<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
---------------------------------
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 0-935
-----
BELL NATIONAL CORPORATION
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-1451828
----------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) no.) identification
4209 Vineland Road, Orlando, Florida 32811
------------------------------------ ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including
area code: (407) 849-0290
-----------------------------------------------------
-----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of August 7, 1995, the number of shares of the registrant's
common stock outstanding is 5,283,114
<PAGE>
Part I - Financial Information
ITEM 1. Financial Statements.
BELL NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
June 30, December 31,
1995 1994
(Unaudited)
Cash and cash equivalents $ -- $ --
Accounts receivable, net 1,463 1,085
Inventory, net 4,837 4,473
Prepaid expenses and other
current assets 249 113
---------- ----------
Total current assets 6,549 5,671
Property and equipment, net 212 199
Goodwill, net 693 703
Deferred sample books, net 1,218 924
Other assets 49 8
-------- --------
$ 8,721 $ 7,505
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1995 1994
(Unaudited)
Current Liabilities:
Accounts payable $ 2,437 $ 1,589
Current portion of
capitalized lease
obligations 3 3
Current portion of
long-term debt 400 300
Accrued compensation and
employee benefits 502 515
Accrued expenses 381 335
---------- --------
Total current liabilities 3,723 2,742
Long-term debt 2,862 2,621
Accrued stock appreciation rights 356 356
Capital lease obligations, less
current portion 5 6
Other liabilities 207 254
---------- --------
7,153 5,979
Stockholders' equity:
Common stock, no par value;
authorized 12,000,000 shares,
issued and outstanding 5,283,114
shares at June 30, 1995 and
December 31, 1994 15,800 15,800
Additional paid-in capital 10 10
Accumulated deficit (14,242) (14,284)
------- -------
Total stockholders' equity 1,568 1,526
-------- -------
$ 8,721 $ 7,505
======== =======
The accompanying notes are an integral part of these consolidated
financial statements.<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
------------------
June 30,
------------------
1995 1994
---- ----
Net sales $ 3,608 $ 3,686
Costs and expenses:
Cost of sales 1,878 1,862
Selling, general and administrative 1,589 1,715
--------- ---------
Operating income 141 109
Other income (expense):
Interest expense (87) (53)
Other (7) (16)
--------- ---------
Income before income taxes
and extraordinary item 47 40
Provision for income taxes (29) (7)
--------- ---------
Income before extraordinary item 18 33
Extraordinary item, net of taxes of $10 -- 241
--------- ---------
Net income $ 18 $ 274
========= =========
Earnings per share and weighted average
number of common shares outstanding:
Net income before extraordinary item $ .01 $ --
Extraordinary item -- .05
--------- ---------
Net income $ .01 $ .05
========= =========
Weighted average number of common
shares outstanding 5,283,114 5,282,623
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
Six Months Ended
------------------
June 30,
------------------
1995 1994
---- ----
Net sales $ 7,003 $ 6,869
Costs and expenses:
Cost of sales 3,646 3,487
Selling, general and administrative 3,083 3,186
--------- ---------
Operating income 274 196
Other income (expense):
Interest expense (172) (143)
Other (25) (27)
--------- ---------
Income before income taxes
and extraordinary item 77 26
Provision for income taxes (35) (13)
--------- ---------
Income before extraordinary item 42 13
Extraordinary item, net of taxes of $10 -- 241
--------- ---------
Net income $ 42 $ 254
========= =========
Earnings per share and weighted average
number of common shares outstanding:
Net income before extraordinary item $ .01 $ --
Extraordinary item -- .05
--------- ---------
Net income $ .01 $ .05
========= =========
Weighted average number of common
shares outstanding 5,283,114 5,278,428
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
Additional
Common Stock Paid-in
------------ Capital
Shares Dollars ----------
------ -------
Balance at
December 31, 1994 5,283,114 $ 15,800 $ 10
Net income -- -- --
--------- -------- ----------
Balance at
June 30, 1995 5,283,114 $ 15,800 $ 10
========= ======== ==========
The accompanying notes are an integral part of these consolidated
financial statements.<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Continued)
(Dollars in Thousands)
(Unaudited)
Accum- Total
ulated Stockholders'
Deficit Equity
-------- ------
Balance at
December 31, 1994 $(14,284) $ 1,526
Net income 42 42
--------- --------
Balance at
June 30, 1995 $(14,242) $ 1,568
========= ========
The accompanying notes are an integral part of these consolidated
financial statements.<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30,
------------------------
1995 1994
-------- ---------
Operating activities:
Net income $ 42 $ 257
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 33 43
Amortization of goodwill 10 10
Amortization of deferred
sample books 429 544
Extraordinary item - forgiveness
of interest -- (251)
Accretion of discount on notes
payable to Azimuth -- 14
Amortization of deferred debt
commitment fee 11 9
(Increase) decrease in assets:
Accounts receivable (378) (62)
Inventory (364) 27
Prepaid expenses and other
current assets (136) (185)
Increase (decrease) in liabilities:
Accounts payable 848 (401)
Accrued compensation and
employee benefits (13) 15
Accrued expenses 46 33
Accrued stock appreciation rights -- 143
Other liabilities (47) --
------- -------
Net cash provided by operating
activities 481 196
------- -------
Investing activities:
Acquisition of property and equipment (46) --
Purchase of deferred sample books (723) (368)
------- -------
Net cash used in investing activities (769) (368)
------- -------
Financing activities:
Net borrowings on long-term bank debt 341 750
Net payments on long-term subordinated
debt -- (570)
Payment of deferred debt
commitment fee (52) --
Principal payments on capital
lease obligations (1) (8)
------- ------
Net cash provided by financing
activities $ 288 $ 172
------- -------
The accompanying notes are an integral part of these consolidated
financial statements.<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
1995 1994
---- ----
Net decrease in cash and
cash equivalents $ -- $ --
Cash and cash equivalents at
beginning of period -- --
------- ------
Cash and cash equivalents at
end of period $ -- $ --
======= ======
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest $ 201 $ 130
Income taxes 45 31
The accompanying notes are an integral part of these consolidated
financial statements.<PAGE>
BELL NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
(Unaudited)
Note 1. The Company
General. The information contained in this report is unaudited
but, in management's opinion, all adjustments necessary for a
fair presentation have been included and were of a normal and
recurring nature. The results for the three and six months ended
June 30, 1995 are not necessarily indicative of results to be
expected for the entire year. These financial statements and
notes should be read in conjunction with Bell National
Corporation's (the "Company") Annual Report on Form 10-K for the
year ended December 31, 1994.
The Company's wholly owned subsidiary Payne Fabrics, Inc.
("Payne") is a designer and distributor of decorative drapery and
upholstery fabrics. Payne was acquired by the Company on June
15, 1990.
Note 2. Long-Term Debt
NOTE 2. Long-Term Debt Long-term debt is summarized as
follows at June 30, 1995 and December 31, 1994:
June 30, December 31,
1995 1994
------- ------------
Bank revolving and term
facility $ 3,262,000 $ 2,921,000
Less current portion 400,000 300,000
------------ -----------
Long-term debt less current
portion $ 2,862,000 $ 2,621,000
============ ===========
Aggregate maturities of long-term debt as of June 30, 1995 are as
follows:
1995 (six months) $ 200,000
1996 400,000
1997 425,000
1998 2,237,000
------------
$ 3,262,000
============
During April 1995, Payne entered into a new credit agreement (the
"Agreement") with Bank One, Dayton, National Association,
replacing a credit agreement with Bank of America Illinois. The
Agreement provides for a maximum total loan facility of
$4,125,000 consisting of a term loan of $1,025,000 payable in
seven quarterly installments of $100,000 and a final payment of
$325,000 on April 30, 1997. The remaining portion of the
Agreement consists of a revolving line of credit which matures on
April 30, 1998. Borrowings under the revolving line of credit
are based on a eligible accounts receivable and inventory, as
defined in the agreement. As of June 30, 1995, the balance
outstanding under the revolving line of credit was $2,237,000 and
there was approximately $352,000 of additional available credit.
Interest on the revolving line of credit is payable monthly at
prime plus 1%. Interest on the term loan facility is payable
monthly at prime plus 2% and will increase to prime plus 3%
on April 30, 1996 if the outstanding balance on April 30, 1996
exceeds $500,000.
The new credit agreement is collateralized by all of the assets
of Payne and is guaranteed by the Company. The Agreement
contains restrictive covenants which, among other things,
prohibit the declaration or payment of cash dividends, limit
additional borrowings and require the maintenance of certain
financial ratios. As of June 30, 1995, Payne was in compliance
with all covenants.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations The Company's revenues and expenses
result from the operations of Payne Fabrics, Inc.
Six Months Ended June 30, 1995 The Company had net sales of
$7,003,000, cost of goods sold of $3,646,000, selling, general
and administrative expenses of $3,083,000 and operating income of
$274,000 during the first half of 1995. Operating income was
reduced by interest expense of $172,000, other expense of
$25,000, income taxes of $35,000 resulting in net
income of $42,000.
Six Months Ended June 30, 1994 The Company had net sales of
$6,869,000, cost of goods sold of $3,487,000, selling, general
and administrative expenses of $3,186,000 and operating income of
$196,000 during the first half of 1994. Operating income was
reduced by interest expense of $143,000, other expense of
$27,000, income taxes of $13,000, and increased by an
extraordinary item net of tax of $241,000 resulting in net income
of $254,000.
Comparison Of Six Month 1995 Results To 1994 Sales for the
first half of 1995 increased by $134,000 compared to the
corresponding period in 1994. Sales of woven and multipurpose
cut fabric for upholstery decreased by approximately $413,000 or
13%, while sales of sheer fabrics used mainly for draperies
increased by approximately $236,000 or 12% compared to the prior
year. Weakness in printed fabric sales over the last few years
has caused more intense competition in the woven fabric market,
leading to the Company's declining sales volume of woven fabrics.
Printed fabric sales to residential clients continue to be weak.
During the first six months of 1995, the volume loss to
residential clients was offset by an increased use of printed
fabric in manufactured draperies.
Offsetting the decline in sales of cut fabric during the first
six months was an increase in sales of manufactured draperies and
drapery rods. The increase in contract sales is the result of a
focused marketing effort to increase revenues from commercial
customers, considered to be a less cyclical customer base. These
efforts have been successful to date but bring with them certain
risks including the possible loss of current clients and a
greater concentration of revenue in a smaller customer base.
Management anticipates that revenue related to contract sales for
the remainder of 1995 will be flat in comparison to 1994 and will
not offset the expected decrease in cut fabric volume as it did
during the first six months of 1995.
The slight increase in sales was offset by a 1.3% decrease in the
gross profit percentage from 49.2% in 1994 to 47.9% in 1995.
Material costs increased by 1.0% in 1995 due mainly to the mix of
products sold and workroom costs increased by .5% due to the
increased sales volume of manufactured draperies. Management's
continued efforts to increase volume in the contract sales area
will lead to continued margin deterioration caused by the change
in the product mix.
The resulting $25,000 decrease in gross profit during the first
half of 1995 compared to 1994, was offset by a decrease in
selling, general and administrative expenses of $103,000. The
decrease in selling, general and administrative costs was the
result of $146,000 of expense in 1994 for compensation related to
the Company's issued and outstanding stock appreciation rights.
There was no such expense in 1995. The 1994 expense was a result
of the increase in the average of the bid and ask prices for the
Company's common stock in the first half of 1994. The decrease
in SAR compensation expense was partially offset by an increase
in Payne's selling, general and administrative costs of $40,000.
As a result of the above, 1995 operating income increased by
$78,000 during the first half of 1995 compared to 1994.
Interest expense increased by $29,000 from $143,000 in 1994 to
$172,000 in 1994 due to an increase in the bank interest of
$42,000 partially offset by a decrease in subordinated debt
interest of $13,000. As of June 30, 1995, Payne's bank debt
borrowing rate was 11% on the term loan and 10% on the revolving
loan compared to 9.75% and 9.25%, respectively, as of June 30,
1994. Other expense decreased $2,000 in 1994 and the provision
for income taxes increased by $22,000.
The Company had income and earnings per share before the
extraordinary item of $42,000 and $.01 per share in the first
half of 1995 compared to $13,000 and $0.00 per share in 1994.
In the second quarter of 1994, the Company recorded an
extraordinary item of $241,000, net of income taxes of $10,000,
representing the forgiveness of accrued interest on the
subordinated debt. The forgiveness of the accrued interest was
related to the April 1994 prepayment of the subordinated debt
payable to Azimuth Corporation.
