highway J), Pewaukee, Wisconsin 53072-
0190.
1.10. "Contractual Obligations" shall mean, collectively, as to the
Company, any provision of any security issued by it or of any agreement,
instrument or undertaking to which the Company is a party or by which it
or any of its property is bound.
1.11. "Counsel to the Board" shall mean Michael Best & Friedrich
LLP, One South Pinckney Street, P.O. Box 1806, Madison, WI 53701-1806, as
counsel to the Board.
1.12. "Counsel to the Company" shall mean Foley & Lardner, 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202-5367, as counsel to the
Company.
1.13. "Debt" shall mean, with respect to the Company, all of its
respective debts, notes (including the Notes [as hereinafter defined]) and
liabilities of whatever nature or amount on a consolidated basis,
including, but not limited to: (a) obligations for borrowed money; (b)
obligations representing the deferred purchase price of property including
accounts payable arising in connection with the purchase of inventory,
supplies or services; (c) obligations, whether or not assumed, secured by
liens or payable out of the proceeds or production from property now or
hereafter owned or acquired by the Company; (d) the total amount of all
obligations (whether contingent or matured) created by any Guaranty
(hereinafter defined); and (e) lease obligations which are capitalized.
1.14. "Default" shall mean the occurrence of an event described in
Article 7 herein.
1.15. "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.
1.16. "Fiscal Year" shall mean a fiscal year of the Company ending
on December 31 of each year.
1.17. "GAAP" shall mean the generally accepted accounting
principles in effect from time to time in the United States.
1.18. "Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, whether foreign or
domestic, including, without limitation, any municipality, township and
county, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government,
including, without limitation, the Securities and Exchange Commission, and
any corporation or other entity owned or controlled (through stock or
capital ownership or otherwise) by any of the foregoing.
1.19. "Guaranty" shall mean any agreement by which the Company
assumes, guaranties, endorses, contingently agrees to purchase or provide
funds for the payment of, or otherwise becomes liable for, the obligation
of any other Person, or agrees to maintain the net worth or working
capital or other financial condition of any other Person or otherwise
assures any creditor of such other Person against loss and includes,
without limitation, the contingent liability of the Company in respect of
any letter of credit or similar document or instrument.
1.20. "Lien" shall mean any security interest, mortgage, pledge,
lien, claim, charge, encumbrance, title retention agreement or lessor's
interest under a financing lease or analogous instrument, in, of or on the
property or assets of the Company.
1.21. "Loans" shall mean the aggregate principal of the 1998 Loan
and the 1991 Loan advanced by the Board to the Company under this
Agreement, as evidenced by the Notes.
1.22. "Loan Documents" shall mean, collectively, this Agreement,
the Notes, the Security Agreements, the UCC Financing Statements, the
Collateral Assignment, the Parent Guaranty, and any other agreements,
instruments or documents that may be executed by or entered into between
the Company and the Board relating to the Loans.
1.23. "Master Note Purchase Agreement" shall mean that certain
Master Note Purchase Agreement, as amended, executed by the Company, the
Parent, and the Board and dated as of January 1, 1997, providing for the
purchase by the Board of a 90% participation interest in certain Third
Party Loans.
1.24. "Notes" shall mean the 1998 Note and the 1991 Note.
1.25. "Officer's Certificate" shall mean a certificate signed under
oath in the name of the Company by George Schonath, in his capacity as
President of the Company.
1.26. "Parent" shall mean Bando McGlocklin Capital Corporation, a
Wisconsin corporation, with its principal offices at P.O. Box 190 (W239 N
1700 Busse Road & Highway J), Pewaukee, Wisconsin 53072-0190.
1.27. "Parent Guaranty" shall mean that certain guaranty of payment
of even date herewith, executed by the Parent in favor of the Board,
pursuant to which the Parent has guarantied repayment of the Loans.
1.28. "Person" shall mean an individual, partnership, corporation
(including a business trust), joint stock company, trust, unincorporated
association, joint venture or other entity, the United States federal
government or the government of any other nation, any political
subdivision or agency thereof, the State of Wisconsin, any other state or
any political subdivision thereof, or any agency of any such state or
subdivision.
1.29. "Plan" shall mean a defined benefit pension plan under ERISA
under which plan the Company could be held liable for the Unfunded
Liabilities by the Pension Benefit Guaranty Corporation upon termination
of such plan.
1.30. "Potential Default" shall mean an event which, but for the
lapse of time or the giving of notice or both, would constitute a Default.
1.31. "Reportable Event" shall mean the occurrence of an event in
regard to any Plan which must be reported to the Pension Benefit Guaranty
Corporation under ERISA and the regulations promulgated pursuant thereto.
1.32. "Requirements of Law" shall mean, collectively, as to the
Company, its certificate of incorporation and bylaws or other
organizational or governing documents of the Company, and any law, treaty,
franchise, rule or regulation, or determination of any arbitrator or a
court or other Governmental Authority, in each case applicable to or
binding upon the Company or any of its property or to which the Company or
any of its properties are subject.
1.33. "Revolving Credit Agreement" shall mean that certain Credit
Agreement dated as of March 11, 1998, by and between the Company and
Firstar Bank Milwaukee, N.A., as agent for the Banks, which provides for
the making by the Banks of up to $60,000,000 in Revolving Credit Loans (as
hereinafter defined) to the Company.
1.34. "Revolving Credit Loans" shall mean the revolving credit
loans made or to be made to the Company as borrower, and each of the
Banks, and such loans that may hereafter be made by lenders who qualify as
a "Lender" under the terms of the Revolving Credit Agreement.
1.35. "Security Agreements" shall mean the 1991 Security Agreement,
as amended, and the 1998 Security Agreement, and all other security
agreements executed in favor of the Board by the Company.
1.36. "Subsidiary" shall mean a corporation organized under the
laws of the United States of America or the District of Columbia of which
more than 50% of the outstanding capital stock ordinarily entitled to vote
for the election of directors of such corporation is owned by the Company,
directly or indirectly, or any Subsidiary (as hereby defined), and shall
include any such corporation which shall, after the date of this
Agreement, become a Subsidiary.
1.37. "Third Party Loans" shall mean the loans to Persons made by
the Company.
1.38. "Third Party Loan Documents" shall mean the notes and other
loan documents under which the Company has made Third Party Loans.
1.39. "Transfer Agent Agreement" shall mean that certain Transfer
Agent Agreement, as amended by a first amendment of even date herewith,
executed by Firstar Trust Company, as transfer agent, the Company, and the
Board, and dated as of March 26, 1993.
1.40. "UCC Financing Statements" shall mean all Uniform Commercial
Code Financing Statements executed and delivered by the Company to the
Board with respect to the Collateral.
1.41. "Unfunded Liabilities" shall mean, with regard to any Plan,
the excess of the current value of such Plan's benefits guaranteed under
ERISA over the current value of such Plan's assets allocable to such
benefits.
1.42. "1991 Loan" shall mean the aggregate principal amount, not to
exceed $10,000,000, advanced by the Board to the Company under this
Agreement, as evidenced by the 1991 Note.
1.43. "1991 Note" shall mean the promissory note of the Company
payable to the order of the Board and dated as of November 7, 1991, in
substantially the form of the Exhibit A attached hereto, evidencing the
original principal amount of $10,000,000.
1.44. "1991 Security Agreement" shall mean that certain security
agreement dated as of November 7, 1991, as amended, given by the Company
to the Board as security for the Notes and this Agreement.
1.45. "1998 Loan" shall mean the aggregate principal amount, not to
exceed $10,000,000, advanced by the Board to the Company under this
Agreement, as evidenced by the 1998 Note.
1.46. "1998 Note" shall mean the promissory note of the Company
dated June 12, executed by the Company in favor of the Board, evidencing
the original principal amount of $10,000,000.
1.47. "1998 Security Agreement" shall mean that certain security
agreement, of even date herewith, executed by the Company to the Board as
security for the Notes and this Agreement.
ARTICLE 2
AMOUNTS AND TERMS OF BORROWING
2.01. Loans and Notes. The Board agrees to lend and the Company
agrees to borrow the Loans pursuant to the terms of this Agreement. The
Loans shall be made by the Board to the Company, subject to the conditions
precedent set forth in Article 3 of this Agreement, in the following
manner:
(a) A loan in the original principal amount of Ten Million Dollars
($10,000,000) made on or about June 12, 1998, evidenced by the
1998 Note;
(b) A loan in the original principal amount of Ten Million Dollars
($10,000,000) made on or about November 7, 1991, evidenced by
the 1991 Note.
2.02. Interest Rate and Method of Computation (Fixed Rate).
(a) The amounts of the Loans remaining unpaid from time to time
shall bear interest at all times at the rate set forth in the Notes,
provided that any amount of principal that is not paid when due (whether
at the stated due date or maturity, by acceleration or otherwise) shall
bear interest at the rate set forth in the Notes, or the maximum rate
permitted by law, whichever is lower.
(b) The Company shall pay a late payment fee equal to 5% of the
amount of any principal or interest payment that is not paid within five
(5) Business Days of when due on any such late payments accepted by the
Board without declaring the Loan to be in Default.
2.03. Prepayment of Notes.
(a.1) The principal amount due under the 1991 Note may be prepared
in whole or in part, with accrued interest to the date of such prepayment,
subject to this Section 2.03 and provided the Company pays a prepayment
premium (the "1991 Note Prepayment Premium") equal to four and one-half
percent (4.5%) of the outstanding principal balance at the time of
prepayment, which percentage shall be reduced by one-half of one percent
(0.5%) on January 1, 1999, and each succeeding year. Written notice of
each optional prepayment of the 1991 Note shall be given to the Board (or
the holder of the Notes), not less than ten (10) days prior to the
proposed prepayment date, which shall coincide with a principal
installment payment date, whereupon the principal amount of said
prepayment, together with the Prepayment Premium applicable thereto, if
any, shall become due and payable on such payment date. Such notice shall
include a statement of the amount of principal to be prepaid and the
payment date on which such prepayment will be made. The final
determination of any prepayment fee hereunder shall be made by the Board
and shall be conclusive and binding for all purposes absent manifest
error.
(a.2) The principal amount due under the 1998 Note may be prepaid in
whole or in part with accrued interest to the date of such prepayment,
subject to this Section 2.03 and provided:
(i) the Company shall provide the Board with an Officer's
Certificate, dated not less than 15 days prior to the date fixed for
said prepayment, setting forth the Company's calculation of the
prepayment premium, as defined below (the "1998 Prepayment Premium"),
due in connection with such prepayment, calculated as of the date
fixed for such prepayment, together with any accompanying worksheets;
(ii) if the Board disagrees with the Company's calculation of
the Prepayment Premium, the Board shall so notify the Company in
writing prior to the date fixed for said prepayment, and the Board's
recalculation of the Prepayment Premium shall be deemed conclusive
absent manifest error; and
(iii) on the date fixed for said prepayment, the Company paid to
the Board the amount of the Prepayment Premium.
For purposes of this Section 2.03(a.2), the term "1998 Prepayment
Premium" shall mean an amount equal to the excess, if any, of the
Discounted Value (as defined below) of the Remaining Scheduled Payments
(as defined below) with respect to the Called Principal (as defined below)
of such Note over the amount of such Called Principal, provided that the
1998 Prepayment Premium may in no event be less than 0.5% of the Called
Principal, which amount is agreed to be a reasonable fee meant to
reimburse the Board for the costs and expenses, direct and indirect, of
reinvesting the proceeds of the prepayment. For the purposes of
determining the 1998 Prepayment Premium, the following terms have the
following meanings:
"Called Principal" means the outstanding principal balance of the
Note that is to be prepaid by the Company.
"Discounted Value" means, with respect to the Called Principal of the
Note that is to be prepaid by the Company, the amount obtained by
discounting all Remaining Scheduled Payments with respect to such
Called Principal from their respective scheduled due dates to the
Settlement Date (as defined below) with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Note is payable to the Board) equal to the
Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called Principal of
each Note that is to be prepaid by the Company, 0.25% over the yield
to maturity implied by the Treasury Constant Maturity Series Yields
reported, for the week most recently ended for which such yields have
been so reported as of the second Business Day preceding the
Settlement Date with respect to such Called Principal, in Federal
Reserve Statistical Release H.15 (519) (or any comparable successor
publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date. Such implied yield will be
determined, if necessary, by interpolating linearly between (i) the
yield reported for such week for the Treasury Constant Maturity
Series with the maturity closest to and greater than the Remaining
Average Life and (ii) the yield reported for such week for the
Treasury Constant Maturity Series with the maturity closest to and
less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called Principal,
the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of
the products obtained by multiplying (aa) the principal component of
each Remaining Scheduled Payment with respect to such Called
Principal by (bb) the number of years (calculated to the nearest one-
twelfth year) that will elapse between the Settlement Date with
respect to such Called Principal and the scheduled due date of such
Remaining Scheduled Payment.
"Remaining Scheduled Payment" means, with respect to the Called
Principal of the Note that is to be prepaid by the Company, all
payments of such Called Principal and interest thereon that would be
due after the Settlement Date to the Company with respect to such
Called Principal under the terms and conditions set forth in the Note
being prepaid by the Company.
"Settlement Date" means, with respect to the Called Principal of the
Note that is to be prepaid by the Company, the date on which the Note
is to be prepaid.
(b) All prepayments on either the 1998 Note or the 1991 Note shall
be applied to the installments of the respective note in the inverse order
of their stated maturities and must be in multiples of $100,000.
2.04. Manner, Time and Place of Payment.
(a) All payments (and prepayments when permitted under Section 2.03
hereof) of principal and interest due under the Notes and this Agreement
shall be made by wire transfer of immediately available funds by the
Company to Mellon/Boston Safe (ABA #011-00-1234), Boston, Massachusetts
(or such other account as the Board may hereafter specify), for credit to
the account of the Board (Account #064300, for the State of Wisconsin
Investment Board), with sufficient text to identify the Loans and amount
being remitted as interest, fees or principal, as the case may be, no
later than 11 a.m. (Madison, Wisconsin, time) on the dates when due.
(b) Any payments received after the time specified in Section
2.04(a) hereof shall be deemed to have been received on the next
succeeding Business Day.
(c) If any payment of principal or interest on the Loans shall
become due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day and, in the case of a principal
payment, such extension of time shall be included in computing interest in
connection with such payment.
2.05. Use of Proceeds. The Company will use the proceeds of the
1998 Loan to reduce or repay indebtedness owing to the Banks or to make
Third Party Loans.
ARTICLE 3
CONDITIONS PRECEDENT TO BORROWING
With respect to the 1998 Loan, the Board shall not be obligated to
make any such Loan unless the following actions shall have occurred, all
the documents described herein shall have been delivered to the Board, and
all legal matters incident to any such Loan shall be satisfactory to the
Board and Counsel to the Board:
3.01. Conditions to Closing. Prior to the Board making the 1998
Loan, the Board shall have received from the Company, in a form and
substance satisfactory to the Board and Counsel to the Board, the
following:
(a) (i) The 1998 Note, executed by the Company;
(ii) The 1998 Security Agreement, executed by the Company;
(iii) A UCC Financing Statement, executed by the Company and
describing the Collateral;
(iv) The Collateral Assignment, executed by the Company;
(v) The Parent Guaranty, executed by the Parent; and
(vi) An amendment to the Master Note Purchase Agreement,
executed by the Parent and the Company, in form and content
acceptable to the Board.
(b) All of the Third Party Loan Documents constituting the
Collateral, together with an estoppel letter in substantially the form of
Exhibit B attached hereto executed by the borrower under each such Third
Party Loan stating the balance due thereunder, that the Third Party Loan
Documents are valid, binding and enforceable in accordance with their
terms, that there is no default by or claim against the Company
thereunder, and such other matters as the Board may reasonably require;
(c) A security interest subordination agreement in substantially the
form of Exhibit C attached hereto executed by Firstar Bank Milwaukee,
N.A., as agent for the Bank and any lender who has become a "Lender" under
the terms of the Revolving Credit Agreement;
(d) An amendment to the Transfer Agent Agreement in form and content
acceptable to the Board, executed by Firstar Trust Company, as Transfer
Agent, the Company, and the Board, providing for the terms and conditions
under which Third Party Loans constituting the Collateral may be
substituted by the Company;
(e) An Officer's Certificate containing and certifying as true and
correct:
(i) Certified copies of the resolutions of the Board of
Directors of the Company approving and authorizing the
execution and delivery of the Loan Documents;
(ii) The names and signatures of the officers of the
Company authorized to sign the Loan Documents;
(iii) Copies of the Company's Articles of Incorporation and
Bylaws;
(iv) A statement that all representations and warranties
contained in Article 4 herein are true and correct and
that such representations and warranties will remain
true and correct on the Closing Date; and
(v) A statement that all Third Party Loans constituting
the Collateral meet the criteria set forth in Sections
4.14 and 4.15 hereof;
(f) A favorable opinion of Counsel to the Company;
(g) Certificates of the Company's (a) good standing from the state
of incorporation, and (b) good standing as a foreign corporation in each
state in which it is required to be licensed and failure to be so
qualified would have a material adverse effect on the Company, all
certified no earlier than 30 days prior to the Closing Date; and
(h) A Uniform Commercial Code search, prepared by a reputable Title
Company acceptable to the Board, of the records of the Waukesha County
Register of Deeds and the State of Wisconsin Secretary of State,
disclosing that all property of the Company in which the Board is to be
granted a security interest under the Security Agreements is free and
clear of all liens and encumbrances whatsoever, excepting the liens and
encumbrances set forth in Section 6.01 herein.
3.02. No Material Adverse Change. There shall not be in
existence any event, including any judicial or administrative proceeding,
which, in the opinion of the Board, would have a material adverse effect
upon the financial condition of the Company.
3.03. No Default. As of the date of advancement of the loan
proceeds under this Agreement, there shall be no Default or Potential
Default under this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Company and the Parent each represent and warrant to the Board as
follows:
4.01. Corporate Existence and Standing. The Company and the
Parent each: (a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation; (b) has the
corporate power and authority and the legal right to own and operate its
business and property, to lease the property it occupies and to conduct
the business in which it is currently engaged; and (c) is duly qualified
as a foreign corporation and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires such qualification.
4.02. Authorization and Validity. The execution, delivery and
performance by the Company and the Parent of the Loan Documents to which
each entity is a party are within the said entity's corporate powers, have
been duly authorized by all necessary corporate action and do not and will
not (1) require any consent or approval of the stockholders of the Company
or the Parent, as the case may be; (2) contravene or conflict with the
Articles of Incorporation or Bylaws of the Company or the Parent, as the
case may be; (3) violate any provision of any law, rule, regulation
(including, without limitation, Regulation U of the Board of Governors of
the Federal Reserve System), order, writ, judgment, injunction, decree,
determination, award, or any license or certificate of authority of or
issued by a Governmental Authority, presently in effect having
applicability to the Company or the Parent, as the case may be; (4) result
in a breach of or constitute a default under any indenture, loan or credit
agreement or any other agreement, lease, instrument, license or
certificate of authority to which the Company or the Parent, as the case
may be, is a party or by which it or its properties may be bound or
affected; or (5) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge
or encumbrance of any nature upon or with respect to any of the properties
now owned or hereafter acquired by the Company or the Parent, as the case
may be; and the Company or the Parent, as the case may be, is not in
default under any such law, rule, regulation, order, writ, judgment,
injunction, decree, determination, award, license or certificate of
authority or any such indenture, agreement, lease or instrument.
4.03. No Governmental Approvals. No authorization or approval or
other action by, and no notice to or filing with, any Governmental
Authority is required for the due execution, delivery and performance by
the Company or the Parent, as the case may be, of the Loan Documents,
excepting any of the foregoing required to be made by the Board.
4.04. Enforceable Obligations. The Loan Documents, when
delivered hereunder, will be legal, valid and binding obligations of the
Company or the Parent, as the case may be, enforceable in accordance with
their respective terms except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or similar laws
affecting the enforcement of creditors' rights generally.
4.05. Financial Condition. The financial statements of the
Company and the Parent dated as of the end of the Fiscal Year prior to the
Closing Date, heretofore delivered to the Board, were prepared in
accordance with GAAP, are complete and correct and fairly present the
financial condition of the Company and the Parent at such dates and the
results of its operations for the periods then ended. No material adverse
change in the condition of the Company or the Parent as shown on said
financial statements has occurred since the date thereof.
4.06. Litigation. No litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Company, threatened by or against the Company or the
Parent or against any of its respective properties or revenues (a) with
respect to this Agreement and the Loans contemplated hereby or (b) which
would have a material adverse effect on the business, operations, property
or financial or other condition of the Company or the Parent taken as a
whole, or the ability of the Company or the Parent to (i) continue its
business in a manner consistent with its present business operation or
(ii) perform its obligations under the Loan Documents.
4.07. Compliance with Laws and Contractual Obligations.
(a) The Company and the Parent are each in compliance with all
Contractual Obligations and Requirements of Law, each Contractual
Obligation is in full force and effect and no default by the Company or
the Parent exists thereunder, except to the extent such a default or
failure by the Company to comply would not, in the aggregate, have a
material adverse effect on the business, operations, property or financial
or other condition of the Company or the Parent, and would not have a
material adverse effect on the ability of the Company or the Parent to
perform its obligations under the Loan Documents.
(b) Neither the execution and delivery of the Loan Documents and the
performance of the obligations herein undertaken by the Company or the
Parent nor the use of the proceeds therefrom, will violate, conflict with
or constitute a default under any Requirement of Law (including, without
limitation, Regulations G, X or U of the Board of Governors of the Federal
Reserve System, the Securities Act of 1933 and the Securities Exchange Act
of 1934) or any Contractual Obligation (other than certain rights and
powers granted to enforce the liens or security interests permitted under
Section 6.01 hereof, which may conflict with the rights and powers
granted to the Board).
4.08. Taxes. The Company has filed or caused to be filed all tax
returns which are required to be filed and has paid all taxes shown to be
due and payable on said returns or on any assessments made against it or
any of its property and all other taxes, fees or other charges imposed on
it or any of its property by any Governmental Authority and no tax liens
have been filed and no claims are being asserted with respect to any such
taxes, fees or other charges. No material claims are threatened, pending
or being asserted with respect to, or in connection with, the Company's
tax returns through the Fiscal Year ending prior to the Closing Date.
4.09. Ownership of Property and Liens. The Company has good and
marketable title to all of its owned assets, and none of such assets are
subject to any lien, except those Liens set forth in Section 6.01 herein.
4.10. Pension Reform Act of 1974. The Company has not incurred
any material accumulated Unfunded Deficiency within the meaning of ERISA
nor has it incurred any material liability to the Pension Benefit Guaranty
Corporation ("PBGC") established under ERISA (or any successor thereto
under ERISA) in connection with any Plan established or maintained by the
Company, and the Company is in full compliance in all material respects
with all provisions of ERISA.
4.11. Subsidiaries. The Parent has no Subsidiaries other than
the Company (wholly owned), Bando McGlocklin Investment Corporation (99%
owned) and Lee Middleton Original Dolls, Inc. (100% owned) and License
Products, Inc. (51% owned). The Company has no Subsidiaries.
4.12. Accuracy of Information. No information, exhibit or report
furnished by the Company or the Parent to the Board in connection with the
negotiation of the Loans and while the Notes, or either of them, remain
unpaid contains any material misstatement of fact or omits to state a
material fact or any fact necessary to make the statements contained
therein not misleading.
4.13. REIT Status. The Company and the Parent have each elected,
and are each duly qualified, to operate as a "Real Estate Investment
Trust" ("REIT") pursuant to Section 856 of the Internal Revenue Code and
regulations applicable thereto. Neither the Company nor the Parent has
any knowledge of any facts or circumstances that would disqualify the
Company or the Parent as a REIT or any knowledge of any pending or
threatened action by the Internal Revenue Service to revoke or terminate
the Company's or Parent's election to operate, or status, as a REIT.
4.14. Form of Documents. The form of the Third Party Loan
Documents constituting the Collateral that have heretofore been approved
by the Board are attached hereto as Exhibit D. All of the Third Party
Loan Documents constituting the Collateral shall utilize the form of the
note and other loan documents in substantially the form attached hereto as
Exhibit E or such forms that may be approved by the Board.
4.15. Characteristics of Third Party Loans. At all times that the
Loans remain outstanding:
(a) all of the Third Party Loan Documents constituting Collateral
are and will remain the legal, valid binding obligation of the borrowers
thereunder enforceable according to their terms;
(b) all of the Third Party Loan Documents constituting Collateral
are and will remain secured by a perfected first or second mortgage
against real estate owned by the borrower thereunder;
(c) all of the Third Party Loan Documents constituting Collateral are
and will remain secured by a perfected first security interest in the
personal property acquired with the proceeds of the Third Party Loan;
(d) No Third Party Loan or Third Party Loans constituting
Collateral, when combined with all Third Party Loans in which the Board
holds a 90% participation interest pursuant to the Master Note Purchase
Agreement, to a single borrower (including Affiliates of a borrower) are
for an aggregate amount in excess of $4,000,000; and
(e) No Third Party Loan or Third Party Loans constituting
Collateral, when combined with all Third Party Loans in which the Board
holds a 90% participation interest pursuant to the Master Note Purchase
Agreement, consist of more than $8,000,000 in any one industry as
classified by the Company consistent with its existing industry
classification practices which are set forth on Exhibit F;
(f) Each Third Party Loan constituting Collateral must conform to
the Company's underwriting standards set forth in Exhibit G.
ARTICLE 5
AFFIRMATIVE COVENANTS
During the term of this Agreement and as long as the Notes, or any of
them, remain unpaid, unless the Board shall otherwise consent in writing,
the Company will:
5.01. Reports.
(a) Financial Statements. Maintain a standard and modern system of
accounting in accordance with sound accounting practice, and furnish to
the Board such information respecting the business, assets and financial
condition of the Company and the Parent as the Board may reasonably
request and, without request furnish to the Board:
(i) as soon as available, and in any event within 45 days
after the end of each quarter, financial statements for
the Company and the Parent, including the balance sheet
for the Company and the consolidated and consolidating
balance sheet of the Parent and its Subsidiaries, as of
the end of each such month, and statements of income of
the Company and the consolidated and consolidating
statements of income of the Parent and its Subsidiaries
for each such month and for that part of the fiscal year
ending with such month, setting forth in each case, in
comparative form, figures for the corresponding periods
in the preceding fiscal year, all in reasonable detail
and certified as true, correct and complete, subject to
review and normal year-end adjustments, by the chief
executive officer of the Company;
(ii) as soon as available, and in any event within 105 days
after the close of each fiscal year, a copy of the
detailed annual audit report for such year and
accompanying financial statements for the Parent and its
Subsidiaries as of the end of such year, containing
balance sheets and statements of income, retained
earnings and cash flows for such year and for the
previous fiscal year and consolidated and consolidating
balance sheets, statements of income and cash flows for
such year, as audited by independent certified public
accountants of recognized standing selected by the
Company and satisfactory to the Board, which report shall
be accompanied by the unqualified opinion of such
accountants to the effect that the statements present
fairly, in all material respects, the financial position
of the Parent and its Subsidiaries as of the end of such
year and the results of its operations and its cash flows
for the year then ended in conformity with GAAP;
(iii) with the financial statements described in Section
5.01(a)(ii), an Officer's Certificate to the effect that
(i) a review of the activities of the Company during such
period has been made under the supervision of the
president of the Company to determine whether the Company
has observed, performed and fulfilled each and every
covenant and condition in this Agreement, including
specifically certifying the Company is in compliance with
the Company's loan policies and underwriting standards
set forth on Exhibit G and the loan characteristics set
forth in Section 4.15 hereof; (ii) no Default has
occurred; and (iii) if a Default has occurred, the
certificate shall specify the nature thereof and the
period of existence thereof and the steps, if any, being
undertaken to correct the same;
(iv) with the financial statements described in Section
5.01(a)(ii), at the Company's option, either: (a) an
audit by the Company's independent certified public
accountants of the reconciliation report prepared by the
Company for the fiscal year, as required under Section
5.01(c), that such reconciliation accurately presents in
all material respects the information therein contained
and the year-end balances of the Third Party Loans
constituting Collateral as of the end of the fiscal year
then ending, individually and in the aggregate and
confirms that they have no knowledge of any Third Party
Loan Document constituting Collateral being in payment
default as of the end of the fiscal year then ended; or,
(b) an estoppel letter in substantially the form of
Exhibit B attached hereto executed by the borrower under
each Third Party Loan constituting Collateral, dated as
of the end of the fiscal year then ending, together with
a statement of the Company's independent certified public
accountants that they have no knowledge of any Third
Party Loan constituting Collateral being in payment
default as of the end of the fiscal year then ended.
All financial statements referred to herein shall be complete and correct
in all material respects and shall be prepared on a consolidated and
consolidating basis, in reasonable detail, and in accordance with GAAP,
applied consistently throughout all accounting periods.
(b) Furnish to the Board copies of (i) all financial statements,
reports and returns as the Parent, the Company, InvestorsBancorp, Inc., or
any Affiliate shall send to its stockholders, and (ii) all regular,
periodic, or special reports (including, but not limited to, annual
reports on form 10-K, and quarterly reports on form 10-Q) which the
Parent, the Company, InvestorsBancorp, Inc., or any Affiliate is or may be
required to file with the Securities and Exchange Commission ("SEC") or
any governmental department, bureau, commission or agency succeeding to
the functions of the SEC; all of which documents shall be delivered to the
Board forthwith as and when sent, filed, or received by the Parent, the
Company, InvestorsBancorp, Inc., or any Affiliate.
(c) Furnish to the Board a report certified by the President of the
Company prepared on a monthly basis reporting: (i) the principal balances
of all Third Party Loans constituting Collateral as of the end of the
preceding month, individually and in the aggregate; (ii) all interest,
payments of principal and prepayments received on account of the Third
Party Loans constituting Collateral, with appropriate explanations of the
character of each payment for all such Third Party Loans individually and
in aggregate; (iii) the aggregate principal balances of all Third Party
Loans constituting Collateral reported by Company's industry
classifications set forth on Exhibit F; and (iv) defaults under any Third
Party Loan Document constituting Collateral which remain uncured,
identifying the Third Party Loan pursuant to which such default occurred
and summarizing briefly the nature of such default. After the end of each
fiscal year and with the financial statements to be provided under Section
5.01(a)(ii), the Company will furnish a report certified by the President
prepared on an annual basis containing all of the same information.
(d) Furnish to the transfer agent under the Transfer Agent Agreement
annual financial statements of each of the borrowers under Third Party
Loans constituting Collateral in the form required to be provided to the
Company pursuant to the Third Party Loan Documents governing said Third
Party Loans.
5.02. Notice of Default. As soon as the Company knows of the
occurrence of any Default or Potential Default and of any other
development, financial or otherwise, which may have a material adverse
effect on the business, property or affairs of the Company or the ability
of the Company to perform its obligations under the Loan Documents, give
prompt notice thereof in writing to the Board.
5.03. Conduct of Business and Maintenance of Existence. Continue
to (a) engage in business of the same type as now conducted by it and
preserve, renew and keep in full force and effect its corporate existence,
and take all reasonable action to maintain all rights, privileges,
licenses and franchises necessary or desirable in the ordinary course of
its business; (b) comply with all Contractual Obligations and Requirements
of Law with respect to which a default or noncompliance would have a
material adverse effect on the Company; (c) adhere to its loan policies
and underwriting criteria set forth on Exhibit G in the making of Third
Party Loans constituting Collateral; and (d) maintain all Third Party
Loans constituting Collateral in compliance with the loan characteristics
set forth in Section Section 4.14 and 4.15.
5.04. Taxes. Pay, when due, all taxes, assessments and
governmental charges, fees and levies upon it and its income, profits,
revenues or property, unless any of the foregoing is being contested in
good faith and the Company has established adequate reserves for the
payment of the amounts being contested.
5.05. Maintenance of Property and Insurance. Keep all of its
property useful and necessary in its business in good working order and
condition and maintain, during the term of this Agreement and the Notes,
insurance of the types and amounts of coverages that would be reasonable
for companies in the same industry as the Company, with financially sound
and reputable insurance companies. The Company will furnish to the Board,
upon the Board's written request, full information as to the insurance
carried and, upon request of the Board, will provide an affirmative
endorsement that such insurance companies provide 30 days' prior written
notice to the Board of cancellation or nonrenewal of any insurance policy.
5.06. Books and Records and Inspection. Keep proper books of
record and account in which full, true and correct entries shall be made
of all dealings and transactions in relation to its business and
activities in conformity with GAAP and all Requirements of Law, and permit
representatives of the Board to (a) visit and inspect any of its
properties at any time during normal business hours and as often as may
reasonably be desired, and to discuss the business, operations, properties
and financial and other conditions of the Company with officers and
employees of the Company and with the Company's independent certified
public accountants, and (b) inspect any of the corporate books and
financial and other records of the Company and to make copies thereof.
5.07. Notice of Litigation and Defaults. Promptly provide notice
to the Board of (a) the commencement or knowledge of the pending or
threatened commencement of all actions, suits and proceedings before any
court or Governmental Authority, affecting the Company taken as a whole
which, if determined adversely to the Company, could have a material
adverse effect on the financial condition, properties or operations of the
Company; and (b) any default continuing for more than ninety (90) days by
any Person under any Third Party Loan Document constituting Collateral,
whether or not the Company has declared a default or accelerated such
Third Party Loan.
5.08. Notice of ERISA Reportable Event. Promptly provide to the
Board, after the filing or receipt thereof, copies of all reports,
including annual reports and notices which the Company files with or
receives from the PBGC or the United States Department of Labor under
ERISA; and as soon as possible and in any event within thirty (30) days
after the Company knows or has reason to know that any Reportable Event
has occurred with respect to any Plan or that the PBGC or the Company has
instituted or will institute proceedings under Title IV of ERISA to
terminate any Plan, a certificate of the chief financial officer of the
Company setting forth details as to such Reportable Event or Plan
termination and the action the Company proposes to take with respect
thereto.