Net income after the extraordinary item was $254,000 in the first
half of 1994 compared to net income of $42,000 for the same
period in 1995. Earnings per share after the extraordinary item
in 1994 were $0.05 compared to earnings per share of $0.01 in
1995.
Quarter Ended June 30, 1995 The Company had net sales of
$3,608,000, cost of goods sold of $1,878,000, selling, general
and administrative expenses of $1,589,000 and operating income of
$141,000 during the second quarter of 1995. Operating income was
reduced by interest expense of $87,000, other expense of $7,000
and income taxes of $29,000 resulting in net income of $18,000.
Quarter Ended June 30, 1994 The Company had net sales of
$3,686,000, cost of goods sold of $1,862,000, selling, general
and administrative expenses of $1,715,000 and operating income of
$109,000 during the second quarter of 1994. Operating income was
reduced by interest expense of $53,000, other expense of $16,000
and income taxes of $7,000 and increased by an extraordinary item
net of tax of $241,000 resulting in net income of $274,000.
Comparison Of Second Quarter 1995 Results To 1994 The sales for
the second quarter of 1995 decreased by $78,000 compared to the
corresponding period in 1994. Sales of woven and multipurpose
cut fabric for upholstery decreased by approximately $290,000 or
20%, while sales of sheer fabrics used mainly for draperies
increased by approximately $236,000 or 12% compared to the prior
year.
Partially offsetting the decline in sales of cut fabric during
the second quarter was an increase in sales of manufactured
draperies and drapery rods. The bulk of the 1995 increase in
contract sales occurred in the second quarter when sales
increased 180% reflecting the additional effort and capital
expended in this line of business. However, management does not
anticipate increases in the sale of completed draperies will
offset future declines in cut fabric sales.
The second quarter gross profit percentage decreased by 1.6% from
49.5% in 1994 to 47.9% in 1995 due to an increase in material
costs as a result of the mix of products sold in 1995 compared to
1994. As a result gross profit decreased by $94,000 in the
second quarter of 1995 compared to 1994.
Selling, general and administrative expense decreased by $126,000
due to the inclusion in 1994 of SAR compensation expense of
$146,000 partially offset by an increase in Payne's selling,
general and administrative expense of $19,000. As a result of
the above, 1995 operating income increased by $32,000 during the
second quarter of 1995 compared to 1994.
Interest expense increased by $34,000 from $53,000 in 1994 to
$87,000 in 1995 due to the write off in the second quarter of
1994 of $20,000 accrued subordinated debt interest expense and
higher bank interest of $14,000 in the second quarter of 1995.
Other expense decreased $9,000 in 1995 and the provision for
income taxes increased by $22,000.
The Company had income and earnings per share before the
extraordinary item of $18,000 and $0.01, respectively in the
second quarter of 1995.
During 1994, the Company recorded an extraordinary item of
$241,000, net of income taxes of $10,000, representing the
forgiveness accrued interest on the subordinated debt. The
forgiveness of the accrued interest was related to the April 1994
prepayment of subordinated debt payable to Azimuth Corporation.
The Company had net income of $18,000 in the second quarter of
1995 compared to net income after the extraordinary item of
$274,000 for the same period in 1994. Earnings per share after
the extraordinary item were $0.01 per share and $0.05 per share
in 1995 and 1994, respectively.
Liquidity and Capital Resources
Available Resources. In connection with the bank loan
Agreement, the Company instituted a cash management system
whereby the net cash generated by operations is immediately used
to reduce bank debt. The immediate reduction of outstanding bank
debt provides the Company with a greater reduction in interest
expense than could be offset with interest income from
alternative investments. In the absence of a bank agreement
requiring such a system, the Company would continue to use excess
funds to immediately reduce bank debt. A review of the financial
statements, summary data, working capital and discussion of
liquidity must take into consideration the fact that the Company
does not maintain any cash balances in any of its accounts by
design. Working capital needs, when they arise, are met by daily
borrowings.
Future Needs For and Sources of Capital.
During the first half of 1995, the Company generated $481,000 of
cash from operations compared to $196,000 during the first half
of 1994. Greater cash was generated from operations in 1995
primarily as a result of an increase in working capital during
the first half of 1994 compared to relatively no change in
working capital in the first half of 1995. Accounts receivable,
inventory and prepaid expenses and other current assets increased
by $878,000 in 1995. The increase in current assets was offset
by an increase in current liabilities (excluding the current
portion of debt and capital lease obligations) of $881,000 in
1995. The increase in current liabilities was primarily the
result of an increase in accounts payable balance at June 30,
1995 compared to December 31, 1994. The operating cash generated
in 1995 and borrowing on long term bank debt of $341,000 was used
to purchase $723,000 of inventory sample books, purchase property
and equipment of $46,000 and pay bank refinancing and associated
costs of $52,000.
A decision that the Company faces annually is the proper amount
of capital to devote to the Spring and Fall new line
introductions. This is the Companies most substantial continuing
investment decision and has a direct impact on levels of both
inventory and sample book expense associated with the new line.
The Spring 1995 introduction was similar in size to the Spring
1994 introduction, both of which were about 30% higher than the
five previous Spring introductions. The Company has committed to
a Fall 1995 introduction level similar to the Spring 1995 level
but approximately 30% above the three previous Fall
introductions. On an annual basis the 1995 introduction level
exceeds all years since 1986. In addition to the difficulties of
predicting the new introductions market acceptance, revenues are
subject to a number of factors including general economic trends
which make forecasting the outcome of this investment extremely
difficult. As the market has not yet fully absorbed the 1995 new
line, it is uncertain what impact the increased investment will
have on future revenues.
During the first half of 1994, the Company generated $196,000 of
cash from operations. Accounts receivable, inventory and prepaid
expenses and other current assets decreased by $220,000 in 1994.
The decrease in current assets was offset by a decrease in
current liabilities (excluding the current portion of debt and
capital lease obligations) of $604,000 in 1994 of which $251,000
related to a decrease in the accrued subordinated debt interest.
The operating cash generated in 1994 and borrowing on long term
bank debt of $180,000 was used to purchase $368,000 of inventory
sample books and to reduce capitalized lease obligations by
$8,000.
Management believes that cash to be provided by operations, a
managed decrease in inventory and funds available under its line
of credit will be sufficient to fund the Company's, 1995 cash
needs.
PAGE
<PAGE>
PART II. OTHER INFORMATION
Item 6
(a) Exhibits.
10.19 Revolving Credit Agreement, dated as of May 1, 1995,
among Payne Fabrics, Inc., Bell National Corporation
and Bank One, Dayton, National Association
27. Financial Data Schedule
PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BELL NATIONAL CORPORATION
-------------------------
(Registrant)
Date: August 10, 1995 /s/ Alexander M. Milley
-----------------------------
Alexander M. Milley, Chairman
of the Board and Secretary
Date: August 10, 1995 /s/ Thomas R. Druggish
-----------------------------
Thomas R. Druggish, Chief
Financial Officer (Principal
Financial Officer and
Accounting Officer)
PAGE
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page No.
---------- ----------- --------
+10.19 Revolving Credit Agreement,
dated as of May 1, 1995, among
Payne Fabrics, Inc., Bell National
Corporation and Bank One, Dayton,
National Association
+27. Financial Data Schedule
_______________
+ Filed herewith.
_________________________________________________________________
_________________________________________________________________
REVOLVING CREDIT AGREEMENT
Among
PAYNE FABRICS, INC.
BELL NATIONAL CORPORATION
and
BANK ONE, DAYTON, NATIONAL ASSOCIATION
_____________
Dated as of May 1, 1995
_____________
_________________________________________________________________
_________________________________________________________________
PAGE
<PAGE>
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT is made as of May 1,
1995 among PAYNE FABRICS, INC., a Delaware corporation (the
"Company"), BELL NATIONAL CORPORATION, a California corporation
(the "Guarantor"), and BANK ONE, DAYTON, NATIONAL ASSOCIATION
(the "Bank"), under the following circumstances:
A. The Company is a wholly-owned subsidiary of
the Guarantor.
B. The Company has requested the Bank to make
available to it the revolving credit facilities
provided for herein.
C. Subject to and upon the terms and conditions
set forth herein, the Bank is willing to make available
to the Company the revolving credit facilities provided
for herein, provided that the Guarantor agrees to
guaranty the obligations of the Company hereunder as
provided herein.
NOW, THEREFORE, it is agreed as follows:
SECTION 1
Amount and Term of Loans
1.1 Commitment. (a) Subject to and upon the terms and
conditions herein set forth, the Bank agrees, at any time and
from time to time on and after the Effective Date and prior to
the Tranche A Termination Date, to make loans (each a "Tranche A
Loan") to the Company, which Tranche A Loans (i) may be repaid
and reborrowed in accordance with the provisions hereof and (ii)
shall not exceed in aggregate principal amount at any one time
outstanding the Tranche A Borrowing Base in effect at such time.
(b) Subject to and upon the terms and conditions
herein set forth, the Bank agrees, at any time and from time to
time on and after the Effective Date and prior to the Tranche B
Termination Date, to make loans (each a "Tranche B Loan") to the
Company, which Tranche B Loans (i) may be repaid and reborrowed
in accordance with the provisions hereof and (ii) shall not
exceed in aggregate principal amount at any one time outstanding
the Tranche B Commitment in effect at such time.
1.2 Minimum Amount. The principal amount of each Loan
shall be not less than $10,000 or, if greater, in integral
multiples of $10,000.
1.3 Notice. Whenever the Company desires to obtain a
Loan, it shall give the Bank at its Principal Office written
notice or telephonic notice (confirmed in writing) thereof by no
later than 12:00 Noon (Dayton, Ohio time) on the date of such
borrowing. Each such notice (each a "Notice of Borrowing") shall
specify (i) the principal amount the Company desires to borrow
and (ii) the date of borrowing (which shall be a Business Day).
1.4 Disbursement. No later than 3:00 P.M. (Dayton,
Ohio time) on the date specified in each Notice of Borrowing, the
Bank shall make available to the Company the proceeds of the Loan
to be made on such date in U.S. dollars and in immediately
available funds by crediting an account of the Company designated
by the Company and maintained with the Bank at its Principal
Office.
1.5 The Notes. (a) The obligation of the Company to
pay the principal of, and interest on, the Tranche A Loans shall
be evidenced by a single promissory note substantially in the
form of Annex A-1 (the "Tranche A Note") payable to the order of
the Bank and executed and delivered by the Company with blanks
appropriately completed in conformity herewith. The Tranche A
Note shall: (i) be dated the Effective Date; (ii) be in an
original stated principal amount equal to the maximum amount of
the Tranche A Commitment and be payable in the actual principal
amount of the Tranche A Loans evidenced thereby; (iii) mature in
the case of each Tranche A Loan evidenced thereby on the Tranche
A Termination Date; (iv) bear interest as provided in Section 1.6
in respect of each Tranche A Loan evidenced thereby; (v) be
subject to voluntary prepayment as provided in Section 2.2 and
mandatory prepayment as provided in Section 2.3; and (vi) be
entitled to the benefits of Loan Documents.
(b) The obligation of the Company to pay the principal
of, and interest on, the Tranche B Loans shall be evidenced by a
single promissory note substantially in the form of Annex A-2
(the "Tranche B Note") payable to the order of the Bank and
executed and delivered by the Company with blanks appropriately
completed in conformity herewith. The Tranche B Note shall: (i)
be dated the Effective Date; (ii) be in an original stated
principal amount equal to the maximum amount of the Tranche B
Commitment and be payable in the actual principal amount of the
Tranche B Loans evidenced thereby; (iii) mature in the case of
each Tranche B Loan evidenced thereby on the Tranche B
Termination Date; (iv) bear interest as provided in Section 1.6
in respect of each Tranche B Loan evidenced thereby; (v) be
subject to voluntary prepayment as provided in Section 2.2 and
mandatory prepayment as provided in Section 2.3; and (vi) be
entitled to the benefits of the Loan Documents.
(c) The Bank shall maintain internal records showing
each Loan made hereunder and each principal and interest payment
thereon, which records shall, absent demonstrable error, be final
and binding. Although each Note shall be dated the Effective
Date, interest in respect thereof shall be payable only for the
periods during which the Loans evidenced thereby are actually
outstanding. Although the stated principal amount of the Tranche
A Note shall be equal to the maximum amount of the Tranche A
Commitment, the Tranche A Note shall be enforceable with respect
to the obligation to pay the principal thereof only to the extent
of the unpaid principal amount of the Tranche A Loans evidenced
thereby. Although the stated principal amount of the Tranche B
Note shall be equal to the maximum amount of the Tranche B
Commitment, the Tranche B Note shall be enforceable with respect
to the obligation of the Company to pay the principal thereof
only to the extent of the unpaid principal amount of the Tranche
B Loans evidenced thereby.
1.6 Interest. (a) The Company agrees to pay interest
in respect of the unpaid principal amount of:
(i) each Tranche A Loan at a rate per annum which
shall be the Tranche A Interest Rate in effect from time to time;
and
(ii) each Tranche B Loan at a rate per annum which
shall be the Tranche B Interest Rate in effect from time to time.
(b) Overdue principal and, to the extent permitted by
law, overdue interest in respect of each Loan shall bear interest
at a rate per annum equal to Default Rate in effect from time to
time.
(c) Interest shall accrue from and including the date
the proceeds of a Loan are made available to the Company to but
excluding the date of repayment thereof and shall be payable
monthly in arrears on each Monthly Payment Date, and at maturity
(whether by acceleration or otherwise) and, after maturity, upon
demand.
1.7 Capital Adequacy. If the Bank reasonably
determines at any time that either (i) any applicable law or
governmental rule, regulation, guideline, order or request
(whether or not having the force of law) concerning capital
adequacy which is adopted or becomes effective on or after the
date hereof or (ii) any change on or after the date hereof in the
interpretation or administration of any applicable law or
governmental rule, regulation, guideline, order or request
(whether or not having the force of law) concerning capital
adequacy by any Governmental Authority, has, in either case
described in the foregoing clauses (i) or (ii), the effect of
increasing the amount of capital required or expected to be
maintained by the Bank based on the existence of the Total
Commitment or its obligations hereunder, then the Company shall
pay to the Bank, upon its written demand therefor, such
additional amounts as shall be required to compensate the Bank
for the increased cost or reduced rate of return to the Bank as a
result of such increase of capital. In determining such
additional amounts, the Bank will act reasonably and in good
faith and will use averaging and attribution methods which are
reasonable, provided that the Bank's determination of
compensation owing under this Section 1.7 shall, absent
demonstrable error, be final, conclusive and binding. The Bank
shall give the Company written notice of the existence of any
facts or circumstances which may cause the Bank to request
compensation under this Section 1.7 within a reasonable period of
time after the Bank becomes aware of such facts or circumstances;
provided that the failure to give any such notice shall not
affect any of the Bank's rights under this Section 1.7.
1.8 Fees. (a) On the Effective Date, the Company
shall pay to the Bank a facility fee in the amount of $7,500 (the
"Facility Fee").
(b) The Company agrees to pay to the Bank a commitment
fee (the "Tranche A Commitment Fee") for the period from the
Effective Date until the Tranche A Termination Date calculated at
the rate of .50% per annum on the daily average unutilized
portion of the Tranche A Commitment; payable quarterly in arrears
on each Quarterly Payment Date and on the Tranche A Termination
Date.
(c) The Company agrees to pay to the Bank a commitment
fee (the "Tranche B Commitment Fee") for the period from the
Effective Date until the Tranche B Termination Date calculated at
the rate of .50% per annum on the daily average unutilized
portion of the Tranche B Commitment; payable quarterly in arrears
on each Quarterly Payment Date and on the Tranche B Termination
Date.
1.9 Reductions in Commitment. The Company shall have
the right, at any time and from time to time, upon at least three
Business Days' prior written notice to the Bank, to irrevocably
reduce the unutilized portion of either the Tranche A Commitment
or the Tranche B Commitment, in whole or in part, provided that
partial reductions shall be in the amount of $10,000 or an
integral multiple thereof.
1.10 Use of Proceeds. On the Effective Date, the
Company shall repay in full all amounts (whether principal,
accrued interest, fees or other amounts) owing under the Existing
Agreement. The proceeds of the Initial Loan shall be applied by
the Company, to the extent necessary, to the repayment of such
amounts owing under the Existing Agreement. The proceeds of the
Initial Loan to the extent not so applied and the proceeds of all
other Loans shall be used by the Company for general corporate
purposes.
SECTION 2
Payments
2.1 Payments on Non-Business Days. Whenever any
payment to be made under the Loan Documents shall be stated to be
due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, if a
payment of principal has been so extended, interest shall be
payable on such principal at the applicable rate during such
extension.
2.2 Voluntary Prepayments. The Company shall have the
right to prepay the Loans in whole or in any part, without
premium or penalty, from time to time, on any Business Day.
2.3 Mandatory Prepayments. (a) If, on any day, the
aggregate outstanding principal amount of the Tranche A Loans
exceeds the Tranche A Borrowing Base in effect at such time, then
the Company shall, on such day, prepay an aggregate principal
amount of the Tranche A Loans in an amount equal to the amount of
such excess. Without limiting the requirements of the preceding
sentence in any respect, if any Borrowing Base Certificate shall
disclose the existence of a Borrowing Base Deficiency, the
Company shall, on the date of delivery of such Borrowing Base
Certificate, prepay an aggregate principal amount of the Tranche
A Loans in an amount equal to such Borrowing Base Deficiency.
(b) On the date of any reduction of the Tranche B
Commitment as provided for in the definition of "Tranche B
Commitment", the Company shall, on such date, prepay an aggregate
principal amount of the Tranche B Loans in such amount as shall
be necessary so that, after giving effect to such reduction, the
aggregate outstanding principal amount of the Tranche B Loans
shall not exceed the Tranche B Commitment.
2.4 Method and Place of Payment. All payments to be
made by the Company to the Bank under the Loan Documents shall be
made to the Bank without set-off, deduction or counterclaim and
shall be made to the Bank at its Principal Office not later than
1:00 P.M. (Dayton, Ohio time) on the date when due in U.S.
dollars and in immediately available funds.
SECTION 3
Conditions Precedent
3.1 Conditions to Effectiveness. This Agreement shall
become effective on the date (the "Effective Date") on which all
of the following conditions have been satisfied; provided,
however, that this Agreement shall not become effective and be of
no further force or effect unless the Effective Date shall have
occurred on or before May 31, 1995.
(a) Execution. The Bank, the Company and the
Guarantor shall have executed and delivered a counterpart copy
hereof and the Company shall have executed and delivered to the
Bank the Notes as provided in Section 1.5.
(b) Security Agreement. The Company shall have
executed and delivered a Security Agreement in substantially the
form of Annex B with blanks appropriately completed (as the same
may be modified, supplemented and/or amended from time to time,
the "Security Agreement") and the Company, at its expense, shall
have delivered to the Bank:
(i) acknowledgement copies of properly executed
Financing Statements (Form UCC-1) duly filed under the UCC
of each jurisdiction as may be necessary or, in the opinion
of the Bank, desirable to perfect the security interest
intended to be created by the Security Agreement;
(ii) certified copies of Requests for Information
or Copies (Form UCC-11), or equivalent reports, listing the
Financing Statements referred to in Section 3.1(b)(i) and
(c) (ii) and all other effective financing statements that
name the Company as debtor and that are filed in the
jurisdictions referred to in Section 3.1 (b)(i) and (c)(ii),
together with copies of such other financing statements
(none of which shall cover any of the Collateral except to
the extent evidencing Permitted Liens);
(iii) evidence of the completion of all other
recordings and filings of, or with respect to, the Security
Agreement as may be necessary or, in the opinion of the
Bank, desirable to perfect the security interest intended to
be created by the Security Agreement; and
(iv) evidence that all other actions (including
consents, waivers and/or acknowledgements from third
Persons) necessary or, in the opinion of the Bank, desirable
to perfect and protect the security interest intended to be
created by the Security Agreement have been taken or
obtained.
(c) Mortgage. The Company shall have executed and
delivered a Leasehold Mortgage in substantially the form of Annex
C with blanks appropriately completed (as the same may be
modified, supplemented and/or amended from time to time, the
"Mortgage") encumbering the Company's leasehold interest in the
real property described therein and the Company, at its expense,
shall have delivered to the Bank:
(i) evidence that the Mortgage was duly filed or
recorded in such manner and in such places as required by
law in order to cause the Mortgage to be enforceable as
against third Persons and to be a perfected mortgage lien on
the Company's leasehold interest in the real property
described therein;
(ii) acknowledgement copies of properly executed
Financing Statements (Form UCC-1) duly filed under the UCC
of each jurisdiction as may be necessary or, in the opinion
of the Bank, desirable to perfect the security interest
granted by the Mortgage; and
(iii) evidence that all other actions (including
consents, waivers and/or acknowledgements from third
Persons) necessary or, in the opinion of the Bank desirable
to perfect and protect the lien and security interest of the
Mortgage have been taken or obtained.
(d) Subordination Agreement. The Guarantor shall have
executed and delivered a Subordination Agreement in substantially
the form of Annex D with blanks appropriately completed (as the
same may be modified, supplemented and/or amended from time to
time, the "Subordination Agreement").
(e) Assignment of Life Insurance Policy. The Company
shall have executed and delivered an Assignment of Life Insurance
Policy in substantially the form of Annex E with blanks
appropriately completed (the "Life Insurance Assignment")
pursuant to which the Company shall assign to the Bank as
collateral security the key man life insurance policy required to
be maintained by the Company on the life of Val G. Blaugh
pursuant to Section 5.5(c).
(f) Evidence of Insurance. The Bank shall have
received evidence, in form, scope and substance satisfactory to
the Bank, of all insurance coverage required to be maintained by
the Company pursuant to the Loan Documents, which insurance shall
name the Bank as an additional insured and/or loss payee.
(g) Record Searches. The Bank shall have received a
search in form satisfactory to the Bank, made no more than 30
days prior to the Effective Date, of the UCC filing offices or
other registers in each jurisdiction in which the Collateral is
located and in each of the other filing or recording places
referred to in Section 3.1(b)(i) and (c)(ii) and such search
shall reveal no filings or recordings (except filings and
recordings evidencing Liens securing the loans outstanding under
the Existing Agreement and filings and recordings evidencing
Permitted Liens) in effect with respect to any of the Collateral
in favor of any Person (other than the Bank) and the Bank shall
have received a copy of the search reports received as a result
of such search.
(h) Borrowing Base Certificate. The Company shall
have furnished to the Bank a Borrowing Base Certificate, duly
executed, appropriately completed and dated as of the Business
Day immediately prior to the Effective Date.
(i) Initial Loan. Simultaneously with the
effectiveness of this Agreement, the Company shall have incurred
the Initial Loan and shall have applied the proceeds thereof as
provided in Section 1.10 and the Existing Agreement shall have
terminated and ceased to be of any further force or effect
(except with respect to the provisions thereof intended to
survive the repayment in full of the loans made to the Company
thereunder).
(j) No Default. On the Effective Date and after
giving effect to the effectiveness of this Agreement, there shall
exist no Default or Event of Default.
(k) Representations and Warranties. On the Effective
Date and after giving effect to the effectiveness of this
Agreement, all representations and warranties of the Company and
the Guarantor contained in the Loan Documents or otherwise made
in writing in connection therewith shall be true and correct in
all material respects with the same force and effect as though
such representations and warranties had been made as of such
time.
(l) Certificate. On the Effective Date, the Bank
shall have received a certificate, dated the Effective Date and
executed by an authorized officer of the Company and of the
Guarantor, stating that the conditions specified in Section
3.1(j) and (k) are then satisfied.
(m) Opinion of Counsel. On the Effective Date, the
Bank shall have received from Dechert Price & Rhoads, counsel to
the Company and the Guarantor, a favorable opinion, dated the
Effective Date, substantially in the form of Annex F.
(n) Facility Fee. On the Effective Date, the Company
shall have paid to the Bank the Facility Fee provided for in
Section 1.8(a).
(o) Documentation and Proceedings. All corporate and
legal proceedings and all instruments in connection with the
transactions contemplated by this Agreement shall be reasonably
satisfactory in form and substance to the Bank, and the Bank
shall have received all information and copies of all documents
that it has requested, such documents where appropriate to be
certified by proper corporate or governmental authorities.