5.09. Information to Other Creditors. Promptly provide to the
Board, after the furnishing thereof, copies of any statement or report
furnished to any other party pursuant to the terms of any indenture, loan,
credit or similar agreement and not otherwise required to be furnished to
the Board pursuant to any other clause of this Article 5.
5.10. Net Worth. The Company shall maintain a net worth at all
times at least equal to the sum of Nineteen Million Five Hundred Thousand
Dollars ($19,500,000) plus eighty-five percent (85%) of any increase in
the Company's net worth after March 3, 1995 which may result from, inter
alia, the receipt of any proceeds (cash or other property) from the
issuance by the Company of any shares of its capital stock, the receipt of
any capital contributions (cash or other property) from existing or future
shareholders of the Company, whether in the form of paid-in capital or
otherwise, or the retention of earnings by the Company. For purposes of
this Section 5.10, the Company's net worth shall be equal to the aggregate
amount of assets less the aggregate amount of liabilities and preferred
stock (if any), all according to GAAP definitions. (As presented on the
Company's balance sheet, net worth includes common stock, paid-in surplus,
treasury stock, undistributed realized earnings, unrealized gain or loss
on loans and investments, and realized gain or loss on loans and
investments. Any realized or unrealized gain or loss on interest rate
swaps are, and shall continue to be, accounted for, as the case may be, as
realized or unrealized gain or loss on loans and investments.)
5.11. Collateral Value. Maintain at all times an aggregate balance
due on Third Party Loans constituting Collateral an amount equal to or
greater than one hundred and ten percent (110%) of the principal amount
due and owing under the Notes at any time. In the event the aggregate
balance due under such Third Party Loans at any time is less than one
hundred and ten percent (110%) of the principal amount due and owing under
the Notes, the Company shall, within ten (10) days thereof, pledge,
transfer, assign and deliver such additional Third Party Loans held by the
Company to the Board as additional Collateral so that the aggregate
balance due under all such Third Party Loans pledged to the Board as
Collateral under the Security Agreements is equal to or greater than one
hundred and ten percent (110%) of the balance then due under the Notes.
The pledge of additional Collateral shall provide the Board with a
security interest of first priority on said Collateral and shall be
accompanied by an estoppel certificate and subordination agreement in the
form described respectively in Section Section 3.01(b) and 3.01(c)
hereof.
5.12. Status of Third-Party Loans. The Company agrees that:
(a) The aggregate outstanding principal amount past due on the Third
Party Loans shall not exceed seven and one-half percent (7.5%) of the
total principal amount of all Third Party Loans outstanding on the 10th
day of each month for any three consecutive months; nor shall the
aggregate outstanding principal amount of past due Third Party Loans
exceed seven and one-half percent (7.5%) of the total principal amount of
all Third Party Loans outstanding on the 10th day of any one month. A
Third Party Loan shall be deemed "past due" if any scheduled payment of
interest and/or principal is not made within ninety (90) days of its
scheduled due date. The Company may only amend or modify the amount of
any scheduled payment or any scheduled due date on a Third Party Loan with
the prior written consent of the Board.
(b) For purposes of Section 5.13(a), (i) the total amount of past
due Third Party Loans shall include all amounts by which Third Party Loans
have been reduced by reason of the Company's acquisition of the real
estate securing said loans provided such real estate is still owned by the
Company at the time of calculation, and (ii) with respect to Third Party
Loans with respect to which the Company has realized a loss (as determined
under GAAP), the amount of the loss shall not be included in any
calculation under this section.
(c) The aggregate total realized losses on Third Party Loans since
the date of the first Third Party Loan made by the Company (as determined
under GAAP), whether or not any of said Third Party Loans have constituted
or presently constitute Collateral, shall not exceed the greater of
$1,000,000 or two and one-half percent (2.5%) of the total principal
amount of all currently outstanding Third Party Loans, as determined from
the then most recent monthly financial statements to be provided by the
Company to the Board pursuant to Section 5.01(a)(i) of this Agreement. For
the purposes of this section, a loss on a Third Party Loan is "realized"
when the loss is so identified on the Company's financial statements (as
determined under GAAP).
(d) All Third Party Loans will conform to the characteristics and
criteria set forth in Sections 4.14 and 4.15, hereof.
ARTICLE 6
NEGATIVE COVENANTS
During the term of this Agreement and as long as the Notes, or either
of them, remain unpaid, unless the Board shall otherwise consent in
writing, the Company will not:
6.01. Liens, Etc. Assume or suffer to exist any Lien or other
charge or encumbrance, or any other type of preferential arrangement, upon
or with respect to any of its properties, including, but not limited to,
all of the Company's assets and real property, whether now owned or
hereafter acquired, or assign any right to receive income, in each case to
secure any Debt of any Person except:
(a) Liens in favor of the Board;
(b) Liens created in favor of Firstar Bank Milwaukee, N.A., as agent
for the Banks, to secure the Revolving Credit Loans and such other
indebtedness permitted by Section 6.02(a) hereof, provided, that any such
Liens, to the extent they attach to the Collateral, are subject to
security interest subordination agreements substantially in the form of
described in Section 3.01(c) hereof;
(c) Any Liens created after the Closing Date by purchase money
mortgages, capitalized leases, conditional sales contracts, security
interests, deeds of trust, realty mortgages or similar instruments given
to secure the payment of the purchase price incurred in connection with
the acquisition of fixed assets useful and intended to be used in carrying
out the business of the Company provided that (i) the Lien or charge shall
attach solely to the property purchased; and (ii) the aggregate principal
amount with respect to any single purchase shall not be in excess of the
fair market value of such property;
(d) Liens created pursuant to the Company's reverse repurchase
agreements with the Banks in connection with treasury bond obligations;
(e) Liens securing the payment of taxes, assessments or governmental
charges or levies, provided the same are not at the time delinquent or are
being contested in good faith and the Company has established adequate
resources for the payment of the amounts being contested;
(f) Liens imposed by law, such as claims or demands of suppliers,
mechanics, carriers, warehousers, landlords and other like Persons which
secure payment of obligations, provided the same are not more than 120
days past due or are being contested in good faith and the Company has
established adequate resources for the payment of the amounts being
contested;
(g) Liens incurred or deposits made in the ordinary course of
business in connection with worker's compensation, unemployment insurance,
social security and other like laws.
6.02. Indebtedness. Create, incur, assume or suffer to exist any
Debt except:
(a) The amounts evidenced by the Notes;
(b) Revolving Credit Loans and such other indebtedness to the Banks
to the extent provided for or permitted under the Revolving Credit
Agreement, provided that the creation of any such indebtedness requiring
an amendment to the Revolving Credit Agreement shall require the prior
written consent of the Board;
(c) Unsecured liabilities not aged more than 120 days from the
billing date which are incurred in the ordinary course of business and
paid within the specified time, subject to the Company's good faith
objection to any such liabilities provided the Company has created
adequate resources for the payment of the amounts being contested;
(d) Commercial paper and interest rate swap obligations;
(e) Indebtedness incurred in the ordinary course of business
consisting of (i) amounts held in escrow for the payment of real estate
taxes, (ii) amounts held as security deposits, and (iii) loan
participations (including those with recourse against the Company and
those sold on a "first-out" basis); and
(f) All other indebtedness shown on the Company's financial
statements as of the date hereof.
6.03. Purchase of Stock. Acquire, directly or indirectly, for
value, any of its capital stock now or hereafter outstanding.
6.04. Sale of Assets, Merger and Consolidation. Sell, transfer or
assign all or substantially all of its assets; create a Subsidiary; or
sell, transfer or assign assets which have a value, in the aggregate, in
excess of twenty-five percent (25%) of the total assets of Company, using
the values shown on the Company's financial statements unless such assets
are sold for amounts which, in the aggregate, equal or exceed their
original cost or in the case of Third Party Loans or partial interests in
Third Party Loans, are sold for an amount that is equal to or greater than
the outstanding balance or the ratable percentage of the outstanding
balance, as the case may be, then due and owing; or merge or consolidate
with or amalgamate with or into any other Person (other than by sales made
in the ordinary course of business and sales of participation interests in
Third-Party Loans).
6.05. Transactions With Affiliates. Enter into or be a party to
any transaction or arrangement, including, without limitation, the
purchase, sale, exchange or use of any property or asset, or any interest
therein, whether real, personal or mixed, or tangible or intangible, or
the rendering of any service, with any Affiliate or any director or
officer of the Company or any holder of 10% or more of the Company's
outstanding stock, except in the ordinary course of and pursuant to the
reasonable requirements of the Company's business and upon fair and
reasonable terms no less favorable to the Company than it would obtain in
a comparable arm's-length transaction with a Person not an Affiliate or a
director or officer of the Company, or a holder of 10% or more of the
Company's outstanding stock. Notwithstanding the above, the office
facilities and resources of the Company may be used to a limited extent in
conducting the business of a real estate investment trust of which certain
officers of the Company are officers.
6.06. Fiscal Year. Change its Fiscal Year.
ARTICLE 7
DEFAULTS AND REMEDIES
The occurrence of any one or more of the following events shall
constitute a Default:
7.01. Payment of Notes and Other Obligations. The failure by the
Company to pay any principal or interest payment due under the 1998 Note
or the 1991 Note within five (5) Business Days of when such payment is
due, whether by acceleration or otherwise, or the occurrence of a Default
under (and as defined in) any of the Loan Documents.
7.02. Covenants. The breach by the Company of any of the terms or
provisions of Articles 5 and 6 hereof, and the Company's failure to cure
said breach within thirty (30) days after the occurrence thereof, provided
that a breach of Section Section 6.01, 6.02, 6.04, or 6.06 hereof shall
constitute a Default immediately upon the occurrence of such breach.
7.03. Representations and Warranties. Any representation or
warranty made or deemed made by the Company or the Parent to the Board
under or in connection with any Loan Documents or any certificate or
information delivered in connection with this Agreement shall be
materially false or misleading as of the date on which made.
7.04. Other Debt. The Company or the Parent shall: (a) fail to
pay when due or within any applicable grace period any Debt (other than
the amounts outstanding under the Notes) in excess of $50,000 in the
aggregate at any one time outstanding for the Company or the Parent, as
the case may be; or (b) default in the performance of any other term,
provision or condition contained in any agreement, including, but not
limited to, the Revolving Credit Loans, under which any such Debt (other
than the amounts outstanding under the Notes) was created or is governed,
the effect of which is to cause to come due prior to its stated maturity,
or to permit the holder or holders of the same to call due prior to its
stated maturity, any Debt (other than the Notes) in excess of $50,000 in
the aggregate at any one time outstanding for the Company or the Parent,
as the case may be.
7.05. Note Purchase Documents. An Event of Default shall occur
under the Master Note Purchase Agreement.
7.06. Bankruptcy or Insolvency. The Company or the Parent shall:
(a) have an order for relief entered with respect to it under the Federal
Bankruptcy Code; (b) not pay, or admit in writing its inability to pay,
its debts generally as they become due; (c) make an assignment for the
benefit of creditors; (d) apply for, seek, consent to, or acquiesce in the
appointment of a receiver, custodian, trustee, examiner, liquidator or
similar official for it or any substantial part of its property;
(e) institute any proceeding seeking to adjudicate it a bankrupt or
insolvent, or seeking dissolution, winding-up, liquidation,
reorganization, arrangement, adjustment or composition of it or its Debt
under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors and fail to have such proceeding dismissed within sixty
(60) days of its filing or fail to file an answer or other pleading
denying the material allegations of any such proceeding filed against it;
(f) take any corporate action to authorize or effect any of the foregoing
actions set forth in this Section 7.06; or (g) fail to contest in good
faith any appointment or proceeding described in this Section 7.06.
7.07. Administrator or Receiver. Without the application,
approval or consent of the Company or the Parent, as the case may be, a
receiver, trustee, examiner, liquidator or similar official shall be
appointed for the Company or the Parent, as the case may be, or any
substantial part of its property, or a proceeding described in Section
7.06 hereof shall be instituted against the Company or the Parent, as the
case may be, and such appointment continues undischarged or such
proceeding continues undismissed or unstayed for a period of sixty (60)
consecutive days.
7.08. Condemnation or Seizure. Any court or Governmental
Authority shall condemn, seize or otherwise appropriate, or take custody
or control of all or a substantial portion of the property or assets of
the Company or the Parent.
7.09. Judgments. The Company or the Parent shall fail, within
sixty (60) days, to pay, bond or otherwise discharge judgments or orders
for the payment of money in excess of $50,000 in the aggregate at any one
time outstanding for the Company or the Parent, as the case may be, which
are not stayed on appeal or otherwise being appropriately contested in
good faith.
7.10. Security Agreements. The Security Agreements and any UCC
Financing Statements shall, at any time after their execution and delivery
and filing, and for any reason, cease (a) to create a valid and perfected
first priority security interest in and to the Collateral purported to be
subject to such Security Agreements or UCC Financing Statements, or (b) to
be in full force and effect or shall be declared null and void or the
validity or enforceability thereof shall be contested by the party thereto
or the party thereto shall deny it has any further liability or obligation
under such Security Agreements or UCC Financing Statements.
7.11. REIT Status. The Company or the Parent shall terminate its
election, or shall cease to be duly qualified, to operate as a "Real
Estate Investment Trust" ("REIT") pursuant to Section 856 of the Internal
Revenue Code, and regulations applicable thereto; or, the Internal Revenue
Service shall have revoked or terminated the Company's or the Parent's
election to operate, or status, as a REIT; or, the Internal Revenue
Service shall have notified the Company or the Parent that the Internal
Revenue Service will institute proceedings to revoke or terminate, the
Company's or the Parent's election to operate, or status, as a REIT unless
such proceedings to revoke or terminate the Company's or the Parent's REIT
election or status are dismissed within ninety days of the date of said
notification to the Company or the Parent.
7.12. Remedies. If a Default as specified in this Article 7
occurs, the Board may do any one or more of the following:
(a) declare all amounts due under any one or all of the Loans due
and payable (provided that, in the case of the occurrence of a Default
under Section Section 7.05 or 7.06, all amounts due under all of the
Loans shall forthwith become due and payable without such declaration)
whereupon the unpaid amount of such Loan or Loans shall become immediately
due and payable,
(b) exercise all of the rights and remedies of a secured party after
the occurrence of a Default under the Loan Documents, and
(c) exercise any right or remedy the Board may have at law or in
equity with respect to the Loans or the subject matter of this Agreement.
If the Notes are prepaid as the result of a Default and acceleration of
the amounts due under the same, the Company shall pay the Board a
Prepayment Premium equal to the amount, if any, that the Company would pay
under Section 2.03 hereof.
ARTICLE 8
GENERAL PROVISIONS
8.01. Amendments, Etc. No amendment or waiver of any provision of
this Agreement or the Notes, nor consent to any departure by the Company
therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Board, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given. Unless specifically stated, no amendment or restatement of
this Agreement shall constitute a rescission, substitution, or otherwise
affect the validity and enforceability of the original Agreement.
8.02. Notices. Any notice required or permitted to be delivered
under this Agreement or under any of the Loan Documents by any party to
the other shall be given as follows:
To the Company or Parent: Bando McGlocklin Capital Corporation
Attn: Chief Executive Officer
if by delivery: W239 N 1700 Busse Road & Highway J
if by mail: P.O. Box 190
Pewaukee, WI 53072-0190,
To the Board: Portfolio Manager, Private Placements Core
Portfolio
State of Wisconsin Investment Board
if by delivery: 121 East Wilson St.
if by mail: P.O. Box 7842
Madison, WI 53707-7842
Copy to: Tod B. Linstroth, Esq.
Michael Best & Friedrich LLP
if by delivery: One South Pinckney St., #700
if by mail: P.O. Box 1806
Madison, WI 53701-1806
Notices shall be deemed given (a) when deposited in the United States
Mail, postage prepaid; (b) upon delivery to the telegraph company for
transmission, charges prepaid; (c) in the case of telefax notice, when
sent, answer back received; (d) in the case of overnight courier delivery,
when deposited with the overnight courier; or (e) when physically
delivered by hand to the addressee of such notice, request or demand by or
on behalf of the person initiating such notice. The Company and the Board
may each change the address for service of notice upon it by a notice in
writing to the other.
8.03. No Waivers; Remedies. No course of dealing between the
Company and the Board and no delay or omission by the Board to exercise
any right under the Loan Documents shall impair such right or be construed
to be a waiver of any Default or Potential Default or an acquiescence
therein, and any single or partial exercise of any such right shall not
preclude other or further exercise thereof or the exercise of any other
right. All remedies contained in the Loan Documents or by law afforded
shall be cumulative, and all shall be available to the Board until the
Loans have been paid in full. The Board may exercise such remedies in any
order of priority.