3.2 Conditions to Subsequent Loans. The obligation of
the Bank to make Loans after the Effective Date is subject, at
the time of the making of each such Loan, to the satisfaction of
the following conditions, with the requesting of such Loan
constituting a representation and warranty by the Company and the
Guarantor that the conditions set forth in Section 3.2(a) and (b)
are then satisfied:
(a) No Default. At the time of the making of such
Loan and after giving effect thereto, there shall exist no
Default or Event of Default.
(b) Representations and Warranties. At the time of
the making of such Loan and after giving effect thereto, all
representations and warranties of the Company and the Guarantor
contained in the Loan Documents or otherwise made in writing in
connection therewith shall be true and correct in all material
respects with the same force and effect as though such
representations and warranties had been made as of such time,
except to the extent that any such representation or warranty
specifically relates to a specified earlier date, in which case
such representation or warranty shall be true and correct in all
material respects as of such earlier date and except for any
change in any such representation or warranty which may be
permitted by the Loan Documents.
(c) Borrowing Base Certificate. At the time of the
making of such Loan, the Company shall have furnished to the Bank
a Borrowing Base Certificate duly executed, appropriately
completed and dated the Business Day immediately prior to the
date of the making of such Loan.
SECTION 4
Guaranty
(a) In order to induce the Bank to enter into this
Agreement and to make the Loans, and in consideration of its so
doing and of the substantial benefits to accrue to the Guarantor
resulting therefrom, the Guarantor hereby guarantees, irrevocably
and unconditionally, the due and punctual payment of the
Obligations, when and as the same shall become due and payable
(whether by acceleration or otherwise) in accordance with the
Loan Documents and in case of the failure to pay any of the
Obligations upon the due date thereof, the Guarantor shall
forthwith cause such payment to be made promptly when and as the
same shall become due and payable (whether by acceleration or
otherwise) and as if such payment were made in accordance with
the Loan Documents. The Guarantor hereby agrees that its
obligations under this Section 4 constitute a continuing guaranty
of payment and shall be unconditional and irrevocable. The
Guarantor hereby waives notice of acceptance of this guaranty,
diligence, presentment, demand of payment, filing of claims with
a court in the event of bankruptcy (or any similar proceeding for
the relief of financially distressed debtors) of the Company or
of any other guarantor, any right to require a proceeding first
against the Company or any other guarantor or any other Person or
any collateral securing the Obligations, protest, notice of
dishonor or nonpayment and any other notice and all demands
whatsoever; and the Guarantor hereby agrees that its obligations
under this Section 4 shall not be discharged except by payment in
full of all amounts payable under this Section 4.
(b) The obligations of the Guarantor hereunder shall
not be subject to any reduction, limitation, impairment,
termination, defense, set-off, counterclaim or recoupment of any
kind or for any reason whatsoever and such obligations shall not
be affected in any manner by (i) the genuineness, validity,
legality, regularity or enforceability of any of the Obligations,
the Loan Documents or any other instrument evidencing, or
agreement relating to, any of the Obligations or by the
existence, validity, enforceability, perfection or extent of any
collateral therefor, (ii) the failure of the Bank to assert any
claim or demand or to enforce any right or remedy against the
Company or any other guarantor under any Loan Document or other
agreement or otherwise, (iii) any extension or renewal of the
Obligations or any provision of any of the Loan Documents, (iv)
any rescission, waiver, compromise, release, acceleration,
amendment or modification of any term or provision of any of the
Loan Documents or any other agreement, (v) the release, exchange,
surrender or foreclosure of any security held by the Bank for any
of the Obligations, (vi) the failure of the Bank to exercise any
right or remedy against the Company or any other guarantor of the
Obligations or any other Person or the delay by the Bank in
exercising any such right or remedy, (vii) the release or
substitution of any guarantor of the Obligations or (viii) any
other event that could constitute a legal or equitable discharge
of, or defense by, a guarantor or surety. The Bank may apply any
sums by whomsoever paid or howsoever realized to the payment in
any order of the amounts payable by the Company or any guarantor
under any of the Loan Documents.
(c) The Guarantor hereby waives any defense that it
might have based on a failure to remain informed of the financial
condition of the Company, any circumstances affecting any of the
Collateral or the ability of the Company to perform its
obligations under the Loan Documents. The Bank shall not have
any duty or responsibility whatsoever to the Guarantor in respect
of the administration or monitoring of the Obligations or the
Collateral.
(d) The Guarantor further agrees that, as between the
Guarantor and the Bank, the Obligations may be declared to be
forthwith due and payable as provided in Section 6 for purposes
of this guaranty, notwithstanding any stay, injunction or other
prohibition preventing such declaration as against the Company
and that, in the event of such declaration, the Obligations
(whether or not due and payable by the Company) shall forthwith
become due and payable by the Guarantor for purposes of this
guaranty.
(e) This guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of the
Obligations is rescinded or must otherwise be restored by the
Bank upon the bankruptcy or reorganization of the Company or any
other guarantor of the Obligations or otherwise. If a claim is
ever made upon the Bank for repayment or recovery of any amount
received in payment or on account of any of the Obligations and
the Bank repays all or any part of such amount by reason of (i)
any judgment, decree or order of any court or administrative body
or (ii) any settlement or compromise of any such claim effected
by the Bank with any such claimant, then the Guarantor hereby
agrees that any such judgment, decree, order, settlement or
compromise shall be binding upon the Guarantor, notwithstanding
any termination or revocation of this Section 4 or termination of
any of the Loan Documents and the Guarantor shall be and remain
liable to the Bank under this Section 4 for the amount so repaid
or recovered to the same extent as if such amount had never
originally been received by the Bank.
(f) Without limiting any other right or remedy which
the Bank may have, upon failure of the Company to pay any of the
Obligations when and as the same shall become due (whether at
maturity, by acceleration, after notice or otherwise), the
Guarantor hereby agrees to and shall, upon receipt of written
demand by the Bank, forthwith pay or cause to be paid to the
Bank, in cash, an amount equal to the unpaid amount of the
Obligations.
SECTION 5
Covenants
So long as this Agreement remains in effect and until
all of the Obligations have been paid in full, the Company and
the Guarantor jointly and severally agrees that, except to the
extent waived in writing by the Bank:
5.1 Information. The Company and the Guarantor shall
furnish to the Bank:
(a) Monthly Statements of the Company. As soon as
possible but in any event no later than 30 days after the end of
each fiscal month in each fiscal year of the Company, the
consolidated and consolidating balance sheets of the Company and
its Subsidiaries as of the end of such period and the related
consolidated and consolidating statements of operations and
stockholder's equity and cash flows for such period and for the
elapsed portion of the fiscal year ended with the last day of
such period, in each case in reasonable detail and setting forth
budgeted amounts and comparative figures for the related periods
in the prior fiscal year, which financial statements shall be
accompanied by a certificate of the chief financial officer or
the chief accounting officer of the Company stating that such
financial statements fairly present, in all material respects,
the consolidated financial position of the Company and its
Subsidiaries as of the date of such financial statements and the
consolidated results of operations and cash flows of the Company
and its Subsidiaries for the periods covered by such financial
statements, all in accordance with GAAP, subject to normal year-
end audit adjustments.
(b) Annual Statements of the Company and the
Guarantor. As soon as possible, but in any event no later than
120 days after the end of each fiscal year of the Company and the
Guarantor, the audited consolidated and consolidating balance
sheets of the Company and its Subsidiaries and of the Guarantor
and it Subsidiaries as of the end of such fiscal year and the
related audited consolidated and consolidating statements of
operations and stockholders' equity and cash flows of the Company
and its Subsidiaries and of the Guarantor and it Subsidiaries for
such fiscal year, in each case in reasonable detail and setting
forth comparative figures for the preceding fiscal year which
financial statements shall be certified by a firm of independent
certified public accountants of recognized standing reasonably
acceptable to the Bank, together with a report of such accounting
firm stating that in the course of its regular audit of such
financial statements, which audit was conducted in accordance
with generally accepted auditing standards, such accounting firm
obtained no knowledge of any Default or Event of Default which
has occurred and is continuing or, if in the opinion of such
accounting firm such a Default or Event of Default has occurred
and is continuing, a statement as to the nature thereof.
(c) Officer's Certificate. At the time of the
delivery of the financial statements provided for in Section
4.1(a) and (b), a certificate of the chief executive officer, the
chief financial officer or the chief accounting officer of the
Company to the effect that, to the best of his knowledge after
due investigation, no Default or Event of Default has occurred
and is continuing or, if any Default or Event or Default has
occurred and is continuing, specifying the nature and extent
thereof, which certificate shall also set forth the calculations
required to establish whether the Company was in compliance with
the provisions of Section 5.19, 5.20 and 5.21 at the end of such
fiscal month or year, as the case may be.
(d) Monthly Borrowing Base Certificates. As soon as
possible (but in any event no later than (i) ten days after the
end of each fiscal month of the Company, in the case of any
fiscal month other than the fiscal months of March, June,
September or December or (ii) ten Business Days after the end of
each March, June, September and December fiscal month of the
Company), a Borrowing Base Certificate as of the last day of such
fiscal month executed by the chief financial officer or the chief
accounting officer of the Company, together with an aging report
(in form reasonably satisfactory to the Bank) as of the last day
of such fiscal month which shall provide aging details with
respect to the Receivables of the Company.
(e) Other Borrowing Base Certificates. In addition to
the Borrowing Base Certificates required to be furnished to the
Bank pursuant to Section 5.1(d), prior to the making of any Loan,
a Borrowing Base Certificate as of the Business Day immediately
prior to the date of the making of such Loan executed by the
chief financial officer or the chief accounting officer of the
Company. For purposes of any Borrowing Base Certificate
delivered pursuant to this Section 5.1(e) (other than any
Borrowing Base Certificate which is also being delivered pursuant
to Section 5.1(d)), the valuation of the Eligible Inventory set
forth therein may be as of the end of the fiscal month
immediately prior to the date of such Borrowing Base Certificate.
(f) Notices. Promptly after an officer of the Company
obtains knowledge thereof, notice of (i) the occurrence of any
Default of Event of Default, (ii) the occurrence of any material
default with respect to any other Indebtedness of the Company or
the Guarantor or under any indenture, agreement, lease or other
instrument relating thereto or (iii) the occurrence of any other
event or circumstance (including the institution of any
litigation or other suit or proceeding) which could materially
and adversely affect the business, operations (present or
future), property, assets or condition (financial or other) of
the Company and its Subsidiaries or of the Guarantor.
(g) SEC Reports. As soon as available, copies of all
proxy statements and other reports submitted by the Guarantor to
its shareholders and of all periodic reports filed by the
Guarantor with the Securities Exchange Commission (or any
successor thereto).
(h) Other Information. From time to time, such other
information or documents (financial or other) as the Bank may
reasonably request.
5.2 Books, Records and Inspections. (a) The Company
shall, and shall cause each of its Subsidiaries to, keep proper
books of record and account in which full, true and correct
entries in conformity with GAAP and all requirements of law shall
be made of all dealings and transactions in relation to its
business and activities.
(b) The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Bank, upon
reasonable notice, to visit and inspect its properties or assets,
to examine its books and records and to take memoranda and
extracts therefrom and to discuss its business, affairs,
finances, accounts and prospects with, and be advised as to the
same by, its officers and its independent certified public
accounts, all at such reasonable times and intervals and to such
reasonable extent as the Bank may request.
5.3 Maintenance of Property. The Company shall, and
shall cause each of its Subsidiaries to, keep all tangible
property useful and necessary in its business in reasonably good
working order and condition (ordinary wear and tear excepted)
and, from time to time, make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto so
that the efficiency thereof shall be preserved and maintained.
5.4 Corporate Status. The Company shall, and shall
cause each of its Subsidiaries to, do all things necessary and
proper to preserve and keep in full force and effect (i) its
corporate existence and (ii) its material rights, franchises,
licenses, permits, patents, trademarks, tradenames, copyrights
and similar or other intangible property rights.
5.5. Insurance. (a) The Company shall, and shall cause
each of its Subsidiaries to, (i) keep at all times all of its
properties and assets adequately insured, with financially sound
and responsible insurers, against loss or damage by fire,
casualty and other hazards in such manner and to the extent that
similar properties and assets are customarily insured by
responsible companies operating properties and assets of the same
or a similar character, (ii) maintain at all times adequate
insurance, with financially sound and responsible insurers
against liability on account of damage to persons and property
and under all applicable workers' compensation laws in such
manner and to the extent as may be reasonably prudent and (iii)
from time to time, maintain, with financially sound and
responsible insurers, such other insurance (including business
interruption insurance) in such manner and to the extent as may
be reasonably prudent or as may be maintained by responsible
companies operating in the same or similar businesses or as the
Bank may reasonably request. In no event shall the insurance
coverage (both in terms of scope and amount) maintained by the
Company and its Subsidiaries at any time be less than the
insurance coverage maintained as of the date hereof as reflected
on Schedule I. The Bank hereby acknowledges that, absent a
change in relevant circumstances, the insurance coverage
reflected in Schedule I satisfies the requirements set forth in
this Section 5.5(a).