8.04. Cost, Expenses and Taxes. The Company agrees to pay on
demand all costs and expenses of the Board in connection with the
preparation, execution, delivery, enforcement and administration of this
Agreement, the Notes, and the other documents that may be delivered
hereunder, including, without limitation, the reasonable fees and
out-of-pocket expenses of Counsel to the Board with respect thereto and
with respect to advising the Board as to its rights and responsibilities
under the Loan Documents, and all costs and expenses, if any (including
reasonable counsel fees and expenses), of the Board in connection with the
enforcement of the Loan Documents. In addition, the Company shall pay any
and all fees and other taxes payable or determined to be payable in
connection with the execution and delivery of the Loan Documents including
without limitation all recording, filing and refiling expenses, and agrees
to save the Board harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such
fees and taxes.
8.05. Benefit of Agreement. The Board will accept the Notes as
evidence of loans made in the ordinary course of its business and will
acquire the Notes for its own account without any present intention of
making any sale or distribution of the Notes in any manner, provided that
the disposition of the Notes shall be in the control of the Board. The
terms and provisions of the Loan Documents shall be binding upon and inure
to the benefit of the Company and the Board and their respective
successors and assigns, including, without limitation, all future holders
of the Notes, except the Company shall not have the right to assign its
rights or obligations under the Loan Documents or any interest therein,
without the prior written consent of the Board.
8.06. Survival of Representations. All representations and
warranties of the Company contained in the Loan Documents shall survive
the making of the Loans.
8.07. Choice of Law and Construction. The Loan Documents shall be
construed in accordance with the laws of the State of Wisconsin. Whenever
possible, each provision of the Loan Documents shall be interpreted in
such manner as to be effective and valid under such applicable law, but if
any provisions of any Loan Document shall be held to be prohibited or
invalid under such applicable law, such provisions shall be ineffective
only to the extent of such prohibition or invalidity, without invalidating
the remainder of such provision or the remaining provisions of any such
Loan Document.
8.08. Section Headings and References. Section headings in the
Loan Documents and the tables of contents thereof are for convenience of
reference only and shall not govern the interpretation of any of the terms
or provisions of the Loan Documents. All references to sections or
articles in the Loan Documents are to the section or article of the Loan
Document in which such section or article reference appears, unless a
different Loan Document is expressly specified.
8.09. Exhibits. All exhibits and schedules referred to in the
Loan Documents are hereby incorporated into each other Loan Document by
this reference, and all terms as defined in the Loan Documents shall have
the same meanings in such exhibits and schedules, unless otherwise defined
in such exhibits and schedules. All references to exhibits and schedules
in the Loan Documents are to those attached to the Loan Document in which
such reference appears, unless a different Loan Document is expressly
specified.
8.10. Lawful Money. All references in the Loan Documents to
payment of amounts of money shall be to lawful money of the United States
of America.
8.11. Entire Agreement. The Loan Documents embody the entire
agreements and understandings between the Company and the Board and
supersede all prior agreements and understandings between the Company and
the Board relating to the subject matter thereof.
8.12. Term of Agreement. The Loan Documents shall terminate only
when the Notes, all interest thereon and all other fees or charges due
under the Notes and this Agreement have been paid in full.
8.13. Counterparts. This Agreement may be executed by the parties
hereto individually or in several separate counterparts, each of which
shall be an original and all of which taken together shall constitute one
and the same agreement.
8.14. Further Assurance. The Company agrees to do such further
acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Board may at any time
request in connection with the administration or enforcement of the Loan
Documents in order to better assure and confirm unto the Board its rights,
powers and remedies hereunder.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company, the Parent, and the Board have
executed this Agreement as of the date first above written.
BANDO McGLOCKLIN SMALL BUSINESS
LENDING CORPORATION (the "Company")
By:
George R. Schonath
President
BANDO McGLOCKLIN CAPITAL CORPORATION (the
"Parent")
By:
George R. Schonath
President
STATE OF WISCONSIN INVESTMENT BOARD
(the "Board")
By:
Monica A. Jaehnig
Assistant Portfolio Manager
<PAGE>
EXHIBIT A
COPY OF
1991 PROMISSORY NOTE
[Attached]
<PAGE>
EXHIBIT B
FORM OF
ESTOPPEL LETTER
[Date]
Dear ____________:
The purpose of this letter is to confirm certain information relating
to the loans that Bando McGlocklin Small Business Lending Corporation
("Bando McGlocklin") has extended to you. We are asking for this
confirmation because we are obtaining a credit facility from the State of
Wisconsin Investment Board (the "Board"). Bando McGlocklin will of course
continue to be your lender; your loan will merely be used as collateral
for this new credit facility.
According to our books, the original principal amount of the loan was
$ . The loan was evidenced by the following documents: Commitment
and Loan Agreement dated ; Promissory Note dated
; Mortgage dated ; and Guaranty of
Payment by , dated .
Our records show that there have been no modifications, changes,
amendments or adjustments in these documents in any respect, and that
these are the only documents and agreements between you and us relating to
these loans.
As of June 1, 1998, the principal amount outstanding on your loan is
$_________. Our records show that you have no right of offset or other
claim against us, and it is our understanding that the loan documents
above are valid, binding and enforceable as written.
If this description is accurate, please so confirm by signing below
and returning the duplicate copy of this letter to me. You should be
aware that your response will be relied on by the State of Wisconsin
Investment Board in making the credit facility available to us. We
certainly appreciate your cooperation in this matter, and are confident
that we can continue our good working relationship.
Sincerely,
George R. Schonath
President
The undersigned agrees with the statements made above and confirms that
the facts stated are correct.
By:
Date:
<PAGE>
EXHIBIT C
FORM OF
SECURITY INTEREST SUBORDINATION AGREEMENT
The undersigned, FIRSTAR BANK MILWAUKEE, N.A. ("Bank"), as agent for
the "Lenders", as said term is defined in that certain Credit Agreement
dated as of March 11, 1998 (the "Credit Agreement") by and between Bank
and BANDO McGLOCKLIN SMALL BUSINESS LENDING CORPORATION, a Wisconsin
corporation (the "Company"), has or may acquire a security interest or
other interest in the property of the Company which is described on
Exhibit A attached hereto and made a part hereof (the "Collateral") and
understands that the State of Wisconsin Investment Board (the "Board") has
or may acquire a security interest in the Collateral as security for two
loans, each in an original principal amount not exceeding $10,000,000, as
evidenced by the promissory notes in such amounts attached as Exhibits B
and C, respectively (the loans together referred to as the "Secured
Loans"). In consideration of the Board's extension of the Secured Loans
to the Company, and the mutual covenants of the parties set forth below,
the parties agree as follows:
1. Notwithstanding the date, manner or order of perfection of
the security interests and liens granted to the Bank (as agent for
the "Lenders" under the Credit Agreement and in its individually
capacity as a "Lender" thereunder), and notwithstanding any
provisions of the UCC or any applicable law or decision or the Credit
Agreement and all other related loan and security documents
(collectively the "Bank Loan Documents"), or whether the Bank or the
Company holds possession of all or any part of the Collateral, the
Board shall have a first and prior security interest in and lien on
the Collateral and the collections and proceeds therefrom, whether
now or hereafter acquired, as security for the Secured Loans, and the
Bank shall have a subordinate security interest therein and lien
thereon.
2. If the Company shall default under the Secured Loans
secured by the Collateral, or default under the Bank Loan Documents,
all proceeds of the Collateral shall be distributed to the Board,
without regard to any interest in the Bank to the Collateral, to
satisfy all of the Company's obligations under the Secured Loans, and
after the Board has been paid in full, the balance of the proceeds of
the Collateral, if any, shall be distributed in accordance with the
terms and conditions of the Revolving Credit Agreement. The Board
shall account to the Bank for any amount received on account of the
Collateral in excess of the Company's obligations under the Secured
Loans, including the expenses of collecting and/or realizing upon the
Collateral incurred by the Board.
3. If the Company shall default under the Bank Loan Documents:
(i) the Bank may not exercise any of its rights or remedies with
respect to the Collateral until it has given notice of such default
to the Board, provided, however, that the Bank may exercise its right
of set-off so long as it provides the Board with notice of such
exercise promptly thereafter, and (ii) the Bank shall give the Board
notice within a reasonable time after the Bank commences exercising
its rights and remedies with respect to the collateral (other than
the Collateral) provided under the Bank Loan Documents. If the
Company shall default under the Secured Loans, the Board shall give
the Bank notice within a reasonable time after the Board commences
exercising its rights and remedies with respect to the Collateral.
Notice shall be deemed given to the Board or to the Bank at the
address listed next to their respective signatures below (a) when
delivered personally, (b) the second day after being deposited in the
United States mail registered or certified mail (return receipt
requested), (c) the first business day after being deposited with
Federal Express or any other recognized national overnight courier
service, or (d) on the business day on which it is sent and received
by facsimile.
4. This Agreement binds and benefits the Bank (as agent for
the "Lenders" under the Credit Agreement and in its individually
capacity as a "Lender" thereunder) and the Board and their respective
successors and assigns. No course of dealing between the Company and
the Board and no delay or omission by the Board to exercise any right
it has against the Collateral shall impair the rights of the Board
with respect to the Collateral. Whenever possible, each provision of
this Agreement shall be interpreted in such a manner so as to be
effective and valid under applicable law, but if any provision hereof
shall be held to be prohibited or invalid under such applicable law,
such provision shall be ineffective only to the extent of such
prohibition and invalidity, without invalidating the remainder of the
provisions contained herein. The Bank agrees to do such further acts
and things and to execute and deliver such additional agreements as
the Board may at any time reasonably request in connection with the
administration or enforcement of its security interests against the
Collateral or in order to better assure and confirm onto the Board
its rights and interests in the Collateral.
5. Notwithstanding anything herein to the contrary, this
Agreement shall be effective and enforceable against the Bank only if
and so long as the security interest of the Board in the Collateral
shall remain a perfected security interest.
6. The Board agrees that possession of the Collateral by the
Board shall be on behalf of and for the benefit of both the Board and
the Bank for purposes of the perfection of their respective security
interests in the Collateral. Upon termination of its security
interest in the Collateral, the Board will deliver the Collateral to
Firstar Trust Company as collateral agent for the Bank together with
any endorsements and assignments by the Board as may be necessary to
terminate its interest in the Collateral.
7. This Agreement shall be effective only upon execution
hereof by both parties.
8. All capitalized terms not defined herein shall have the
same meanings ascribed to such terms in that certain Third Amended
and Restated Credit Agreement by and between the Company and the
Board dated as of June 1, 1998.
IN WITNESS WHEREOF, this Agreement has been executed as of the 1st
day of June, 1998.
FIRSTAR BANK MILWAUKEE, N.A., as agent
By:
Name:
Title:
Address:
STATE OF WISCONSIN INVESTMENT BOARD
By:
Name:
Title:
Address:
<PAGE>
EXHIBIT D
COPIES OF PLEDGED THIRD PARTY LOAN DOCUMENTS
[Attached]
<PAGE>
EXHIBIT E
FORM OF
THIRD PARTY LOAN DOCUMENTS
[Attached]
<PAGE>
EXHIBIT F
INDUSTRY CLASSIFICATIONS
[Attached]
<PAGE>
EXHIBIT G
UNDERWRITING STANDARDS
[EXECUTION COPY]
FIRST AMENDMENT TO MASTER NOTE PURCHASE AGREEMENT
Dated as of June 1, 1998
Between
STATE OF WISCONSIN INVESTMENT BOARD
AND
BANDO McGLOCKLIN SMALL BUSINESS LENDING CORPORATION
AND
BANDO McGLOCKLIN CAPITAL CORPORATION
<PAGE>
FIRST AMENDMENT TO MASTER NOTE PURCHASE AGREEMENT
This First Amendment to Master Note Purchase Agreement is dated as of
June 1, 1998, between BANDO McGLOCKLIN SMALL BUSINESS LENDING CORPORATION,
a Wisconsin corporation (the "Company"), whose address is P.O. Box 190
(W239 N 1700 Busse Road & Highway J), Pewaukee, Wisconsin 53072-0190,
BANDO McGLOCKLIN CAPITAL CORPORATION (the "Parent"), whose address is P.O.
Box 190 (W239 N 1700 Busse Road & Highway J), Pewaukee, Wisconsin 53072-
0190, and the STATE OF WISCONSIN INVESTMENT BOARD (the "Board"), whose
address is P.O. Box 7842 (121 East Wilson Street), Madison, Wisconsin
53707-7842.
PRELIMINARY STATEMENT
A. The Company and the Board executed a Master Note Purchase
Agreement dated as of January 1, 1997 (the "Master Note Purchase
Agreement"), pursuant to which the Board agreed to purchase from the
Company a 90% participation in certain loans (the "Loans") originated by
the Company and evidenced by promissory notes (the "Notes") and other loan
documents (the "Loan Documents").
B. The Company and the Board have executed a Third Amended and
Restated Credit Agreement (the "Credit Agreement"), of even date herewith,
pursuant to which the Board has extended a $10,000,000 secured term loan
to the Company.
C. The Company and the Board now wish to amend certain provisions
of the Master Note Purchase Agreement to conform the same to the Credit
Agreement.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Board and the Company
agree as follows:
1. The defined term "Banks" set forth in Section 1.03 of the Master
Note Purchase Agreement is amended and restated in full as follows:
1.03. "Banks" shall mean Firstar Bank Milwaukee, N.A.,
individually (and as agent for) U.S. Bank National Association,
LaSalle National Bank, and Harris Trust and Savings Bank,
Huntington Bank and such other lender who qualifies as a
"Lender" under the terms of the Revolving Credit Agreement (as
hereinafter defined). Any such lender who ceases to be subject
to the Revolving Credit Agreement shall cease being considered
one of the "Banks" under the terms of this Agreement.
2. A new defined term is added to the Master Note Purchase
Agreement as Section 1.11(a) as follows:
1.11(a). "Credit Agreement" shall mean that certain Third
Amended and Restated Credit Agreement dated as of June 1, 1998
by and between the Board, the Company, and the Parent.
3. The defined term "Fiscal Year" set forth in Section 1.16 of the
Master Note Purchase Agreement is amended and restated in its entirety as
follows:
1.16. "Fiscal Year" shall mean a fiscal year of the
Company ending on December 31 of each year.
4. The defined term "Intercreditor Agreement" set forth in Section
1.20 of the Master Note Purchase Agreement is deleted in its entirety.
5. A new defined term is added to the Master Note Purchase
Agreement as Section 1.34(a) as follows:
1.34(a). "Revolving Credit Agreement" shall mean that
certain Credit Agreement dated as of March 11, 1998, by and
between the Company and the Banks, which provides for the making
by the Banks of up to $60,000,000 in Revolving Credit Loans (as
hereinafter defined) to the Company.
6. The defined term "Revolving Credit Loans" set forth in Section
1.35 of the Master Note Purchase Agreement is amended and restated in full
as follows:
1.35. "Revolving Credit Loans" shall mean the revolving
credit loans made or to be made to the Company as borrower, and
each of the Banks, and such loans that may hereafter be made by
lenders who qualify as a "Lender" under the terms of the
Revolving Credit Agreement.
7. Sections 4.09(d) and (e) of the Master Note Purchase Agreement
are amended and restated in full as follows:
(d) No Loan or Loans, when combined with all Loans
constituting Collateral under the Credit Agreement, to a single
Borrower (including Affiliates of a Borrower) are for an
aggregate amount in excess of $4,000,000;
(e) No Loan or Loans, when combined with all Loans
constituting Collateral under the Credit Agreement, consist of
more than $8,000,000 in any one industry as classified by the
Company consistent with its existing industry classification
practices which are set forth on Exhibit F; and
8. Section 5.01(a) of the Master Note Purchase Agreement is amended
and restated in full as follows:
5.01 Reports.
(a) Financial Statements. Maintain a standard and modern
system of accounting in accordance with sound accounting practice,
and furnish to the Board such information respecting the business,
assets and financial condition of the Company and the Parent as the
Board may reasonably request and, without request furnish to the
Board:
(i) as soon as available, and in any event within 45 days
after the end of each quarter, financial statements for the
Company and the Parent, including the balance sheet for the
Company and the consolidated and consolidating balance sheet of
the Parent and its Subsidiaries, as of the end of each such
month, and statements of income of the Company and the
consolidated and consolidating statements of income of the
Parent and its Subsidiaries for each such month and for that
part of the fiscal year ending with such month, setting forth in
each case, in comparative form, figures for the corresponding
periods in the preceding fiscal year, all in reasonable detail
and certified as true, correct and complete, subject to review
and normal year-end adjustments, by the chief executive officer
of the Company;
(ii) as soon as available, and in any event within 105 days
after the close of each fiscal year, a copy of the detailed
annual audit report for such year and accompanying financial
statements for the Parent and its Subsidiaries as of the end of
such year, containing balance sheets and statements of income,
retained earnings and cash flows for such year and for the
previous fiscal year and consolidated and consolidating balance
sheets, statements of income and cash flows for such year, as
audited by independent certified public accountants of
recognized standing selected by the Company and satisfactory to
the Board, which report shall be accompanied by the unqualified
opinion of such accountants to the effect that the statements
present fairly, in all material respects, the financial position
of the Parent and its Subsidiaries as of the end of such year
and the results of its operations and its cash flows for the
year then ended in conformity with GAAP;
(iii) with the financial statements described in
Section 5.01(a)(ii), an Officer's Certificate to the effect
that (i) a review of the activities of the Company during such
period has been made under the supervision of the president of
the Company to determine whether the Company has observed,
performed and fulfilled each and every covenant and condition in
this Agreement, including specifically certifying the Company is
in compliance with the Company's loan policies and underwriting
standards set forth on Exhibit A and the loan characteristics
set forth in Section 4.09 hereof; (ii) no Default has occurred;
and (iii) if a Default has occurred, the certificate shall
specify the nature thereof and the period of existence thereof
and the steps, if any, being undertaken to correct the same;
(iv) with the financial statements described in Section
5.01(a)(ii), at the Company's option, either: (a) an audit by
the Company's independent certified public accountants of the
reconciliation report prepared by the Company for the fiscal
year, as required under Section 5.01(c), that such
reconciliation accurately presents in all material respects the
information therein contained and the year-end balances of the
Third Party Loans constituting Collateral as of the end of the
fiscal year then ending, individually and in the aggregate and
confirms that they have no knowledge of any Third Party Loan
Document constituting Collateral being in payment default as of
the end of the fiscal year then ended; or, (b) an estoppel
letter in substantially the form of Exhibit B attached hereto
executed by the borrower under each Third Party Loan
constituting Collateral, dated as of the end of the fiscal year
then ending, together with a statement of the Company's
independent certified public accountants that they have no
knowledge of any Third Party Loan constituting Collateral being
in payment default as of the end of the fiscal year then ended.
All financial statements referred to herein shall be complete
and correct in all material respects and shall be prepared on a
consolidated and consolidating basis, in reasonable detail, and
in accordance with GAAP, applied consistently throughout all
accounting periods.
9. Section 5.10 of the Master Note Purchase Agreement is amended
and restated in full as follows:
5.10. Net Worth. The Company shall maintain a net
worth at all times at least equal to the sum of Nineteen Million
Five Hundred Thousand Dollars ($19,500,000) plus eighty-five
percent (85%) of any increase in the Company's net worth after
March 3, 1995 which may result from, inter alia, the receipt of
any proceeds (cash or other property) from the issuance by the
Company of any shares of its capital stock, the receipt of any
capital contributions (cash or other property) from existing or
future shareholders of the Company, whether in the form of paid-
in capital or otherwise, or the retention of earnings by the
Company. For purposes of this Section 5.10, the Company's net
worth shall be equal to the aggregate amount of assets less the
aggregate amount of liabilities and preferred stock (if any),
all according to GAAP definitions. (As presented on the
Company's balance sheet, net worth includes common stock, paid-
in surplus, treasury stock, undistributed realized earnings,
unrealized gain or loss on loans and investments, and realized
gain or loss on loans and investments. Any realized or
unrealized gain or loss on interest rate swaps are, and shall
continue to be, accounted for, as the case may be, as realized
or unrealized gain or loss on loans and investments.)
10. Section 6.04(a)(ii) of the Master Note Purchase Agreement is
amended and restated in full as follows:
(ii) Liens created in favor of the Banks, or any of them,
to secure the Revolving Credit Loans and such other indebtedness
permitted by Section 6.05(a) hereof;
11. Section 6.05(a) of the Master Note Purchase Agreement is amended
and restated in full as follows:
(a) Revolving Credit Loans and such other indebtedness to the
Banks to the extent provided for or permitted under the Revolving
Credit Agreement, provided that the creation of any such indebtedness
requiring an amendment to the Revolving Credit Agreement shall
require the prior written consent of the Board;
12. Sections 6.05(b) and (c) of the Master Note Purchase Agreement
are deleted in their entirety.
13. Section 7.04 of the Master Note Purchase Agreement is amended
and restated in full as follows:
7.04. Other Debt. The Company shall: (a) fail to pay
when due or within any applicable grace period any Debt owed by
the Company to the Board pursuant to the $10,000,000 promissory
note dated November 7, 1991, or pursuant to the $10,000,000
promissory note dated June 1, 1998; or (b) fail to pay when due
or within any applicable grace period any Debt in excess of
$50,000 in the aggregate at any one time outstanding for the
Company; or (c) default in the performance of any other term,
provision or condition contained in any agreement, including,
but not limited to, the Credit Agreement or the Revolving Credit
Loans, under which any such Debt described in clause (a) or (b)
was created or is governed, the effect of which is to cause to
come due prior to its stated maturity, or to permit the holder
or holders of the same to call due prior to its stated maturity.
14. Except as expressly provided herein, the Master Note Purchase
Agreement is not modified, amended, or revised, and shall remain in full
force and effect. This First Amendment shall not constitute a novation of
the Master Note Purchase Agreement.
15. This First Amendment may be executed by the parties hereto
individually or in several separate counterparts, each of which shall be
an original and all of which taken together shall constitute one and the
same agreement.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company, the Parent, and the Board have
executed this Agreement as of the date first above written.
BANDO McGLOCKLIN SMALL BUSINESS
LENDING CORPORATION
(the "Company")
By:
George R. Schonath
President
BANDO McGLOCKLIN CAPITAL
CORPORATION
(the "Parent")
By:
George R. Schonath
President
STATE OF WISCONSIN INVESTMENT BOARD
(the "Board")
By:
Monica A. Jaehnig
Investment Officer
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of June 9,
1998, amends and supplements that certain Credit Agreement dated as of
March 11, 1998 (as so amended, the "Credit Agreement") among BANDO
MCGLOCKLIN SMALL BUSINESS LENDING CORPORATION, a Wisconsin corporation
(the "Company"), the financial institutions from time to time party
thereto (individually a "Lender" and collectively the "Lenders"), and
FIRSTAR BANK MILWAUKEE, N.A., as agent for the Lenders (in such capacity,
the "Agent").
RECITAL
The Company, the Lenders and the Agent desire to amend the Credit
Agreement as provided below.
AGREEMENTS
In consideration of the promises and agreements set forth in the
Credit Agreement, as amended hereby, the Lenders, the Agent and the
Company agree as follows:
1. Definitions and References. Capitalized terms not otherwise
defined herein have the meanings assigned to them in the Credit Agreement.
All references to the Credit Agreement contained in the Loan Documents
shall, upon fulfillment of the conditions set forth in section 3 below,
mean the Credit Agreement as amended by this First Amendment.
2. Amendments to Credit Agreement. The Credit Agreement is
amended as follows:
(a) The definition of "Majority Lenders" contained in section 1
is amended by deleting "66 2/3%" in both places it appears therein and
substituting "75%" in both such places.
(b) The second sentence of the definition of "Revolving Loan
Commitment" contained in section 1 is amended by deleting "$50,000,000"
contained therein and substituting "$60,000,000" in its place.
(c) The parties acknowledge that simultaneously with the
effectiveness of this First Amendment, The Huntington National Bank
("Huntington") will become a "Lender" under the Credit Agreement. The
parties further acknowledge and agree that Huntington shall be deemed a
"Lender" for all purposes of the Credit Agreement and the other Loan
Documents, that the defined term "Lenders" shall include Huntington and
that Huntington shall have all of the rights, duties and obligations of a
"Lender" under the Credit Agreement and the other Loan Documents.
3. Effectiveness of First Amendment. This First Amendment shall
become effective upon its execution and delivery by the Company, the
Lenders and the Agent and satisfaction of the following conditions:
(a) Revolving Note. The Agent shall have received, for
delivery to Huntington, the Promissory Note of the Company evidencing its
obligations to Huntington in the principal amount of $10,000,000 (the
"Note").
(b) Closing Certificate of the Company. The Agent shall have
received copies for each of the Lenders, certified by the Secretary of the
Company to be true and correct and in full force and effect, of (i) a
statement to the effect that the Articles of Incorporation and By-Laws of
the Company delivered to the Lenders on March 11, 1998 have not been
amended since that date and remain in full force and effect as of the date
hereof; (ii) resolutions of the Board of Directors of the Company
authorizing the issuance, execution and delivery of this First Amendment
and the Note; and (iii) a statement containing the names and titles of the
officer or officers of the Company authorized to sign such documents,
together with true signatures of such officers.
(c) Acknowledgment of Guarantor. The Agent shall have received
an acknowledgment and consent from the Guarantor, acknowledging and
agreeing that such Guarantor's guarantee will run in favor of The
Huntington National Bank and reaffirming that such Guarantor's guarantee
remains in full force and effect.
(d) Proceedings Satisfactory. All other proceedings
contemplated by this First Amendment shall be satisfactory to the Lenders
and the Agent, and the Lenders and the Agent shall have received such
other information relating hereto as the Lenders or the Agent may
reasonably request.
4. Representations and Warranties. The Company represents and
warrants to the Lenders and the Agent that:
(a) The execution and delivery of this First Amendment and the
Note, and the performance by the Company of its obligations thereunder,
are within its corporate power, have been duly authorized by proper
corporate action on the part of the Company, are not in violation of any
existing law, rule or regulation of any governmental agency or authority,
any order or decision of any court, the Articles of Incorporation or By-
Laws of the Company or the terms of any agreement, restriction or
undertaking to which the Company is a party or by which it is bound, and
do not require the approval or consent of the shareholders of the Company,
any governmental body, agency or authority or any other person or entity;
and
(b) The representations and warranties contained in the Loan
Documents are true and correct in all material respects as of the date of
this First Amendment except (i) the representations and warranties
contained in section 3.3 of the Credit Agreement shall apply to the most
recent financial statements delivered by the Company to the Lenders
pursuant to sections 5.1 and 5.2 of the Credit Agreement and (ii) for
changes contemplated or permitted by the Loan Documents and, to the
Company's knowledge, no condition exists or event or act has occurred
that, with or without the giving of notice or the passage of time, would
constitute an Event of Default under the Credit Agreement.
5. Costs and Expenses. The Company agrees to pay to the Agent,
on demand, all costs and expenses (including reasonable attorneys' fees)
paid or incurred by the Agent in connection with the negotiation,
execution and delivery of this First Amendment.
6. Full Force and Effect. The Credit Agreement, as amended
hereby, remains in full force and effect.
7. Counterparts. This First Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one
agreement, and any of parties hereto may execute this First Amendment by
signing any such counterpart.
[Intentionally Left Blank, Signatures Appear on Next Page]
<PAGE>
BANDO MCGLOCKLIN SMALL BUSINESS LENDING
CORPORATION
BY_____________________________
Its___________________________
Revolving
Loan
Commitment Percentage
FIRSTAR BANK MILWAUKEE, N.A.,
as the Agent
BY_____________________________
Its___________________________
Address: 777 East Wisconsin Avenue
Milwaukee, WI 53202
Attn: Jon Beggs
Facsimile No.: 414-765-6236
$17,500,000 29.167% FIRSTAR BANK MILWAUKEE, N.A.,
as a Lender
BY_____________________________
Its___________________________
Address: 777 East Wisconsin Avenue
Milwaukee, WI 53202
Attn: Jon Beggs
Facsimile No.: 414-765-6236
$17,500,000 29.167% U.S. BANK NATIONAL ASSOCIATION
(formerly known as First Bank National
Association)
BY_____________________________
Its___________________________
Address: 201 West Wisconsin Avenue
Milwaukee, WI 53259
Attn: Dennis Bowgren
Facsimile No.: 414-227-5416
$7,500,000 12.500% LASALLE NATIONAL BANK
BY_____________________________
Its___________________________
Address: 135 South LaSalle Street
Chicago, IL 60603
Attn: Terry Keating
Facsimile No.: 312-904-2903
$7,500,000 12.500% HARRIS TRUST AND SAVINGS BANK
BY_____________________________
Its___________________________
Address: 111 West Monroe Street
Chicago, IL 60603
Attn: Robert Bomben
Facsimile No.: 312-765-8382
$10,000,000 16.666% THE HUNTINGTON NATIONAL BANK
BY_____________________________
Its___________________________
Address: 41 South High Street
Columbus, OH 43215
Attn: Robert Friend
Facsimile No.: 614-480-5791
----------- -------
$60,000,000 100.000%
=========== =======
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of July __,
1998, amends and supplements that certain Credit Agreement dated as of
March 11, 1998, as amended to date (as so amended, the "Credit
Agreement"), among BANDO MCGLOCKLIN SMALL BUSINESS LENDING CORPORATION, a
Wisconsin corporation (the "Company"), the financial institutions from
time to time party thereto (individually a "Lender" and collectively the
"Lenders"), and FIRSTAR BANK MILWAUKEE, N.A., as agent for the Lenders (in
such capacity, the "Agent").
RECITAL
The Company, the Lenders and the Agent desire to amend the
Credit Agreement as provided below.
AGREEMENTS
In consideration of the promises and agreements set forth in the
Credit Agreement, as amended hereby, the Lenders, the Agent and the
Company agree as follows:
1. Definitions and References. Capitalized terms not
otherwise defined herein have the meanings assigned to them in the Credit
Agreement. All references to the Credit Agreement contained in the Loan
Documents shall, upon fulfillment of the conditions set forth in section 3
below, mean the Credit Agreement as amended by this Second Amendment.
2. Amendments to Credit Agreement. The Credit Agreement is
amended as follows:
(a) Section 9.15 is created toread as follows:
9.15 Release of Mortgage Collateral. If the
Company disposes of any real property constituting Eligible
Leased Real Estate, in a bona fide, arm's length transaction,
the Banks agree that the Collateral Agent shall promptly release
any mortgage and assignment of leases and rents, in favor of the
Collateral Agent, for the benefit of the Lenders, encumbering
the relevant Eligible Leased Real Estate, upon payment by the
Company to the Agent, for the benefit of the Lenders, of an
amount equal to the net book value of such Eligible Leased Real
Estate as of the date of such disposition.
(b) The Company, the Agent and the Lenders acknowledge and
agree that for a period of 180 days following the date of this Second
Amendment, the Established Value of Eligible Leased Real Estate, for
purposes of calculating the Leased Real Estate Borrowing Base Amount,
shall be determined as set forth on Exhibit K attached hereto. The
Company, the Agent and the Lenders further acknowledge and agree that at
the expiration of such 180-day period the Established Value for Eligible
Leased Real Estate shall be reduced to $0, unless, prior to the expiration
of such 180-day period, the Company has delivered to the Agent the updated
appraisals required by the Agent with respect to Eligible Leased Real
Estate.
(c) Exhibit K attached hereto shall be deemed an Exhibit
to the Credit Agreement.
3. Effectiveness of Second Amendment. This Second Amendment
shall become effective upon its execution and delivery by the Company, the
Lenders and the Agent.
4. Representations and Warranties. The Company represents and
warrants to the Lenders and the Agent that:
(a) The execution and delivery of this Second Amendment
and the performance by the Company of its obligations hereunder, are
within its corporate power, have been duly authorized by proper corporate
action on the part of the Company, are not in violation of any existing
law, rule or regulation of any governmental agency or authority, any order
or decision of any court, the Articles of Incorporation or By-Laws of the
Company or the terms of any agreement, restriction or undertaking to which
the Company is a party or by which it is bound, and do not require the
approval or consent of the shareholders of the Company, any governmental
body, agency or authority or any other person or entity; and
(b) The representations and warranties contained in the
Loan Documents are true and correct in all material respects as of the
date of this Second Amendment except (i) the representations and
warranties contained in section 3.3 of the Credit Agreement shall apply to
the most recent financial statements delivered by the Company to the
Lenders pursuant to sections 5.1 and 5.2 of the Credit Agreement and (ii)
for changes contemplated or permitted by the Loan Documents and, to the
Company's knowledge, no condition exists or event or act has occurred
that, with or without the giving of notice or the passage of time, would
constitute an Event of Default under the Credit Agreement.
5. Costs and Expenses. The Company agrees to pay to the
Agent, on demand, all costs and expenses (including reasonable attorneys'
fees) paid or incurred by the Agent in connection with the negotiation,
execution and delivery of this Second Amendment.
6. Full Force and Effect. The Credit Agreement, as amended
hereby, remains in full force and effect.
7. Counterparts. This Second Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one
agreement, and any of parties hereto may execute this Second Amendment by
signing any such counterpart.