(b) All insurance required to be maintained pursuant
to Section 5.5(a) shall name the Bank as an additional insured
and/or loss payee and further (i) provide for at least 30 days'
prior written notice to the Bank of the cancellation or
substantial modification thereof, (ii) provide that, in respect
of the interests of the Bank in such insurance, such insurance
shall not be invalidated by any action or inaction of the
Company, any of its Subsidiaries or any other Person (other than
the Bank), (iii) insure the Bank's interests regardless of any
breach of or violation by the Company, any of its Subsidiaries or
any other Person of any warranties, declarations or conditions
contained in such insurance and (iv) provide that the Bank shall
have the right (but not the obligation) to cure any default under
such insurance.
(c) The Company shall obtain, maintain and own a key-
man life insurance policy on the life of Val G. Blaugh in the
minimum amount of $1,000,000 issued by a financially sound and
responsible insurer, naming the Company as owner and the
beneficiary. The Company shall pay on a timely basis all
premiums payable for such life insurance policy and shall not
borrow against any cash surrender value of such life insurance
policy.
(d) The Company shall, and shall cause each of its
Subsidiaries to, from time to time upon the request of the Bank,
promptly furnish or cause to be furnished to the Bank evidence,
in form and substance reasonably satisfactory to the Bank, of the
maintenance of all insurance required to be maintained pursuant
to this Section 5.5, including such copies as the Bank may
reasonably request of policies, certificates of insurance, riders
and endorsements relating to such insurance and proof of premium
payments.
(e) The provisions of this Section 5.5 shall be deemed
to be supplemental to, but not duplicative of, the provisions of
any of the other Loan Documents which require the maintenance of
insurance.
5.6 Business. The Company shall, and shall cause each
of its Subsidiaries to, engage primarily in business of the same
general character as that now conducted.
5.7 Compliance with Laws. The Company shall, and
shall cause each of its Subsidiaries to, comply, in all material
respects, with all applicable laws, statutes, rules, regulations
and orders of, and all applicable restrictions imposed by, all
Governmental Authorities in respect of the conduct of its
business and the ownership or operation of its property or
assets.
5.8 Payment of Taxes and Other Claims. The Company
shall, and shall cause each of its Subsidiaries to, duly pay and
discharge when due all material taxes, assessments, levies and
other governmental charges imposed upon it or its properties or
assets or upon its income, as well as all claims for labor,
materials or supplies which if unpaid might by law become a Lien
upon any of its property or assets, except such as are being
contested diligently and in good faith by appropriate proceedings
and as to which book reserves in an amount reasonably
satisfactory to the Bank are being maintained.
5.9 ERISA. The Company shall, and shall cause each
ERISA Affiliate and each Employee Benefit Plan to, comply, in all
material respects, with all applicable requirements of ERISA and
the Code. Promptly (but in any event within ten Business Days)
after the Company knows or has reason to know that: (a) an
accumulated funding deficiency may be or has been incurred with
respect to any Employee Benefit Plan, any Employee Benefit Plan
has failed to maintain the minimum funding standard required for
any plan year (of portion thereof), an application is to be made
or has been made for a waiver or modification of the minimum
funding standard or the extension of any amortization period
under Section 412 of the Code with respect to any Employee
Benefit Plan or any Employee Benefit Plan has an Unfunded Current
Liability, (b) the occurrence of any Prohibited Transaction
involving any Employee Benefit Plan or of any Reportable Event
with respect to any Employee Benefit Plan, (c) any Employee
Benefit Plan subject to Title IV of ERISA has been or may be
terminated, reorganized, partitioned or declared insolvent under
ERISA or the filing under Section 4041 of ERISA of a notice of
intent to terminate any Employee Benefit Plan, (d) any event or
circumstance exists which would constitute grounds entitling the
PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer,
any Employee Benefit Plan or the institution by the PBGC of any
such proceedings, (e) the Company or any ERISA Affiliate will or
may incur any liability to or on account of any Employee Benefit
Plan under Sections 515, 4062, 4063, 4064, 4201 and 4204 of
ERISA, the Company shall deliver to the Bank a certificate of
its chief executive officer or chief financial officer setting
forth details as to such occurrence and the action, if any, which
is required or proposed to be taken, together with any notices
required or proposed to be filed with or by the Company, any
ERISA Affiliate, the PBGC or the plan administrator with respect
thereto. In addition, the Company shall promptly deliver to the
Bank, at its request, a complete copy of the annual report (Form
5500) of each Employee Benefit Plan required to be filed with the
Internal Revenue Service.
5.10 Principal Banking Relationships. The Company
shall, and shall cause each of the Subsidiaries to, maintain its
principal commercial banking relationships (including its
principal depository accounts and its principal cash management
system) with the Bank.
5.11 Maintenance of Liens. Upon the request of the
Bank from time to time, the Company shall promptly, at its
expense, duly execute, acknowledge and deliver (and thereafter
duly register, file or record in all appropriate governmental
offices) any document or instrument supplemental to or
confirmatory of any Loan Document or otherwise reasonably
necessary or desirable for the creation, perfection and/or
protection of the Liens on the Collateral in favor of the Bank
(including the filing of any financing or continuation statements
under the UCC in effect in any jurisdiction in order to place on
the public records notice of the effect of any Loan Document) and
shall take such further action as the Bank may reasonably request
for the creation, perfection and/or protection of the Liens on
the Collateral in favor of the Bank.
5.12 Liens. (a) Neither the Company nor any of its
Subsidiaries shall create, incur, assume or permit to exist any
Lien upon or with respect to any of its property or assets (real
or personal, tangible or intangible) whether now owned or
hereafter acquired other than: (i) Liens for taxes, assessments
or governmental charges or levies not yet due and payable or
which are being contested as permitted by Section 5.8; (ii) Liens
arising in the ordinary course of business (such as mechanics',
materialmen's, banker's and similar liens) which were not
incurred in connection with the incurrence of Indebtedness for
borrowed money and which secure sums not yet due and payable or
which are being contested as permitted by Section 5.8; (iii)
pledges or deposits arising in the ordinary course of business to
secure the performance of bids, tenders, leases, trade contracts,
appeals, statutory obligations or other pledges or deposits of
like general nature, provided that the aggregate amount of all
such pledges and deposits shall not exceed $100,000 at any one
time outstanding; (iv) easements, zoning restrictions, rights-of-
way, reservations, minor defects and irregularities in title, and
other similar title exceptions and encumbrances which do not in
the aggregate materially detract from the value of, or materially
interfere with the use of, the property subject thereto; (v)
Liens created pursuant to the Loan Documents and any other Liens
which secure obligations owed to the Bank; (vi) Liens listed or
described on Schedule II (but not any renewal, extension or
replacement thereof); (vi) Liens arising under any lease or
sublease (under which the Company is the lessor or the lessee)
granted or obtained in the ordinary course of business and not
prohibited under the Loan Documents; and (vii) any attachment or
judgment Lien not giving rise to an Event of Default.
(b) Neither the Company nor any of its Subsidiaries
shall enter into any agreement, commitment or understanding with
any Person (other than the Bank) which limits or otherwise
restricts its ability to grant a Lien upon or with respect to any
of its property or assets.
(c) The Guarantor shall not: (a) create, incur, assume
or permit to exist any Lien upon or with respect to any of the
capital stock of Company owned by it or (b) sell, transfer,
assign or otherwise dispose of any of the capital stock of the
Company owned by it.
5.13 Corporate Existence. Neither the Company nor any
of its Subsidiaries shall (a) wind up, liquidate or dissolve its
business or affairs, (b) enter into any transaction of merger or
consolidation or other business combination, (c) purchase or
acquire (in one or a series of related transactions) any part of
the property or assets of any other Person or (d) sell, lease,
transfer or otherwise convey or dispose of any of its property or
assets; except that the Company or any of its Subsidiaries may in
the ordinary course of its business: (i) make purchases or sales
of inventory, supplies and other similar items, (ii) make Capital
Expenditures or (iii) sell or otherwise dispose of equipment
which is obsolete or worn-out or no longer used or useful in its
business.
5.14 Investments. The Company shall not organize or
own any Subsidiary. Neither the Company nor any of its
Subsidiaries shall make or maintain any Investment in any other
Person (including the Guarantor or any Affiliate thereof), except
that the Company or any of its Subsidiaries may (a) create and
hold accounts receivable owing to it, if created in the ordinary
course of its business and payable or dischargeable in accordance
with customary trade terms, (b) acquire and hold Cash
Equivalents, (c) advance expenses to its employees in reasonable
amounts and in the ordinary course of business and (d) make loans
to its employees, provided that the aggregate principal amount of
all such loans shall not exceed $50,000 at any one time
outstanding.
5.15 Indebtedness. Neither the Company nor any of its
Subsidiaries shall contract, create, incur, assume, guaranty,
become or remain liable in respect of or permit to exist any
Indebtedness, except: (i) Indebtedness incurred under the Loan
Documents and other Indebtedness owned to the Bank, (ii) accrued
expenses and trade accounts payable incurred in the ordinary
course of business or (iii) the Indebtedness listed on Schedule
III (but not any renewal, extension, replacement, refunding or
refinancing of any such Indebtedness).
5.16 Dividends. The Company shall not, directly or
indirectly (i) declare or pay any dividend or other distribution,
or otherwise return any capital, to its shareholders or (ii)
redeem, retire, purchase or otherwise acquire for value any of
its capital shares of any class now or hereafter outstanding (or
any options or warrants with respect to such capital shares or
securities convertible or exchangeable into such capital shares);
provided, however, that the Company may declare and pay dividends
to its shareholders: (x) if, at the time of any such declaration
or payment, there is no Tranche B Commitment then in existence
and (y) if, at the time of any such declaration or payment and
after giving effect thereto, there exists no Default or Event of
Default.
5.17 Transactions with Affiliates. Neither the Company
nor any of its Subsidiaries shall enter into any transaction or
series of related transactions, whether or not in the ordinary
course of business, with any Affiliate of it, other than on terms
and conditions substantially as favorable to it as would be
obtainable by it at the time in a comparable arm's-length
transaction with a Person other than an Affiliate. Without
limiting the generality of the foregoing, neither the Company nor
any of its Subsidiaries shall transfer or otherwise dispose of
any of its property or assets to the Guarantor (or any Affiliate
thereof) other than for fair and adequate consideration. Nothing
contained in this Section 5.17 shall prohibit: (i) the payment
of reasonable compensation by the Company and its Subsidiaries to
its officers and other employees, (ii) the payment of dividends
by the Company to the extent permitted by Section 5.16, (iii) any
payment permitted by Section 5.18, (iv) any loan permitted by
Section 5.14(d) or (iv) the payment, from time to time, to the
Guarantor of such amounts as may be necessary to reimburse the
Guarantor for taxes paid by it on a consolidated basis on behalf
of itself and the Company (and its Subsidiaries) to the extent
that such taxes are in respect of the earnings, income or assets
of the Company (and its Subsidiaries).
5.18 Management Fees. Neither the Company nor any of
its Subsidiaries shall pay, or become obligated to pay, any
management, consulting, administrative or similar or other fee to
the Guarantor (or any Affiliate thereof); provided, however, that
the Company may pay a fee to the Guarantor for administrative
services in an amount not to exceed $15,000 per month if, at the
time of any such payment and after giving effect thereto, no
Event of Default described in Section 6.1 or 6.2 shall exist.