BANDO MCGLOCKLIN SMALL BUSINESS LENDING
CORPORATION
BY_____________________________
Its___________________________
FIRSTAR BANK MILWAUKEE, N.A.,
as the Agent
BY_____________________________
Its___________________________
FIRSTAR BANK MILWAUKEE, N.A.,
as a Lender
BY_____________________________
Its___________________________
U.S. BANK NATIONAL ASSOCIATION
(formerly known as First Bank National
Association)
BY_____________________________
Its___________________________
LASALLE NATIONAL BANK
BY_____________________________
Its___________________________
HARRIS TRUST AND SAVINGS BANK
BY_____________________________
Its___________________________
THE HUNTINGTON NATIONAL BANK
BY_____________________________
Its___________________________
CREDIT AGREEMENT
Dated as of April 30, 1998
FIRSTAR BANK MILWAUKEE, N.A. (the "Bank") and BANDO MCGLOCKLIN
CAPITAL CORPORATION (the "Company") agree as follows:
1. Definitions. As used in this Agreement, the following terms have
the following meanings:
"Affiliate" of any Person means any other Person, directly or
indirectly controlling, controlled by or under common control with such
Person. A Person shall be deemed to control another Person if the
controlling Person owns 10% or more of any class of voting securities (or
other ownership interests) of the controlled Person or possesses, directly
or indirectly, the power to direct or cause the direction of the
management or policies of the controlled Person, whether by ownership of
stock (or other ownership interests), by contract or otherwise. As used
herein, "Person" means any natural person, corporation, limited liability
company, joint venture, partnership, association, trust or other entity or
any government or political subdivision or any agency, department or
instrumentality thereof.
"Bank Security Documents" means the documents described in
section 4.1(b) and any other document, instrument or agreement furnished
by the Company to the Bank which provides collateral for the obligations
of the Company under the Loan Documents.
"BMIC" means Bando McGlocklin Investment Corporation, a Wisconsin
corporation.
"BMSBLC" means Bando McGlocklin Small Business Lending
Corporation, a Wisconsin corporation.
"Closing Date" means April 30, 1998.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Subsidiaries" means Subsidiaries whose financial
statements are consolidated with those of the Company in accordance with
GAAP.
"Controlled Group" means a group of trades or businesses (whether
or not incorporated) under common control, as defined in the regulations
issued pursuant to section 414(c) of the Code or such other regulations
prescribed by the Pension Benefit Guaranty Corporation pursuant to
section 4001(b)(1) of ERISA, of which the Company is a part.
"Default" means any act, event, condition or omission which, with
the giving of notice or lapse of time, would constitute an Event of
Default if uncured or unremedied.
"Environmental Laws" means all federal, state and local laws
including statutes, regulations, ordinances, codes, rules and other
governmental restrictions and requirements relating to the discharge of
air pollutants, water pollutants or process waste water or otherwise
relating to the environment or hazardous substances including, but not
limited to, the Federal Solid Waste Disposal Act, the Federal Clean Air
Act, the Federal Clean Water Act, the Federal Resource Conservation and
Recovery Act of 1976, the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, regulations of the Environmental
Protection Agency, regulations of the Nuclear Regulatory Agency and
regulations of any state department of natural resources or state
environmental protection agency now or at any time hereafter in effect.
"ERISA" means, at any date, the Employee Retirement Income
Security Act of 1974, and the regulations thereunder, all as the same
shall be in effect at such date.
"Event of Default" means the occurrence of any of the events
described in section 7.1.
"GAAP" means generally accepted accounting principles in effect in
the United States from time to time.
"Guarantor" means either BMIC or BMSBLC and "Guarantors" means
both BMIC and BMSBLC.
"Guaranty" means any agreement, undertaking or arrangement
pursuant to which the Company or any Subsidiary guarantees, endorses or
otherwise becomes or is contingently liable for an obligation of any other
person or entity or any other liability which would be classified as
contingent in accordance with GAAP.
"Indebtedness" means (a) all items which, in accordance with GAAP,
would be classified as liabilities on the consolidated balance sheet of
the Company and its Consolidated Subsidiaries, including all Capitalized
Leases, and (b) indebtedness secured by any mortgage, lien, pledge or
security interest on property of the Company or a Subsidiary even though
it has not assumed or otherwise become liable for the payment thereof.
"Interest Rate Agreements" means all interest rate swap, cap,
collar, floor or similar agreements from time to time entered into by the
Company and the Bank, as amended, revised, supplemented or restated from
time to time.
"Loan Documents" means this Agreement, the Note, the Bank Security
Documents, any Interest Rate Agreements, any guaranty agreements
guaranteeing the prompt payment and performance of the Company's
obligations to the Bank and all other documents, instruments, agreements
and certificates related to or executed in connection with this Agreement
and the transactions contemplated hereby.
"Maturity Date" means April 30, 1999, or such earlier date on
which the Note becomes immediately due and payable pursuant to section 7.2
of this Agreement.
"Multiemployer Plan" means any pension benefit plan subject to
Title IV of ERISA as defined in section 4001(a)(3) of ERISA, to which the
Company, any of its Subsidiaries or any member of the Controlled Group is
required to contribute on behalf of its employees.
"Note" means the promissory note of the Company in the form of
Exhibit A attached hereto.
"Permitted Liens" means (a) liens, charges or encumbrances listed
on Schedule 1 attached hereto, provided that the Indebtedness secured
thereby shall not be renewed, extended or increased; (b) liens for taxes,
assessments or governmental charges not delinquent or being contested in
good faith by the Company or any Subsidiary for which adequate reserves
are established and maintained in accordance with GAAP; (c) construction
lien claims not delinquent; (d) purchase money security interests or liens
on any property acquired after the date hereof to be used by the Company
or a Subsidiary in the normal course of its business, and created or
incurred simultaneously with the acquisition of such property, if such
security interest or lien is limited to the property so acquired, the
Indebtedness secured by such security interest or lien does not exceed
100% of the purchase price of such property and the aggregate Indebtedness
secured by all such security interests and liens do not exceed $50,000 at
any time outstanding for the Company and all Subsidiaries; (e) liens or
deposits in connection with worker's compensation or other insurance or to
secure the performance of bids, trade contracts (other than for borrowed
money), leases, public or statutory obligations, surety or appeal bonds or
other obligations of like nature incurred in the ordinary course of
business; (f) liens in favor of the Bank; and (g) easements, restrictions,
minor title irregularities and similar matters which have no material
adverse effect as a practical matter upon the ownership or use of its
property by the Company or any Subsidiary.
"Plan" means any pension benefit plan subject to Title IV of
ERISA, including any Multiemployer Plan, maintained by the Company, any of
its Subsidiaries or any member of the Controlled Group or any such Plan to
which the Company, any of its Subsidiaries or any member of the Controlled
Group is required to contribute on behalf of its employees.
"Prime Rate" means the prime rate of interest announced from time
to time by the Bank as its base rate for interest rate determinations.
The Prime Rate may or may not be the lowest interest rate charged by the
Bank.
"Reportable Event" means a reportable event as that term is
defined in ERISA.
"Subordinated Debt" means Indebtedness of the Company, the payment
of which is fully subordinated, in a manner satisfactory to the Bank, to
the prior payment of the Note and to all other Indebtedness of the Company
to the Bank.
"Subsidiary" means as of a particular date any corporation more
than 50% of whose outstanding stock having ordinary voting power for the
election of directors shall at the time be owned or controlled by the
Company or by one of its Subsidiaries.
2. The Credit Facility; Interest Rate; Fees.
2.1 The Loan. The Bank will make a term loan to the Company,
subject to the terms and conditions hereof, on the Closing Date, in the
principal amount of $5,000,000. The outstanding principal balance of such
term loan shall be due and payable, in one lump sum, on the Maturity Date.
The term loan shall be evidenced by, be repayable and bear interest in
accordance with the Note.
2.2 Interest Rate.
(a) The unpaid principal balance of the Note outstanding from
time to time shall bear interest prior to the Maturity Date at an annual
rate equal to the Prime Rate and such rate shall change on each day on
which the Prime Rate changes. Accrued interest shall be due on the last
business day of each month, commencing May 31, 1998, and on the Maturity
Date.
(b) Notwithstanding the provisions of section 2.2(a) above,
upon the occurrence and during the continuance of an Event of Default, the
unpaid principal balance of the Note shall, upon notice from the Bank to
the Company, bear interest at an annual rate equal to the Prime Rate plus
two (2.00%) percentage points (the "Default Rate"), payable upon demand,
and on and after the Maturity Date, the unpaid principal balance of the
Note and all accrued interest thereon shall bear interest at the Default
Rate and shall be payable upon demand.
(c) Interest shall be calculated for the actual number of days
elapsed on the basis of a 360-day year.
2.3 Payments. All payments of principal and interest on the
Note and of all fees due hereunder shall be made at the office of the Bank
in immediately available funds not later than 2:00 p.m., Milwaukee time,
on the date due; funds received after that time shall be deemed to have
been received on the next business day. Whenever any payment hereunder or
under any Note is stated to be due on a day which is not a business day,
such payment shall be made on the next succeeding business day and such
extension of time shall be included in computing any interest or fee then
due. The Bank may charge any account of the Company at the Bank for any
payment due under the Note, or any fee or expense payable hereunder, on or
after the date due.
2.4 Prepayments. The Company will give the Bank notice of any
optional prepayment of the Note not later than the day prior to the
prepayment date, specifying the prepayment date and the amount to be
prepaid. Each prepayment of the Note shall be in a minimum amount of
$100,000. The amount of such prepayment shall become due and payable by
2:00 p.m., Milwaukee time, on the specified prepayment date.
2.5 Capital Adequacy. As used in this section, the term
"Regulatory Change" means any change enacted or issued after the date of
this Agreement of any (or the adoption after the date of this Agreement of
any new) federal or state law, regulation, interpretation, direction,
policy or guideline, or any court decision, which affects (or, in the case
of a court decision would, if the decision were applicable to the Bank,
affect) the treatment of any loan or commitment of the Bank hereunder as
an asset or other item included for the purpose of calculating the
appropriate amount of capital to be maintained by the Bank or any
corporation controlling the Bank. If such Regulatory Change has the
effect of reducing the rate of return on the Bank's or such corporation's
capital as a consequence of the loans or commitments of the Bank hereunder
to a level below that which the Bank or such corporation could have
achieved but for such Regulatory Change (taking into account the Bank's or
such corporation's policies with respect to capital adequacy) by an amount
deemed in good faith by the Bank to be material, then from time to time
following notice by the Bank to the Company of such Regulatory Change,
within ten days after demand from the Bank, the Company shall pay to the
Bank such additional amount or amounts as will compensate the Bank or such
corporation, as the case may be, for such reduction.
3. Representations and Warranties. In order to induce the Bank to
make the loans, the Company represents and warrants to the Bank:
3.1 Organization; Subsidiaries; Corporate Power. The Company
is a corporation validly existing under the laws of the State of Wisconsin
and (a) the Company has filed with the Wisconsin Secretary of State the
required annual report for its most recently completed report year, (b)
the Company is not the subject of a proceeding under Wisconsin Statutes
section 180.1421 to cause its dissolution, (c) no filing has been made
with the Wisconsin Secretary of State of a decree of dissolution with
respect to the Company and (d) neither the shareholders nor the Board of
Directors of the Company have taken any action authorizing the liquidation
or dissolution of the Company. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction
in which the nature of its business or the ownership of its properties
requires such qualification and in which the failure to so qualify would
materially adversely affect the business operations or financial condition
of the Company. Schedule 3.1 contains the name, state of incorporation
and number of authorized and outstanding shares of each class of stock of
each Subsidiary and the number thereof owned by the Company. Each
Subsidiary is validly existing and in good standing in the state of its
incorporation and each is duly qualified as a foreign corporation and is
in good standing in every jurisdiction in which the nature of its business
or the ownership of its properties requires such qualification and in
which the failure to so qualify would materially adversely affect the
business operations or financial condition of such Subsidiary. The
Company and each Subsidiary has the corporate power to own its properties
and carry on its business as currently being conducted.
3.2 Authorization and Binding Effect. The execution and
delivery by the Company of the Loan Documents to which it is a party, and
the performance by the Company of its obligations thereunder, are within
its corporate power, have been duly authorized by proper corporate action
on the part of the Company, are not in violation of any existing law, rule
or regulation of any governmental agency or authority, any order or
decision of any court, the Articles of Incorporation or By-Laws of the
Company or the terms of any agreement, restriction or undertaking to which
the Company is a party or by which it is bound, and do not require the
approval or consent of the shareholders of the Company, any governmental
body, agency or authority or any other person or entity. The Loan
Documents to which the Company is a party, when executed and delivered,
will constitute the valid and binding obligations of the Company
enforceable in accordance with their terms, except as limited by
bankruptcy, insolvency or similar laws of general application affecting
the enforcement of creditors' rights and except to the extent that general
principles of equity might affect the specific enforcement of such Loan
Documents.
3.3 Financial Statements. The Company has furnished to the
Bank the consolidated balance sheet of the Company as of December 31,
1997, and related statements of income, retained earnings and cash flows
of the Company and its Consolidated Subsidiaries for the year ended on
that date, certified by BDO Siedman and the consolidated balance sheet of
the Company dated February 28, 1998 and related statements of income for
the period ended on such date, prepared by the Company. Such financial
statements were prepared in accordance with GAAP consistently applied
throughout the periods involved, are correct and complete and fairly
present the consolidated financial condition of the Company and such
Subsidiaries as of such dates and the results of their operations and cash
flows for the periods ended on such dates, subject, in the case of the
interim statements, to normal year-end adjustments. There has been no
material adverse change in the condition or prospects of the Company or
its Consolidated Subsidiaries, financial or otherwise, since the date of
the most recent financial statement furnished to the Bank.
3.4 Litigation. There is no litigation or administrative
proceeding pending or, to the knowledge of the Company, threatened against
or affecting the Company or any Subsidiary or the properties of the
Company or any Subsidiary which if determined adversely would have a
material adverse effect upon the business, financial condition or
properties of the Company or such Subsidiary.
3.5 Indebtedness; No Default. Neither the Company nor any
Subsidiary has any outstanding Indebtedness or Guaranties, except those
permitted under sections 6.1 and 6.2. There exists no default nor has any
act or omission occurred which, with the giving of notice or the passage
of time, would constitute a default under the provisions of (a) any
instrument evidencing such Indebtedness or Guaranty or any agreement
relating thereto or (b) any other agreement or instrument to which the
Company or any Subsidiary is a party and which is material to the
financial condition, business operations or prospects of the Company or
any Subsidiary.
3.6 Ownership of Properties; Liens and Encumbrances. The
Company and each Subsidiary has good and marketable title to all property,
real and personal, reflected on the most recent financial statement of the
Company furnished to the Bank, and all property purported to have been
acquired since the date of such financial statement, except property sold
or otherwise disposed of in the ordinary course of business subsequent to
such date; and all such property is free of any lien, security interest,
mortgage, encumbrance or charge of any kind or any agreement not to grant
a security interest, mortgage or lien, except Permitted Liens. All owned
and leased buildings and equipment of the Company and each Subsidiary are
in good condition, repair and working order and, to the Company's
knowledge, conform to all applicable laws, ordinances and regulations.
3.7 Tax Returns Filed. The Company and each Subsidiary has
filed when due all federal and state income and other tax returns which
are required to be filed. The Company has paid or made provision for all
taxes shown on said returns and on all assessments received by it to the
extent that such taxes have become due except any such taxes which are
being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP have been established. The
Company has no knowledge of any liabilities which may be asserted against
it or any Subsidiary upon audit of its federal or state tax returns.
3.8 Margin Stock. The Company will not use, directly or
indirectly, any part of the proceeds of the Note for the purpose of
purchasing or carrying, or to extend credit to others for the purpose of
purchasing or carrying, any margin stock within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System, or
any amendments thereto. Neither the Company nor any Subsidiary is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock.
3.9 Investment Company. The Company is not an "investment
company" or a company controlled by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
3.10 ERISA Liabilities. The Company has no knowledge of the
occurrence of any event with respect to any Plan which could result in a
liability of the Company or any Subsidiary or any member of a Controlled
Group to any Plan, the Internal Revenue Service or to the Pension Benefit
Guaranty Corporation other than the payment of contributions in the normal
course or premiums (but not a late payment charge) pursuant to section
4007 of ERISA. With respect to each Plan there is no material
(a) accumulated funding deficiency within the meaning of section 412(a) of
the Code; (b) nondeductible contribution to any Plan within the meaning of
section 4972 of the Code; (c) excess contribution within the meaning of
section 4979(c) of the Code which would result in tax under section
4979(a) of the Code; (d) prohibited transaction within the meaning of
ERISA section 406 which is not exempt under ERISA section 408; (e) failure
to make required contributions to any Multiemployer Plan; or
(f) withdrawal or partial withdrawal from any Multiemployer Plan within
the meaning of ERISA sections 4203 and 4205.
3.11 No Burdensome Agreements. Neither the Company nor any
Subsidiary is a party to, or is bound by, any agreement, instrument or
undertaking, or subject to any other restriction (a) which materially
adversely affects or is likely in the future to so affect the property,
financial condition or business operations of the Company or any
Subsidiary, or (b) under or pursuant to which the Company or any
Subsidiary is or will be required to place (or under which any other
person may place) a lien upon any of its properties securing Indebtedness
either upon demand or upon the fullfillment of a condition, with or
without such demand.
3.12 Trademarks, Etc. The Company and each Subsidiary possess
adequate trademarks, trade names, copyrights, patents, permits, service
marks and licenses, or rights thereto, for the present and planned future
conduct of their respective businesses substantially as now conducted,
without any known conflict with the rights of others which might result in
a material adverse effect on the Company or any Subsidiary.
3.13 Dump Sites. With respect to the period during which the
Company or any Subsidiary owned or occupied its real estate, and to the
Company's knowledge after reasonable investigation, with respect to the
time before the Company or any Subsidiary owned or occupied its real
estate, no person or entity has caused or permitted materials to be
stored, deposited, treated, recycled or disposed of on, under or at any
real estate owned or occupied by the Company or any Subsidiary, which
materials, if known to be present, would require cleanup, removal or some
other remedial action under Environmental Laws.
3.14 Tanks. There are not now, nor, to the Company's knowledge
after reasonable investigation, have there ever been tanks or other
facilities on, under or at any real estate owned or occupied by the
Company or any Subsidiary which contained materials which, if known to be
present in soils or ground water, would require cleanup, removal or some
other remedial action under Environmental Laws.
3.15 Other Environmental Conditions. There are no conditions
existing currently or likely to exist during the term of this Agreement
which would subject the Company or any Subsidiary to damages, penalties,
injunctive relief or cleanup costs under any Environmental Laws or which
require or are likely to require cleanup, removal, remedial action or
other response pursuant to Environmental Laws by the Company or any
Subsidiary.
3.16 Changes in Laws. To the Company's knowledge after
reasonable investigation, there are no proposed or pending changes in
Environmental Laws that would adversely affect the Company or any
Subsidiary.
3.17 Environmental Judgments, Decrees and Orders. Neither the
Company nor any Subsidiary is subject to any judgment, decree, order or
citation related to or arising out of Environmental Laws or has been named
as a potentially responsible party by a governmental body or agency in a
matter arising under any Environmental Laws.
3.18 Environmental Permits and Licenses. The Company and each
Subsidiary has all permits, licenses and approvals required under
Environmental Laws.
3.19 Year 2000. Except as set forth on Schedule 3.19 attached
hereto, the information technology systems used by the Company in its
business operations accurately process date/time data (including without
limitation calculating, comparing and sequencing) from, into and between
the twentieth and twenty-first centuries, the year 1999 and 2000 and leap
year calculations.
3.20 Accuracy of Information. All information furnished by the
Company to the Bank is true, correct and complete in all material respects
as of the date furnished and does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make such
information not misleading.
4. Conditions for Borrowing. The Bank's obligation to make any loan
is subject to the satisfaction, on or before the following Borrowing
Dates, of the following conditions:
4.1 On or Before the Closing Date. The Bank shall have
received the following, all in form, detail and content satisfactory to
the Bank:
(a) Note. The Note, duly executed by the Company.
(b) Bank Security Documents.
(i) a security agreement, granting the Bank a security
interest in all of the personal property of the Company;
(ii) all financing statements required to perfect the
security interests granted to the Bank by the Company;
(iii) a collateral pledge agreement granting the Bank a
security interest in that certain Business Note dated as of April 30, 1998
in the stated principal amount of $5,000,000 from Lee Middleton Original
Dolls, Inc. payable to the Company, endorsed in blank;
Each of the Bank Security Documents shall be duly executed
by the Company.
(c) Guaranty. A guaranty agreement duly executed by each
Guarantor pursuant to which such Guarantor guarantees the payment of all
amounts the Company owes to the Bank.
(d) Guarantor Security Documents. The Bank shall have
received:
(i) security agreements duly executed by BMIC and BMSBLC,
respectively, granting the Bank a security interest in all of the personal
property of each respective company;
(ii) all financing statements required to perfect the
security interests granted to the Bank by the Guarantors;
(iii) a collateral pledge agreement duly executed by
BMIC, granting the Bank a security interest in all outstanding stock of
Lee Middleton Original Dolls, Inc., now or hereafter owned by BMIC,
together with certificates representing such stock and blank stock powers;
(iv) an assignment duly executed by BMIC, assigning to the
Bank all of BMIC's rights under that certain Master Services Agreement
dated as of January 1, 1998 by and between BMIC and Lee Middleton Original
Dolls, Inc.
(e) Intercreditor Agreement. The Bank shall have entered into
an Intercreditor Agreement, in form and content satisfactory to the Bank,
with the senior secured creditors of BMSBLC and shall have received the
consent and approval of such creditors for the guaranty and security
interests granted by BMSBLC in favor of the Bank.
(f) Certified Articles of Incorporation. A copy of the
Articles of Incorporation of the Company, each Guarantor and Lee Middleton
Original Dolls, Inc., certified as of a recent date by the Secretary of
State of their respective states of incorporation.
(g) Certificates of Status. Certificates of status with
respect to the Company, each Guarantor and Lee Middleton Original Dolls,
Inc., issued as of a recent date by the Secretary of State of their
respective states of incorporation and each state in which the Company or
a Guarantor is qualified to transact business as a foreign corporation.
(h) Closing Certificates. Copies, certified by the Secretary
of the Company and of each Guarantor to be true and correct and in full
force and effect on the Closing Date, of (i) the By-Laws of the Company
and each Guarantor; (ii) resolutions of the Board of Directors of the
Company and each Guarantor authorizing the issuance, execution and
delivery of the Loan Documents to which such corporation is a party; and
(iii) a statement containing the names and titles of the officer or
officers of the Company and of each Guarantor authorized to sign such Loan
Documents, together with true signatures of such officers.
(i) Personal Property Searches. Searches of the appropriate
public offices demonstrating that no security interest, tax lien, judgment
lien or other charge or encumbrance is of record affecting the Company ,
any Guarantor or their respective properties except those which are
acceptable to the Bank.
(j) No Default Certificate. The representations and warranties
contained in section 3 hereof and in the other Loan Documents shall be
true and correct on and as of the Closing Date; there shall exist on the
Closing Date no Default or Event of Default, and the Bank shall have
received a certificate to those effects, signed by the President of the
Company.
(k) Opinion of Counsel. An opinion from Foley & Lardner,
counsel to the Company, in form and content satisfactory to the Bank and
its legal counsel.
(l) Proceedings Satisfactory. Such other documents as the Bank
may reasonably request; and all proceedings taken in connection with the
transactions contemplated by this Agreement, and all instruments,
authorizations and other documents applicable thereto, shall be
satisfactory to the Bank.
5. Affirmative Covenants. The Company covenants that it will, until
the Bank's commitment to extend credit hereunder has terminated or expired
and the Note, and all fees and expenses payable hereunder, have been paid
in full:
5.1 Annual Financial Statements. Furnish to the Bank within 90
days after the end of each fiscal year of the Company a balance sheet of
the Company as of the close of such fiscal year and related statements of
income, retained earnings and cash flows for such year, setting forth in
each case in comparative form corresponding figures from the preceding
annual audit, all in reasonable detail and satisfactory in scope to the
Bank, prepared in accordance with GAAP applied on a consistent basis,
certified by a firm of independent certified public accountants selected
by the Company and satisfactory to the Bank. All such financial
statements shall be furnished in consolidated form for the Company and all
Consolidated Subsidiaries which it may at the time have. The Company
further agrees to furnish the Bank the separate, audited financial
statements of Lee Middleton Original Dolls, Inc.
5.2 Interim Financial Statements. Furnish to the Bank within
45 days after the end of each of the first three quarters of each fiscal
year of the Company a balance sheet of the Company as of the end of each
such period and related statements of income, retained earnings and cash
flows for the period from the beginning of the fiscal year to the end of
such quarter, prepared in the manner set forth in section 5.1 hereof for
the annual statements, certified, subject to audit and normal year-end
adjustments, by an authorized financial officer of the Company and
accompanied by the certificate of such officer to the effect that there
exists no Default or Event of Default or, if any Default or Event of
Default exists, specifying the nature thereof, the period of existence
thereof and what action the Company proposes to take with respect thereto.
All such financial statements shall be furnished in consolidated and
consolidating form for the Company and all Consolidated Subsidiaries which
it may at the time have.
5.3 Audit Reports. Furnish to the Bank, promptly upon receipt,
copies of all management letters and detailed audit reports submitted to
the Company by independent certified public accountants.
5.4 Other Financial Information. Furnish to the Bank, as soon
as available, copies of all reports submitted to the shareholders of the
Company in their capacity as shareholders, and such other financial
information as the Bank may from time to time reasonably request.
5.5 Books and Records. Keep and cause each Subsidiary to keep
proper, complete and accurate books of record and account and permit any
representatives of the Bank to visit and inspect any of the properties and
examine and copy any of the books and records of the Company or any
Subsidiary at any reasonable time and as often as may reasonably be
desired.
5.6 Insurance. Maintain and cause each Subsidiary to maintain
insurance coverage as may be required by law or the Bank Security
Documents but in any event not less than insurance coverage, in the forms,
amounts and with companies, which would be carried by prudent management
in connection with similar properties and businesses. Without limiting
the foregoing, the Company will and will cause each Subsidiary to (a) keep
all its physical property insured against fire and extended coverage risks
in amounts and with deductibles at least equal to those generally
maintained by businesses engaged in similar activities in similar
geographic areas; (b) maintain all such worker's compensation and similar
insurance as may be required by law; and (c) maintain, in amounts and with
deductibles at least equal to those generally maintained by businesses
engaged in similar activities in similar geographic areas, general public
liability insurance against claims for bodily injury, death or property
damage occurring on, in or about the properties of the Company or such
Subsidiary, business interruption insurance and product liability
insurance.
5.7 Condition of Property. Keep and cause each Subsidiary to
keep its properties (whether owned or leased) in good condition, repair
and working order.
5.8 Payment of Taxes. Pay and discharge, and cause each
Subsidiary to pay and discharge, all lawful taxes, assessments and
governmental charges upon it or against its properties prior to the date
on which penalties are attached thereto, unless and to the extent only
that the same shall be contested in good faith and by appropriate
proceedings by the Company or the appropriate Subsidiary and appropriate
reserves with respect thereto are established and maintained in accordance
with GAAP.
5.9 Compliance with Law. Do and, except as permitted under
section 6.6, cause each Subsidiary to do all things necessary to
(a) maintain its corporate existence in its state of incorporation and
maintain its qualification as a foreign corporation in any other state
where the ownership of property or the conduct of business make
qualification necessary and where the failure to so qualify would have a
material adverse effect upon its business, operations or financial
condition, (b) preserve and keep in full force and effect its rights and
franchises necessary to continue its business and (c) comply with all
applicable laws, rules, regulations, ordinances, writs, judgments,
injunctions, decrees and awards to which it may be subject including all
applicable Environmental Laws, except those being contested in good faith
and involving no possibility of criminal liability.
5.10 ERISA. Comply and cause each Subsidiary to comply with all
applicable requirements of ERISA for each Plan and furnish to the Bank, as
soon as possible and in any event within 30 days after the Company shall
have obtained knowledge that a Reportable Event has occurred with respect
to any Plan, a certificate of an officer of the Company setting forth the
details as to such Reportable Event and the action which the Company
proposes to take with respect thereto, and a copy of each notice of a
Reportable Event sent to the Pension Benefit Guaranty Corporation by the
Company and, with respect to a Multiemployer Plan, furnish to the Bank as
soon as possible after the Company receives notice or obtains knowledge
that the Company or any member of the Controlled Group may be subject to
withdrawal liability, or required to post a bond to avoid such liability,
to a Multiemployer Plan, a certificate of an officer of the Company
setting forth the details as to such event and the actions which the
Company plans to take with respect thereto.
5.11 Compliance with Other Loan Documents. Timely comply with
all of its obligations under the other Loan Documents including any grace
periods provided therin.
5.12 Notice of Default or Claimed Default. Furnish to the Bank
(a) promptly upon, and in any event within 5 days of, becoming aware of
any Default or Event of Default, a written notice specifying the nature
and period of existence thereof and what action the Company is taking or
proposes to take with respect thereto; (b) promptly upon, and in any
event within 5 days of, becoming aware that the holder of any other
Indebtedness issued or assumed by the Company or any Subsidiary, or the
lessor under any lease as to which the Company or any Subsidiary is the
lessee, has given notice or has taken any action with respect to a claimed
default thereunder, or under any agreement under which any such
Indebtedness was issued or secured, a written notice specifying the notice
given or action taken, the nature of the claimed default and what action
the Company is taking or proposes to take with respect thereto;
(c) promptly upon, and in any event within 5 days of, upon receipt, copies
of any correspondence, notice, pleading, citation, indictment, complaint,
order, decree or other document from any source asserting or alleging a
circumstance or condition which requires or may require a financial
contribution by the Company or a cleanup, removal, remedial action or
other response by or on the part of the Company or any Subsidiary under
Environmental Laws or which seeks damages or civil, criminal or punitive
penalties from the Company or any Subsidiary for an alleged violation of
Environmental Laws; and (d) written notice of any condition or event which
would make any warranty contained in section 3 inaccurate, as soon as the
Company becomes aware of such condition or event.
5.13 BMSBLC Collateral. Within 90 days of the Closing Date,
deliver, or cause to be delivered, to the Bank (a) the various collateral
documents set forth in section 4.1 covering collateral to be provided by
BMSBLC or (b) such substitute collateral as is satisfactory to the Bank.
6. Negative Covenants. The Company covenants that, without the prior
written consent of the Bank, it will not, and will not permit any
Subsidiary to, until the Bank's commitment to extend credit hereunder has
terminated or expired and the Note, and all fees and expenses payable
hereunder, have been paid in full:
6.1 Limitations on Indebtedness. Create, incur, assume or
permit to exist any Indebtedness except (a) Indebtedness owed to the Bank;
(b) Indebtedness secured by Permitted Liens; (c) Subordinated Debt;
(d) Indebtedness permitted under section 6.5; (e) trade credit incurred to
acquire goods, services and supplies in the ordinary course of business;
(f) wages or other compensation due to employees and agents for services
actually performed; (g) deferred taxes; (h) unfunded obligations with
respect to Plans but only to the extent they are permitted to remain
unfunded under applicable law and (i) Indebtedness existing on the Closing
Date provided that such Indebtedness is not increased.
6.2 Limitations on Guaranties. Create, incur, assume or permit
to exist any Guaranties except for (a) the endorsement of negotiable or
nonnegotiable instruments for collection in the ordinary course of
business, (b) Guaranties in favor of the Bank, (c) a Guaranty of the
Indebtedness of BMSBLC to the lenders under that certain Credit Agreement
dated as of March 11, 1998 among BMSBLC, the lenders from time to time
parties thereto and Firstar Bank Milwaukee, N.A., as agent and (d) a
Guaranty of the obligations of Moldmakers Leasing and Investments Limited
Partnership, LLP owing to the Village of Germantown.
6.3 Limitations on Liens and Encumbrances. Create, assume or
permit to exist any mortgage, security interest, lien or charge of any
kind, including any restriction against mortgages, security interests,
liens or charges, upon any of its property or assets, whether now owned or
hereafter acquired, except Permitted Liens.
6.4 Limitations on Mergers, Etc. Merge or consolidate with or
into any other corporation or entity or sell, lease, transfer or otherwise
dispose of in a single transaction or a series of transactions, all or a
substantial part of its assets (other than sales made in the ordinary
course of business), except that any Subsidiary may merge into, or
transfer all or a substantial part of its assets to the Company or to a
Subsidiary wholly owned by the Company.
6.5 Limitations on Acquisitions, Advances and Investments.
Acquire any other business or partnership or joint venture interest or
make any loans, advances or extensions of credit to, or any investments
in, any person or entity except (a) the purchase of United States
government bonds and obligations; (b) extensions of credit to customers in
the usual course of business of the Company or any Subsidiary;
(c) commercial paper having a maturity not exceeding 90 days; (d) existing
investments of the Company in and existing advances to wholly owned
Subsidiaries of the Company and advances by any Subsidiary to the Company
or to another Subsidiary; (e) deposits in deposit accounts at banks,
provided that any such deposits by BMIC or BMCC shall be maintained at the
Bank or at InvestorsBank; (f) investments in bank repurchase agreements;
(g) loans and advances to employees and agents in the ordinary course of
business for travel and entertainment expenses and similar items; (h) the
purchase by BMSBLC of properties owned by Bando McGlocklin Real Estate
Investment Corporation; and (i) the purchase by BMSBLC of commercial loans
from InvestorsBank.
6.6 Lines of Business. Engage or permit any Subsidiary to
engage in any business other than those in which it is now engaged and any
business directly related thereto.
6.7 Sales of Receivables. Discount or sell with recourse, or
sell for less than the face amount thereof, any of its notes or accounts
receivable.
6.8 Sales of Subsidiaries. Sell or otherwise dispose of any
stock, or securities convertible into stock, of any Subsidiary except to
the Company or to a Subsidiary wholly owned by the Company.
6.9 Sale and Leaseback. Sell or transfer any fixed assets and
then or thereafter rent or lease as lessee any such assets.