5.19 Tangible Net Worth. The Company shall not permit
Tangible Net Worth at any time to be less than the amount set
forth below during the period indicated below:
Period Amount
Effective Date through
December 30, 1995 $1,625,000
December 31, 1995 through
December 30, 1996 $1,900,000
December 31, 1996 through
December 30, 1997 $2,175,000
Thereafter $2,450,000
5.20 Consolidated Liabilities to Tangible Net Worth.
The Company shall not permit the ratio of Consolidated
Liabilities to Tangible Net Worth to exceed at any time the ratio
set forth below during the period indicated below:
Period Amount
Effective Date through
December 30, 1995 3.20 to 1.0
December 31, 1995 through
December 30, 1996 2.75 to 1.0
December 31, 1996 through
December 30, 1997 2.50 to 1.0
Thereafter 2.25 to 1.0
5.21 Cash Flow Coverage. The Company shall not permit
the ratio of Cash Flow to Adjusted Fixed Charges for any period
of four consecutive fiscal quarters of the Company to be less
than:
1.05 to 1.0 at the end of any fiscal quarter of the
Company ending on or after December 31, 1994, but prior
to December 31, 1996,
1.10 to 1.0 at the end of any fiscal quarter of the
Company ending on or after December 31, 1996 but prior
to December 31, 1997, or
1.20 to 1.0 at the end of any fiscal quarter of the
Company ending on or after December 31, 1997.
SECTION 6
Event of Default
Upon the occurrence of any of the following events
(each an "Event of Default"):
6.1 Principal. Default shall be made in the due and
punctual payment of any principal of either of the Notes;
6.2 Interest. Default shall be made in the due and
punctual payment of any Commitment Fee or any interest on either
of the Notes and such default shall continue unremedied for a
period of three days;
6.3 Certain Covenants. Default shall be made in the
due observance or performance of any covenant or condition
required to be performed or observed by the Company or the
Guarantor pursuant to Section 5.1(d), 5.1(e), 5.1(f), 5.2(b),
5.6, 5.7, 5.8, 5.9, 5.10, 5.12, 5.13, 5.14, 5.15, 5.16, 5.17,
5.18, 5.19, 5.20 or 5.21 or the occurrence of the circumstances
set forth in the last sentence of Section 8.2(c).
6.4 Certain Other Covenants. Default shall be made in
the due observance or performance of any covenant or condition
required to be performed or observed by the Company or the
Guarantor pursuant to Section 5.1(a), (b), (c), (g) or (h),
5.2(a), 5.3, 5.4, 5.5 or 5.11 and such default shall continue
unremedied for a period of ten days;
6.5 Other Covenants. Default shall be made in the due
observance or performance of any other covenant or condition
required to be observed or performed by the Company or the
Guarantor pursuant to any of the Loan Documents, which default is
not remedied (i) within ten days after written notice from the
Bank or (ii) if such default is capable of being remedied, but
not capable of being remedied within such ten day period, within
such additional period (not to exceed 90 days after written
notice from the Bank) as long as the Company or the Guarantor,
as the case may be, promptly commences, and thereafter diligently
proceeds, to remedy such default as promptly as possible;
6.6 Representations and Warranties. Any
representation or warranty made by the Company or the Guarantor
in any of the Loan Documents or in any writing delivered pursuant
thereto shall prove to have been incorrect in any material
respect when made (or deemed to have been made);
6.7 Other Obligations. Any Designated Person shall:
(i) fail to pay any installment of principal of, or interest on,
any other Indebtedness (other than any Indebtedness subject to
the Subordination Agreement) for borrowed money in a principal
amount in excess of $100,000, whether now or at any time
hereafter outstanding, whether at maturity, by call for
redemption, acceleration, declaration or otherwise, (ii) fail to
perform or observe any term, covenant or condition on its part to
be performed or observed under any agreement or instrument
relating to any such other Indebtedness, when required to be
performed or observed, if the effect of such failure to perform
or observe is to accelerate, or to permit the acceleration of,
the maturity of such other Indebtedness or (iii) any such other
Indebtedness shall be declared to be due and payable or required
to be prepaid (other than by a regularly scheduled required
prepayment) prior to the stated maturity thereof;
6.8 Judgments. One or more judgments, decrees or
orders for the payment of money in excess of $100,000 in the
aggregate shall be rendered against any Designated Person and
such judgments, decrees or orders shall continue unsatisfied and
in effect for a period of 20 consecutive days without being
vacated, discharged, satisfied or stayed or bonded pending
appeal;
6.9 ERISA. Any of the following events shall occur or
exist with respect to the Company and/or any ERISA Affiliate:
(i) an accumulated funding deficiency has been incurred with
respect to any Employee Benefit Plan, any Employee Benefit Plan
shall fail to maintain the minimum funding standard required for
any plan year (or portion thereof), a waiver or modification of
such minimum funding standard or extension of any amortization
period shall be sought or granted under Section 412 of the Code
with respect to any Employee Benefit Plan or any Employee Benefit
Plan shall have an Unfunded Current Liability; (ii) there shall
occur any Prohibited Transaction involving any Employee Benefit
Plan or any Reportable Event with respect to any Employee Benefit
Plan; (iii) any Employee Benefit Plan shall be or is likely to be
terminated, reorganized, partitioned or declared insolvent under
ERISA or the filing under Section 4041 of ERISA of a notice of
intent to terminate any Employee Benefit Plan; (iv) any event or
circumstance exists which would constitute grounds entitling the
PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to
administer, any Employee Benefit Plan, or the institution by the
PBGC of any such proceedings; or (v) any liability has been
incurred or is likely to be incurred to or on account of any
Employee Benefit Plan under Sections 515, 4062, 4063, 4064, 4201
and 4204 of ERISA; and in each case above, such event or
condition, together with all other events or conditions, if any,
would subject the Company and/or any ERISA Affiliate to any tax,
penalty or other liability to an Employee Benefit Plan, the PBGC,
a Section 4049 Trust (within the meaning of Section 4049 of
ERISA) or a Section 4042 Trustee (within the meaning of Section
4062(d) of ERISA), or otherwise (or any combination thereof)
which in the aggregate exceed or may exceed $100,000;
6.10 Change of Control. Any "person" or "group",
within the meaning of Section 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended, (other than: (i) in
the case of the Company, the Guarantor or (ii) in the case of the
Guarantor, any such "person" or "group" which is the "beneficial
owner" on the date hereof of capital stock of the Guarantor
entitled to voting power in the election of directors of 10% or
more) hereafter becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
of capital stock of either of the Company or the Guarantor
entitled at the time to voting power in the election of directors
of 10% or more;
6.11 Loan Documents. Any of the Loan Documents (or any
provision thereof) shall cease for any reason whatsoever to be in
full force or effect or shall cease for any reason whatsoever to
give the Bank the Liens, rights, powers and privileges purported
to be created thereby or shall be declared null and void or the
validity or enforceability thereof shall be contested in any
legal proceedings by the Company or the Guarantor (or any Person
acting on behalf of the Company or the Guarantor) or the Company
or the Guarantor (or any Person acting on behalf of the Company
or the Guarantor) shall deny or disaffirm in writing any of its
obligations thereunder;
6.12 Insolvency. Any Designated Person commences a
voluntary case concerning itself under Title 11 of the United
States Code entitled "Bankruptcy" as now or hereafter in effect,
or any successor thereto (the "Bankruptcy Code"); or an
involuntary case is commenced against any Designated Person under
the Bankruptcy Code and relief is ordered against any Designated
Person or the petition is controverted but is not dismissed
within 60 days after the commencement of the case; or any
Designated Person is not generally paying its debts as such debts
become due; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of
the property of any Designated Person; or any Designated Person
commences any other proceeding under any reorganization,
arrangement, readjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to any
Designated Person or there is commenced against any Designated
Person any such proceedings which remains undismissed for a
period of 60 days or any Designated Person is adjudicated
insolvent or bankrupt; or any Designated Person fails to
controvert in a timely manner any such case under the Bankruptcy
Code or any such proceeding, or any order of relief or other
order approving any such case or proceeding is entered; or any
Designated Person by any act or failure to act indicates its
consent to, approval of or acquiescence in any such case or
proceeding or in the appointment of any custodian or the like of
or for it or any substantial part of its property or suffers any
such appointment to continue undischarged or unstayed for a
period of 60 days; or any Designated Person makes a general
assignment for the benefit of creditors; or any action is taken
by any Designated Person for the purpose of effecting any of the
foregoing; or
6.13 Material Adverse Change. Any other event shall
occur which the Bank reasonably believes has or will have a
material adverse effect on the business, assets, properties,
condition (financial or other), operations or prospects of the
Company and the Guarantor (taken as a whole) and, as a result
thereof, the Bank shall, in good faith, deem itself insecure and
believe the prospects for repayment or performance under the Loan
Documents are materially impaired;
then, in any such event, and at any time thereafter, if any Event
of Default shall then be continuing, either or both the following
actions may be taken: (i) the Bank, by written notice to the
Company, may declare the principal of, and accrued interest in
respect of, the Notes to be, whereupon the same shall become,
forthwith due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly
waived by the Company, anything contained in any of the Loan
Documents to the contrary notwithstanding, and (ii) the Bank, by
written notice to the Company, may declare the Total Commitment
terminated, whereupon the obligation of the Bank to make Loans
shall terminate immediately and any accrued Commitment Fees shall
forthwith become due and payable without any other notice of any
kind; provided that if an Event of Default described in Section
6.12 shall occur, the result which would otherwise occur only
upon the giving of written notice as specified in clauses (i) and
(ii) above shall occur automatically without the giving of any
such notice.
SECTION 7
Representations and Warranties
In order to induce the Bank to enter into this
Agreement and to make the Loans, the Company and the Guarantor
jointly and severally represent and warrant to the Bank as
follows:
7.1 Good Standing. Each of the Company, the Guarantor
and each Subsidiary of the Company is duly incorporated, validly
existing and in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to
own its assets and to transact the business in which it is now
engaged or proposes to engage, and is duly qualified as a foreign
corporation and in good standing under the laws of each other
jurisdiction wherein the failure to so qualify would have a
material adverse effect.
7.2 Corporate Power. The execution, delivery and
performance by the Company and the Guarantor of each of the Loan
Documents to which it is a party have been duly authorized by all
necessary corporate action on its part and do not and will not:
(a) contravene its charter or bylaws (or other constituent
instruments); (b) violate any provision of any law, rule,
regulation, order, writ, judgment, injunction decree,
determination or award applicable to the Company or the
Guarantor; (c) result in a breach of, or constitute a default or
require any consent (other than the consents set forth on
Schedule 7.2 which consents have been duly obtained) under, any
agreement or instrument to which the Company or the Guarantor is
party or by which it or its properties may be bound or affected;
(d) other than the Liens created pursuant to the Loan Documents,
result in, or require the creation or imposition of any Lien upon
or with respect to any of the properties of the Company or the
Guarantor; or (e) cause the Company or the Guarantor to be in
default under any such law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award or any such
agreement or instrument.
7.3 Approvals. Other than such filings or recordings
which may be necessary or desirable to perfect the Liens intended
to be created by the Loan Documents, no order, consent, approval,
license, authorization, or validation of, or filing, recording or
registration with, or exemption by, any Governmental Authority is
required to authorize, or is required in connection with (i) the
execution, delivery and performance of any Loan Document or (ii)
the legality, validity, binding effect or enforceability of any
Loan Document.
7.4 Legally Enforceable Agreements. This Agreement
is, and each of the other Loan Documents when executed and
delivered in accordance with this Agreement will be, a legal,
valid and binding obligation of the Company and/or the Guarantor,
enforceable in accordance with its terms.
7.5 Litigation. There are no actions, suits or
proceedings pending or threatened against or affecting the
Company, the Guarantor or any Subsidiary of the Company before
any Governmental Authority or any arbitrator, which are
reasonable likely, either individually or in the aggregate, to
have a material and adverse effect upon the financial condition,
operations, properties or business of either the Company or the
Company and the Guarantor (taken as a whole). Neither the
Company nor the Guarantor nor any Subsidiary of the Company is in
default in any material respect under any applicable law or
governmental regulation or under any order, writ, judgment,
injunction, decree, determination or award applicable to it or
under any agreement or instrument to which it is a party or by
which it or any of its properties may be bound or affected.
7.6 Financial Statements. The unaudited balance sheet
of the Company as of December 31, 1994 and the related unaudited
statements of operations and stockholder's equity and cash flows
of the Company for the fiscal year then ended, and the unaudited
balance sheet of the Company as of April 2, 1995 and the related
unaudited statements of operations and stockholder's equity and
cash flows of the Company for fiscal period then ended, copies of
which have been furnished to the Bank, fairly present, in all
material respects, the financial condition of the Company as of
such dates and the results of the operations and cash flows of
the Company for the periods covered thereby, all in accordance
with generally accepted accounting principles consistently
applied, subject to normal year-end audit adjustments in the case
of the April 2, 1995 financial statements. Since December 31,
1994, there has been no material adverse change in the condition
(financial or other), business, properties, operations or
prospects of the Company.
(b) The consolidated balance sheet of the Guarantor
and its Subsidiary as of December 31, 1994 and the related
consolidated statements of operations and stockholders' equity
and cash flow of the Guarantor and its Subsidiary for the fiscal
year then ended, and the accompanying footnotes, together with
the report thereon of Ernst & Young LLP, independent certified
public accountants, copies of which have been furnished to the
Bank, fairly present, in all material respects, the consolidated
financial condition of the Guarantor and its Subsidiary as of
such date and the consolidated results of the operations and cash
flows of the Guarantor and its Subsidiary for the period covered
thereby, all in accordance with generally accepted accounting
principles consistently applied. Since December 31, 1994, there
has been no material adverse change in the condition (financial
or other), business or operations of the Guarantor and its
Subsidiary taken as a whole.
7.7 Ownership and Liens. The Company and each of its
Subsidiaries has good and marketable title to, or a valid
leasehold estate in, all of its properties and assets, and none
of such properties or assets is subject to any Lien, other than
Permitted Liens.
7.8 Taxes. The Company and each of its Subsidiaries
has filed all tax returns (federal, state, local or other)
required to be filed by it and, except to the extent being
contested in good faith as permitted by Section 5.8, has paid all
taxes, assessments, levies and other governmental charges which
are due pursuant to such returns and all other taxes,
assessments, levies and other governmental charges which have
become due, including all interest and penalties. The reserves
for taxes reflected in the financial statements delivered to the
Bank pursuant to Section 7.6 are adequate.
7.9 Margin Rules. None of the proceeds of the Loans
will be used to purchase or carry, or refinance any borrowing the
proceeds of which were used to purchase or carry, 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). Neither the Company
nor any of its Subsidiaries owns any Margin Stock. No part of
the proceeds of the Loans will be used in violation of
Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System.
7.10 Subsidiaries. As of the date of this Agreement,
the Company does not have any Subsidiaries.
7.11 Compliance with Laws. The Company and each of its
Subsidiaries is in compliance in all material respects with all
applicable laws, statutes, regulations and orders of, and
applicable restrictions imposed by, all Governmental Authorities
in respect of the conduct of its business or the ownership or
operation of its properties or assets. The Company and each of
its Subsidiaries has obtained all material governmental permits
and licenses necessary or desirable to the conduct of its
business as presently conducted and all such permits and licenses
are presently in full force and effect and neither the Company
nor any of its Subsidiaries is in material default thereunder.
7.12 Patents, Etc. The Company and each of its
Subsidiaries owns all patents, trademarks, permits, service
marks, trade names, copyrights, licenses, franchises, formulas,
inventions and other intangible property rights, or rights with
respect thereto, necessary for the conduct of its business as
presently conducted, without any conflict with, or violation of,
the rights of others.
7.13 Adverse Agreements. Neither the Company nor any
of its Subsidiaries is a party to any agreement or instrument, or
subject to any charter or other corporate restriction or any
judgment, order, writ, injunction, decree, award, law, rule or
regulation, which materially and adversely affects, or in the
future is reasonably likely to materially and adversely affect,
its business, operations, properties or assets, condition
(financial or other) or prospects.
7.14 Compliance with ERISA. Each Employee Benefit Plan
complies in all material respects with the requirements of the
Code and ERISA; no Employee Benefit Plan is insolvent or in
reorganization, no Employee Benefit Plan has an Unfunded Current
Liability, and no Employee Benefit Plan has an accumulated or
waived funding deficiency or permitted decreases in its funding
standard account within the meaning of Section 412 of the Code;
neither the Company nor any ERISA Affiliate has incurred any
material liability to or on account of an Employee Benefit Plan
pursuant to Section 515, 4062, 4063, 4064, 4201 or 4204 of ERISA
or expects to incur any liability under any of the foregoing
Sections on account of the termination of participation in any
such Employee Benefit Plan; no proceedings have been instituted
to terminate any Employee Benefit Plan; no condition exists which
presents a risk to the Company or any ERISA Affiliate of
incurring a material liability to or on account of an Employee
Benefit Plan pursuant to the foregoing provisions of ERISA and
the Code; no Lien imposed under the Code or ERISA on the assets
of the Company or any ERISA Affiliate exists or is likely to
arise on account of any Employee Benefit Plan; and the Company
and each ERISA Affiliate may terminate any Employee Benefit Plan
maintained by it without incurring any material unfunded
liability to any person interested therein, except as disclosed
in Schedule 7.14. Neither the Company nor any ERISA Affiliate
has incurred any withdrawal liability (including any contingent
or secondary withdrawal liability) within the meaning of Sections
4201 and 4204 of ERISA to any Multiemployer Plan or expects to
incur any liability under the foregoing Sections on account of
the termination of contributions to any such Multiemployer Plan.
7.15 True and Complete Disclosure. All factual
information heretofore or contemporaneously furnished by or on
behalf of the Company or the Guarantor to the Bank for purposes
of or in connection with the Loan Documents or any transaction
contemplated thereby is, and all other such factual information
hereafter furnished by or on behalf of the Company or the
Guarantor to the Bank will be, true and accurate in all material
respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any material
fact necessary to make such information not misleading at such
time in light of the circumstances under which such information
was provided.
SECTION 8
Miscellaneous
8.1 Definitions. In addition to the terms defined in
the recitals and elsewhere herein, as used herein the following
terms have the meanings herein specified and shall include in the
singular number the plural and in the plural number the singular:
"Adjusted Fixed Charges" means for any period, an
amount equal to the sum of (i) the Current Maturities for such
period, (ii) the amount of all Capital Expenditures made by the
Company and its Subsidiaries during such period determined in
accordance with GAAP on a consolidated basis and (iii) the
consolidated interest expense of the Company and its Subsidiaries
for such period determined in accordance with GAAP on a
consolidated basis.
"Affiliate" means, with respect to any Person, any
other Person directly or indirectly controlling or controlled by,
or under direct or indirect common control with, such Person;
provided that, for purposes of Section 5.17 and the definition of
"Eligible Receivables", an Affiliate shall include any
stockholder of the Company or any director, officer or employee
of the Company or any Affiliate of any such stockholder,
director, officer or employee or any relative (by blood, marriage
or adoption) of any such stockholder, director, officer or
employee. A Person shall be deemed to control another Person if
such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of
such other Person, whether through the ownership of voting
securities, by contract or otherwise.
"Applicable Margin" means 1%; provided, however, that,
if at the end of any fiscal quarter of the Company:
(a) the ratio of Consolidated Liabilities to
Tangible Net Worth at the end of such quarter is 2.50
to 1.0 or less and the ratio of Cash Flow to Adjusted
Fixed Charges for the period of four consecutive fiscal
quarters then ending is at least 1.15 to 1.0, then the
Applicable Margin shall be .75% for the next fiscal
quarter;
(b) the ratio of Consolidated Liabilities to
Tangible Net Worth at the end of such quarter is 2.0 to
1.0 or less and the ratio of Cash Flow to Adjusted
Fixed Charges for the period of four consecutive fiscal
quarters then ending is at least 1.2 to 1.0, then the
Applicable Margin shall be .50% for the next fiscal
quarter;
(c) the ratio of Consolidated Liabilities to
Tangible Net Worth at the end of such quarter is 1.50
to 1.0 or less and the ratio of Cash Flow to Adjusted
Fixed Charges for the period of four consecutive fiscal
quarters then ending is at least 1.25 to 1.0, then the
Applicable Margin shall be .25% for the next fiscal
quarter; or
(d) the ratio of Consolidated Liabilities to
Tangible Net Worth at the end of such quarter is 1.0 to
1.0 or less and the ratio of Cash Flow to Adjusted
Fixed Charges for the period of four consecutive fiscal
quarters then ending is at least 1.30 to 1.0, then the
Applicable Margin shall be 0%.
"Borrowing Base Certificate" means a certificate in the
form of Annex G.
"Borrowing Base Deficiency" means, at any time, the
amount, if any, by which the Tranche A Loans outstanding at such
time exceeds the Tranche A Borrowing Base in effect at such time.
"Business Day" means any day other than a Saturday,
Sunday, legal holiday or a day on which commercial banks in
Dayton, Ohio are authorized or permitted by law or other
governmental action to close.
"Capital Expenditures" means any purchase or other
acquisition of fixed or capital assets and any capitalized
expenditure on account of major repairs or improvements to
property, plant or equipment or to any other fixed or capital
assets and any expenditure for sample books.
"Capitalized Lease" means any lease which should be
capitalized in accordance with GAAP.
"Cash Equivalents" means (i) securities issued or
directly and fully guaranteed or insured by the United States or
any agency or instrumentality thereof (provided that the full
faith and credit of the United States is pledged in support
thereof) having maturities of not more than six months from the
date of acquisition, (ii) time deposits and certificates of
deposit of the Bank or any commercial bank incorporated in the
United States of recognized standing having capital and surplus
in excess of $200,000,000 with maturities of not more than six
months from the date of acquisition, (iii) repurchase obligations
with a term of not more than seven days for underlying securities
of the types described in clause (i) above entered into with any
bank meeting the qualifications specified in clause (ii) above,
(iv) commercial paper issued by the parent corporation of any
commercial bank (provided that the parent corporation and the
bank are both incorporated in the United States) of recognized
standing having capital and surplus in excess if $500,000,000 and
commercial paper issued by any Person incorporated in the United
States rated at least A-1 or the equivalent thereof by Standard &
Poor's Rating Group or at least P-1 or the equivalent thereof by
Moody's Investors Services, Inc. and in each case maturing not
more than six months after the date of acquisition and (v)
investments in money market mutual funds, rated in one of the two
highest rating categories applicable thereto by either Standard &
Poor's Rating Group or Moody's Investors Services, Inc.,
substantially all of whose assets are comprised of securities of
the types described in clauses (i) through (iv) above.
"Cash Flow" means, for any period, an amount equal to:
(a) the sum of (i) Consolidated Net Income for such period, (ii)
the consolidated depreciation and amortization expense of the
Company and its Subsidiaries for such period determined in
accordance with GAAP on a consolidated basis and (iii) the
consolidated interest expense of the Company and its Subsidiaries
for such period determined in accordance with GAAP on a
consolidated basis minus (b) the sum of (i) the aggregate amount
of all dividends and other distributions paid by the Company on
any of its capital shares during such period and (ii) the
aggregate amount applied by the Company to purchase, redeem,
retire or otherwise acquire any of its capital shares during such
period.
"Code" means the Internal Revenue Code of 1986, as
amended from time to time, including any rules or regulations
promulgated thereunder. Section references to the Code are to
the Code, as in effect at the date of this Agreement, and to any
subsequent provision of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" means the property and assets (and the
proceeds thereof) which are subject from time to time to the
Liens intended to be created by the Loan Documents.
"Commitment Fee" means the Tranche A Commitment Fee and
the Tranche B Commitment Fee.
"Consolidated Liabilities" means, at any time, the
consolidated total liabilities of the Company and its
Subsidiaries, determined in accordance with GAAP on a
consolidated basis.
"Consolidated Net Income" means, for any period, the
consolidated net income of the Company and its Subsidiaries for
such period after provision for all income taxes, determined in
accordance with GAAP on a consolidated basis, but without giving
effect to any extraordinary gains or to any gain on the sale of
assets (other than sales of inventory in the ordinary course of
business).
"Contingent Obligation" means, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee
any Indebtedness, leases, dividends or other obligations
("primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly,
including any obligation of such Person, whether or not
contingent: (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii)
to advance or supply funds (x) for the purchase or payment of any
such primary obligation or (y) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain
the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of
the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless
the owner of such primary obligation against loss in respect
thereof; provided, however, that the term Contingent Obligation
shall not include endorsements of instruments for deposit or
collection in the ordinary course of business.
"Current Maturities" means, for any period, the sum of
(without duplication): (i) the aggregate current maturities of
the consolidated long term Indebtedness of the Company and its
Subsidiaries for such period determined in accordance with GAAP
on a consolidated basis and (ii) the aggregate Tranche B Excess
Amounts occurring in such period.
"Default" means any event, act or condition which with
notice or lapse of time or both would constitute an Event of
Default.