6.10 Transactions with Affiliates. Enter into or be a party to
any transaction with any Affiliate except as otherwise provided herein or
in the ordinary course of business and upon fair and reasonable terms
which are no less favorable than a comparable arm's length transaction
with an entity which is not an Affiliate.
6.11 Middleton Doll Note. Amend, modify, waive or defer any
provision, payment, term or covenant contained in that certain Business
Note dated as of April 30, 1998 in the stated principal amount of
$5,000,000 from Lee Middleton Original Dolls, Inc. payable to the Company,
or in any agreement, document or instrument related thereto.
7. Event of Default; Remedies.
7.1 Events of Default. The occurrence of any of the following
shall constitute an Event of Default:
(a) Failure to Pay Note. The Company fails to pay (i)
principal on the Note when the same becomes due and payable, whether at a
stated payment date, or a date fixed by the Company for prepayment or by
acceleration or (ii) interest on the Note, or any fee payable hereunder,
when the same becomes payable and such failure to timely pay interest or
fees continues uncured for a period of five days; or
(b) Falsity of Representations and Warranties. Any
representation or warranty made in any Loan Document is false in any
material respect on the date as of which made or as of which the same is
to be effective; or
(c) Breach of Covenants. The Company fails to comply with any
term, covenant or agreement contained in (i) sections 5.3, 5.4, 5.5, 5.6,
5.7, 5.9, 5.10 or 5.12 and such failure continues uncured for a period of
20 days or (ii) sections 5.1, 5.2, 5.8, 5.11, 5.13 or section 6 hereof; or
(d) Breach of Other Provisions. The Company fails to comply
with any other agreement contained herein and such default continues for a
period of 30 days after written notice to the Company from the Bank; or
(e) Default Under Other Agreements. The Company, any
Subsidiary or any Guarantor fails to pay when due any other Indebtedness
issued or assumed by the Company, such Subsidiary or such Guarantor or
fails to comply with the terms of any agreement under which such
Indebtedness was created and such default continues beyond the period of
grace, if any, therein provided; or
(f) Entry of Final Judgments. A final judgment is entered
against the Company, any Subsidiary or any Guarantor which, together with
all unsatisfied final judgments entered against the Company, all
Subsidiaries and all Guarantors, exceeds the sum of $500,000, and such
judgment shall remain unsatisfied or unstayed for a period of 60 days
after the entry thereof; or
(g) ERISA Liability. Any event in relation to any Plan which
the Bank determines in good faith could result in any of the occurrences
set forth in section 3.11 above; or
(h) Default Under Other Loan Documents. An "Event of Default"
(as defined therein) shall occur under any other Loan Document including,
without limitation, any guaranty agreement or any the Guarantor ceases to
exist or revokes or terminates its liability under any guaranty agreement
or the party to any other Loan Document fails to timely comply with any
term, covenant or agreement contained therein; or
(i) Insolvency, Failure to Pay Debts or
Appointment of Receiver, Etc. The Company, any Subsidiary or any
Guarantor becomes insolvent or the subject of state insolvency
proceedings, fails generally to pay its debts as they become due or makes
an assignment for the benefit of creditors; or a receiver, trustee,
custodian or other similar official is appointed for, or takes possession
of any substantial part of the property of, the Company, any Subsidiary or
any Guarantor; or
(j) Subject of United States Bankruptcy Proceedings. The
taking of corporate action by the Company, any Subsidiary or any Guarantor
to authorize such organization to become the subject of proceedings under
the United States Bankruptcy Code; or the execution by the Company, any
Subsidiary or any Guarantor of a petition to become a debtor under the
United States Bankruptcy Code; or the filing of an involuntary petition
against the Company, any Subsidiary or any Guarantor under the United
States Bankruptcy Code which remains undismissed for a period of 60 days;
or the entry of an order for relief under the United States Bankruptcy
Code against the Company, any Subsidiary or any Guarantor.
7.2 Remedies. Upon the occurrence of an Event of Default, the
obligation of the Bank to make loans hereunder shall terminate and (a) as
to an Event of Default described in sections 7.1(a) through 7.1(i),
inclusive, the holder of the Note may, at its option and without notice,
declare the Note to be, and the Note shall thereupon become, immediately
due and payable, together with accrued interest thereon, and (b) as to an
Event of Default described in section 7.1(j), the Note shall, without
action on the part of any holder or any notice or demand, become
automatically due and payable, together with accrued interest thereon.
Presentment, demand, protest and notice of acceleration, nonpayment and
dishonor are hereby expressly waived.
8. Miscellaneous.
8.1 Survival of Representations and Warranties. The
representations and warranties contained in section 3 hereof and in the
other Loan Documents shall survive closing and execution and delivery of
the Note.
8.2 Indemnification. The Company agrees to defend, indemnify
and hold harmless the Bank, its directors, officers, employees and agents
from and against any and all loss, cost, expense or liability (including
reasonable attorneys' fees) incurred in connection with any and all claims
or proceedings (whether brought by a private party or governmental agency)
as a result of, or arising out of or relating to:
(a) bodily injury, property damage, abatement or remediation,
environmental damage or impairment or any other injury or damage resulting
from or relating to any hazardous or toxic substance or contaminated
material (as determined under Environmental Laws) located on or migrating
into, from or through property previously, now or hereafter owned or
occupied by the Company, which the Bank may incur due to the making of the
loans provided for in section 2, the exercise of any of its rights under
the Bank Security Documents, or otherwise;
(b) any transaction financed or to be financed, in whole or in
part, directly or indirectly, with the proceeds of any loan made by the
Bank to the Company; or
(c) the entering into, performance of and exercise of its
rights under any Loan Document by the Bank.
This indemnity will survive foreclosure of any security interest
or mortgage or conveyance in lieu of foreclosure and the repayment of the
Note and the discharge and release of any Bank Security Documents.
8.3 Expenses. The Company agrees, whether or not the
transaction hereby contemplated shall be consummated, to pay on demand
(a) all out-of-pocket expenses incurred by the Bank in connection with the
negotiation, execution, administration, amendment or enforcement of any
Loan Document including the reasonable fees and expenses of the Bank's
counsel, (b) any taxes (including any interest and penalties relating
thereto) payable by the Bank (other than taxes based upon the Bank's net
income) on or with respect to the transactions contemplated by this
Agreement (the Company hereby agreeing to indemnify the Bank with respect
thereto) and (c) all out-of-pocket expenses, including the reasonable fees
and expenses of the Bank's counsel, incurred by the Bank in connection
with any litigation, proceeding or dispute in any way related to the
Bank's relationship with the Company, whether arising hereunder or
otherwise. The obligations of the Company under this section will survive
payment of the Note.
8.4 Notices. Except as otherwise provided in section 2.3, all
notices provided for herein shall be in writing and shall be
(a) delivered; (b) sent by express or first class mail; or (c) sent by
facsimile transmission and confirmed in writing provided to the recipient
in a manner described in (a) or (b), and, if to the Bank, addressed to it
at 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, Facsimile
No. 414-765-6236 and if to the Company, addressed to it at W239 N1700
Busse Road and Hwy. J, Pewaukee, Wisconsin 53072, Facsimile No. 414-523-
4193, or to such other address with respect to either party as such party
shall notify the other in writing; such notices shall be deemed given when
delivered, mailed or so transmitted.
8.5 Setoff. As security for payment of the Note and all other
obligations of the Company to the Bank, the Company grants to the Bank a
security interest in and lien on any credit balance or other money now or
hereafter owed the Company by the Bank. In addition, the Company agrees
that the Bank may, at any time after the occurrence of an Event of
Default, without prior notice or demand, set off against any such credit
balance or other money all or any part of the unpaid balance of the Note
or any other obligation of the Company to the Bank.
8.6 Participations. The Company agrees that the Bank may, at
its option, sell to another financial institution or institutions
interests in the Note and, in connection with each such sale, and
thereafter, disclose to the purchaser or prospective purchaser of each
such interest financial and other information concerning the Company. The
Company agrees that if amounts outstanding under this Agreement or the
Note are due and unpaid, or shall have been declared or shall have become
due and payable upon the occurrence of an Event of Default, each such
purchaser shall be deemed to have, to the extent permitted by applicable
law, the right of setoff in respect of its participating interest in
amounts owing under this Agreement and the Note to the same extent as if
the amount of its participating interest were owed directly to it. The
Company further agrees that each such purchaser shall be entitled to the
benefits of section 2.9 with respect to its participation in the Bank's
obligation to make loans; provided that no such purchaser shall be
entitled to receive any greater amount pursuant to that section than the
Bank would have been entitled to receive if no such sale had occurred.
8.7 Titles. The titles of sections in this Agreement are for
convenience only and do not limit or construe the meaning of any section.
8.8 Parties Bound; Waiver. The provisions of this Agreement
shall inure to the benefit of and be binding upon any successor of any of
the parties hereto and shall extend and be available to any holder of the
Note; provided that the Company's rights under this Agreement are not
assignable. No delay on the part of any holder of the Note in exercising
any right, power or privilege hereunder shall operate as a waiver thereof,
and no single or partial exercise of any right, power or privilege
hereunder shall preclude other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein
specified are cumulative and not exclusive of any rights or remedies which
the holder of the Note would otherwise have.
8.9 Governing Law. This Agreement is being delivered in and
shall be deemed to be a contract governed by the laws of the State of
Wisconsin and shall be interpreted and enforced in accordance with the
laws of that state without regard to the principles of conflicts of laws.
8.10 Submission to Jurisdiction; Service of Process. To induce
the Bank to enter into this Agreement:
(a) THE COMPANY AGREES THAT ALL ACTIONS OR PROCEEDINGS IN ANY
MANNER RELATING TO OR ARISING OUT OF THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS MAY BE BROUGHT ONLY IN COURTS OF THE STATE OF WISCONSIN LOCATED
IN MILWAUKEE COUNTY OR THE FEDERAL COURT FOR THE EASTERN DISTRICT OF
WISCONSIN AND THE COMPANY CONSENTS TO THE JURISDICTION OF SUCH COURTS.
THE COMPANY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE VENUE
OF ANY SUCH COURT AND ANY RIGHT IT MAY HAVE NOW OR HEREAFTER HAVE TO CLAIM
THAT ANY SUCH ACTION OR PROCEEDING IS IN AN INCONVENIENT COURT; and
(b) The Company consents to the service of process in any such
action or proceeding by certified mail sent to the address specified in
section 8.4.
Nothing contained herein shall affect the right of the Bank to
serve process in any other manner permitted by law or to commence an
action or proceeding in any other jurisdiction.
8.11 Waiver of Jury Trial. THE COMPANY AND THE BANK HEREBY
KNOWINGLY AND VOLUNTARILY WAIVE THE RIGHT EACH OF THEM MAY HAVE TO A JURY
TRIAL WITH RESPECT TO ANY ACTION OR CLAIM BASED ON OR ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ANY
OTHER ACTION OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT TO
THE BANK TO ENTER INTO THIS AGREEMENT.
8.12 Limitation of Liability. THE COMPANY AND THE BANK HEREBY
WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO CLAIM OR RECOVER FROM THE OTHER
PARTY ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY
DAMAGES, OF WHATEVER NATURE, OTHER THAN ACTUAL DAMAGES.
8.13 Entire Agreement. This Agreement and the other Loan
Documents shall constitute the entire agreement of the parties pertaining
to the subject matter hereof and supersede all prior or contemporaneous
agreements and understandings of the parties in connection therewith.
BANDO MCGLOCKLIN CAPITAL
CORPORATION
BY______________________________
Its____________________________
FIRSTAR BANK MILWAUKEE, N.A.
BY______________________________
Its____________________________
<PAGE>
SCHEDULE 1
Permitted Liens
Secured Party Collateral
Security Bank SSB All Personal Property
<PAGE>
SCHEDULE 1
Permitted Liens
NONE
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of June 16,
1998, amends and supplements that certain Credit Agreement dated as of
April 30, 1998 (as so amended, the "Credit Agreement") among BANDO
MCGLOCKLIN CAPITAL CORPORATION, a Wisconsin corporation (the "Company")
and FIRSTAR BANK MILWAUKEE, N.A. (the "Bank").
RECITAL
The Company and the Bank desire to amend the Credit Agreement as
provided below.
AGREEMENTS
In consideration of the promises and agreements set forth in the
Credit Agreement, as amended hereby, the Bank and the Company agree as
follows:
1. Definitions and References. Capitalized terms not
otherwise defined herein have the meanings assigned to them in the Credit
Agreement. All references to the Credit Agreement contained in the Loan
Documents shall, upon fulfillment of the conditions set forth in section 3
below, mean the Credit Agreement as amended by this First Amendment.
2. Amendments to Credit Agreement. The Credit Agreement is
amended as follows:
(a) Section 6.1 is amended by deleting the word "and" at
the end of subsection (h) thereof, substituting a ";" in its place,
deleting the "." at the end of subsection (i) thereof, and inserting a new
subsections (j) and (k) to read as follows:
; (j) Indebtedness relating to Guaranties permitted under
section 6.2 hereof; and (k) Indebtedness of BMSBLC permitted
under the Credit Agreement referred to in section 6.2(c) below.
(b) Section 6.2 is amended by deleting the word "and" at
the end of subsection (c) thereof, substituting a "," in its place,
deleting the "." at the end of subsection (d) thereof, and inserting a new
subsection (e) to read as follows:
, and (e) unsecured Guaranties in favor of State of Wisconsin
Investment Board ("SWIB") relating to indebtedness of BMSBLC
owing to SWIB.
3. Effectiveness of First Amendment. This First Amendment
shall become effective upon its execution and delivery by the Company and
the Bank, and receipt by the Bank of all other agreements, documents and
instruments reasonably requested by the Bank.
4. Representations and Warranties. The Company represents and
warrants to the Bank that:
(a) The execution and delivery of this First Amendment,
and the performance by the Company of its obligations hereunder, are
within its corporate power, have been duly authorized by proper corporate
action on the part of the Company, are not in violation of any existing
law, rule or regulation of any governmental agency or authority, any order
or decision of any court, the Articles of Incorporation or By-Laws of the
Company or the terms of any agreement, restriction or undertaking to which
the Company is a party or by which it is bound, and do not require the
approval or consent of the shareholders of the Company, any governmental
body, agency or authority or any other person or entity; and
(b) The representations and warranties contained in the
Loan Documents are true and correct in all material respects as of the
date of this First Amendment except (i) the representations and warranties
contained in section 3.3 of the Credit Agreement shall apply to the most
recent financial statements delivered by the Company to the Lenders
pursuant to sections 5.1 and 5.2 of the Credit Agreement and (ii) for
changes contemplated or permitted by the Loan Documents and, to the
Company's knowledge, no condition exists or event or act has occurred
that, with or without the giving of notice or the passage of time, would
constitute an Event of Default under the Credit Agreement.
5. Costs and Expenses. The Company agrees to pay to the Bank,
on demand, all costs and expenses (including reasonable attorneys' fees)
paid or incurred by the Bank in connection with the negotiation, execution
and delivery of this First Amendment.
6. Full Force and Effect. The Credit Agreement, as amended
hereby, remains in full force and effect.
7. Counterparts. This First Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one
agreement, and any of parties hereto may execute this First Amendment by
signing any such counterpart.
BANDO MCGLOCKLIN CAPITAL CORPORATION
BY_____________________________
Its___________________________
FIRSTAR BANK MILWAUKEE, N.A.
BY_____________________________
Its___________________________
Exhibit 11
<TABLE>
Bando McGlocklin Capital Corporation and Subsidiaries
Computation of Net Income Per Common Share
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $ 700,199 $1,302,743 $1,156,046 $1,934,475
Determination of shares:
Weighted average common shares
outstanding (basic) 3,689,102 3,676,330 3,689,102 3,684,787
Assumed conversion of
stock options 3,282 22,817 2,939 21,597
Weighted average common shares
outstanding (diluted) 3,692,384 3,699,147 3,692,041 3,706,384
Basic earnings per share $0.19 $0.35 $0.31 $0.52
Diluted earnings per share $0.19 $0.35 $0.31 $0.52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,001,706
<SECURITIES> 130,285,301
<RECEIVABLES> 2,000,263
<ALLOWANCES> (88,003)
<INVENTORY> 3,957,508
<CURRENT-ASSETS> 2,875,210
<PP&E> 3,401,869
<DEPRECIATION> (1,159,886)
<TOTAL-ASSETS> 143,750,280
<CURRENT-LIABILITIES> 45,507,142
<BONDS> 70,764,342
266,769
16,908,025
<COMMON> 0
<OTHER-SE> 10,304,002
<TOTAL-LIABILITY-AND-EQUITY> 143,750,200
<SALES> 4,240,666
<TOTAL-REVENUES> 13,155,910
<CGS> 3,769,124
<TOTAL-COSTS> 3,769,124
<OTHER-EXPENSES> 3,427,708
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,424,092
<INCOME-PRETAX> 1,534,986
<INCOME-TAX> 378,940
<INCOME-CONTINUING> 1,156,046
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,156,046
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