"Default Rate" means, for any day with respect to any
Loan, a rate of interest per annum equal to 4% in excess of the
interest rate otherwise applicable to such Loan.
"Defaulted Receivable" means any Receivable as to which
any payment (or part thereof) remains unpaid for 90 days from the
original invoice date therefor.
"Designated Person" means the Guarantor, the Company or
any Subsidiary of the Company.
"Dollars" and the sign "$" means lawful money of the
United States of America.
"Eligible Inventory" means, at any time, the sum of the
gross dollar value (valued in accordance with GAAP) of the
Inventory owned by the Company which satisfies the following
requirements:
(a) is lawfully owned by the Company and is not
subject to any Lien (other than any Lien generally
applicable to the Company's property and assets for
taxes not yet due and payable), or other claim or
consignment, and has not been leased to third Persons;
(b) is not Obsolete Inventory;
(c) the Company has the right of assignment
thereof and the power to grant a security interest
therein;
(d) arose or was acquired in the ordinary course
of business;
(e) does not represent raw materials, work-in-
process, stores or supplies, spare parts, goods to be
returned to suppliers, damaged goods, or goods-in-
transit to third Persons;
(f) does not represent goods returned or rejected
by customers which cannot be resold in the ordinary
course of the Company's business;
(g) with respect to which the Bank has a
perfected, first priority security therein, subject
only to Liens generally applicable to the Company's
property and assets for taxes not yet due and payable;
(h) if such Inventory constitutes a roll of
fabric, there is 15 yards or more of fabric remaining
on such roll;
(i) as to which the Bank has not notified the
Company that the Bank has determined, in its reasonable
discretion, that such Inventory (or class or type of
Inventory) is not acceptable;
(j) is located at the Company's principal
facilities in Dayton, Ohio; and
(k) which otherwise conforms to the
representations and warranties contained in the
Security Agreement;
less (x) any reserve required by the Bank in its reasonable
discretion for special order goods, market value declines,
obsolescence and bill and hold (deferred shipment) sales, (y) any
reserves otherwise required by GAAP and (z) the amount of any
progress payments, predelivering payments, deposits and any other
sums received by the Company in anticipation of the sale of such
Inventory.
"Eligible Receivables" means, at any time, the gross
amount of all Receivables of the Company which satisfy the
following requirements:
(a) is lawfully owned by the Company and is not
subject to any Lien (other than any Lien generally
applicable to the Company's property and assets for
taxes not yet due and payable) or other claim,
(b) the account debtor of which is a United
States resident, is not an Affiliate of the Company and
is not a Governmental Authority,
(c) the account debtor of which is not a Person
(or a member of a class of Persons) as to which the
Bank in its reasonable discretion has advised the
Company is not acceptable,
(d) the account debtor of which is not the
account debtor of any Defaulted Receivables in the
aggregate amount of 50% or more of the aggregate
Receivables owned by such account debtor,
(e) is not a Defaulted Receivable,
(f) is required to be paid in full within 30 days
of the invoice date therefor,
(g) is denominated and payable only in Dollars in
the United States,
(h) arose in the ordinary course of the Company's
business from the performance of services or the sale
of goods,
(i) does not arise from a consumer transaction
(i.e., the direct provision of goods or services that
are primarily personal, family or household in nature),
(j) is in full force and effect and constitutes
the legal, valid and binding obligation of the account
debtor enforceable against such account debtor in
accordance with its terms,
(k) is not subject to any credit, allowance,
discount (other than any applicable discount for prompt
payment), dispute, offset, counterclaim or defense
whatsoever and as to which the account debtor has not
objected to his liability or the amount thereof or has
not returned or claimed the right to return any of the
goods from the sale out of which the Receivable arose;
(l) the Company has not received any notice of
the death of the account debtor or of any dissolution,
termination of existence, insolvency, or business
failure of the account debtor or of any bankruptcy or
insolvency proceedings by or against the account
debtor,
(m) does not contravene any laws, rules or
regulations applicable thereto (including laws, rules,
regulations relating to truth in lending, fair credit
billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and
privacy) and with respect to which no party is in
violation of any such law, rule or regulation,
(n) satisfies or complies with the Company's
customary credit and collection policies and practices
and such other criteria and requirements as the Bank
may from time to time reasonably specify to the Company
following ten day's prior written notice,
(o) as to which, the Bank has not notified the
Company that the Bank has determined, in its reasonable
discretion, that such Receivable (or class of
Receivables) is not acceptable,
(p) with respect to which the Bank has a
perfected, first priority security interest therein,
subject only to Liens generally applicable to the
Company's property and assets for taxes not yet due and
payable;
(q) does not represent billings in excess of
revenues earned on a contract on progress,
(r) does not arise out of a contract or purchase
order which contains a provision prohibiting any
assignment thereof or the creation of a security
interest and such provision is legally effective to
prohibit such assignment or the creation of a security
interest, and
(s) which otherwise conforms to the
representations and warranties contained in the
Security Agreement;
less (i) any contra account applicable to any such Receivable,
(ii) the amount of any finance charges, late payment charges and
sales and other taxes included as a part of any such Receivable,
(iii) appropriate reserves for any other matter affecting the
creditworthiness of the account debtors or otherwise required in
accordance with GAAP, (iv) bill and hold (deferred shipment)
transactions and (v) any portion of any such Receivable which
arose from the sale of a sample book.
"Employee Benefit Plan" means any employee benefit,
welfare or other plan (including any Multiemployer Plan)
established or maintained for employees of the Company or any
ERISA Affiliate or to which contributions have been made by the
Company or any ERISA Affiliate.
"Environmental Law" means any federal, state or local
law, statute, rule, regulation or ordinance relating to public
health, safety or the environment, including relating to the
release, discharge, emission or disposal to air, water, land or
ground water, to the withdrawal or use of ground water, to the
use, handling or disposal of polychlorinated biphenyls, asbestos
or urea formaldehyde, to the treatment, storage, disposal or
management of hazardous, toxic or other materials or substances
(including petroleum, its derivatives, by-products or other
hydrocarbons), or to exposure to toxic, hazardous or other
controlled, prohibited or regulated substances or materials.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, including any rules or
regulations promulgated thereunder. Section references to ERISA
are to ERISA, as in effect at the date of this Agreement, and to
any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
"ERISA Affiliate" means any corporation or
unincorporated trade or business which is a member of the same
controlled group of corporations (within the meaning of Section
414(b) of the Code) as the Company or is under common control
(within the meaning of Section 414(c) of the Code) with the
Company or any member of an affiliated service group (within the
meaning of Section 414(m) of the Code) which includes the
Company.
"Existing Agreement" means the Loan and Security
Agreement dated as of May 27, 1992, as amended, between Bank of
America Illinois (formerly, Continental Bank N.A.) and the
Company.
"GAAP" means generally accepted accounting principles
applied on a basis consistent with the accounting principles
reflected in the audited consolidated financial statements of the
Company and its Subsidiaries for the fiscal year ended December
31, 1994 furnished to the Bank pursuant to Section 7.6.
"Governmental Authority" mean any court, government (or
governmental or political subdivision thereof) or governmental
department, commission, agency, body, instrumentality or
authority (including the PBGC or any central bank (or comparable
authority)).
"Indebtedness" means, as to any Person, without
duplication, (i) all obligations and liabilities of such Person
which in accordance with GAAP would be classified upon a balance
sheet of such Person as liabilities of such Person, including all
indebtedness or other obligations (including principal, interest,
fees and charges) of such Person for borrowed money or for the
deferred purchase price of property or services, (ii) the face
amount of all letters of credit issued for the account of such
Person and all drafts drawn thereunder, (iii) all liabilities
secured by any Lien on any property owned by such Person whether
or not such liabilities have been assumed by such Person, (iv)
all liabilities of such Person under Capitalized Leases and (v)
all Contingent Obligations of such Person.
"Initial Loan" means the initial Loan(s) to be incurred
by the Company on the Effective Date, the proceeds of which shall
be applied as provided in Section 1.10.
"Investment" means, as applied to any Person, any
direct or indirect purchase or other acquisition by such Person
of any stock, obligations or other securities of, or any interest
in, any other Person, any direct or indirect capital contribution
by such Person to any other Person or any direct or indirect
loan, advance or other extension of credit by such Person to any
other Person.
"Inventory" has the meaning assigned to such term in
Section 1309.07(D) of the Ohio Revised Code.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, collateral assignment, security interest, deposit
arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement or arrangement of any kind
or nature whatsoever (including any conditional sale or other
title retention agreement, any financing or similar statement or
notice filed under the UCC or any other similar recording or
notice statute, and any lease (including Capitalized Leases)
having substantially the same effect as any of the foregoing) or
any other charge, claim, restriction, equity, option, easement,
right of way, exception, reservation, mechanic's, materialman's
or similar lien, lease or similar or other encumbrance on or with
respect to any property or assets.
"Loan" means either a Tranche A Loan or a Tranche B
Loan.
"Loan Documents" means this Agreement, the Security
Agreement, the Notes, the Mortgage, the Subordination Agreement,
the Life Insurance Assignment and any other agreement, document
or instrument executed and delivered by the Company and/or the
Guarantor to the Bank in connection with the transactions
contemplated hereby, as the same may be amended, modified and/or
supplemented from time to time.
"Monthly Payment Date" means the last day of each
month, commencing with June 30, 1995.
"Multiemployer Plan" means an Employee Benefit Plan
defined as such in Section 3(37) of ERISA to which contributions
have been made by the Company or any ERISA Affiliate.
"Note" means either the Tranche A Note or the Tranche B
Note.
"Obligations" means all of the direct and contingent
obligations of the Company now or hereafter existing under or in
respect of the Loan Documents, whether for principal, interest,
fees, expenses or otherwise, and any renewals, extensions or
substitutions therefor.
"Obsolete Inventory" means any Inventory owned by the
Company: (i) which is located at, or has been designated for
sale at, the Company's "outlet" store located at Dayton, Ohio or
(ii) with respect to which 12 months have elapsed since the date
of the last sale of such item of Inventory.
"PBGC" means the Pension Benefit Guaranty Corporation
and any entity succeeding to any or all of its functions under
ERISA.
"Permitted Liens" means such Liens as are permitted by
Section 5.12(a).
"Person" means any individual, firm, corporation,
partnership, association, limited liability company, joint
venture, trust or other enterprise or entity or any Governmental
Authority.
"Prime Rate" means the rate which the Bank announces
from time to time at its Principal Office as its prime rate; any
change of interest resulting from a change in the Prime Rate
shall be effective on the effective date of each change therein;
it is understood that the Prime Rate is one of the Bank's index
rates and merely serves as a basis upon which effective rates of
interest are calculated for loans making reference thereto and
may not be the lowest or best rate at which the Bank calculates
interest or extends credit.
"Principal Office" means the principal office of the
Bank in Dayton, Ohio, presently located at Kettering Tower,
Dayton, Ohio 45401.
"Prohibited Transaction" means any transaction set
forth in Section 406 of ERISA or Section 4975 of the Code except
those transactions for which a statutory or class exemption is
available under Section 408 of ERISA or Section 4975 of the Code
or for which an administrative exemption has been requested and
received pursuant to Section 408 of ERISA or Section 4975 of the
Code.
"Reportable Event" means any of the events set forth in
Section 4043(b) of ERISA as to which events the PBGC by
regulation has not waived the requirement of Section 4043(a) of
ERISA that it be notified within 30 days of the occurrence of
such event, provided that a failure to meet the minimum funding
standard of Section 412 of the Code or Section 302 of ERISA shall
be a Reportable Event regardless of any waivers given under
Section 412(d) of the Code.
"Quarterly Payment Date" means each March 31, June 30,
September 30 and December 31, commencing with June 30, 1995.
"Subsidiary" means, with respect to any Person, any
other Person of which at least a majority of the securities or
other ownership interests having ordinary voting power for the
election of directors or other persons performing similar
functions are at the time owned directly or indirectly by such
Person and/or any other Subsidiary of such Person.
"Tangible Net Worth" means, at any time, the excess of
the consolidated net assets of the Company and its Subsidiaries
determined in accordance with GAAP on a consolidated basis over
Consolidated Liabilities, excluding from any such determination
of net assets the sum of the following: (i) goodwill, (ii)
patents, copyrights, trademarks, trade names and similar and
other intangible property rights, (iii) licenses, (iv)
organizational expenses and similar or other deferred expenses or
charges, (v) research and development expenses, (vi) treasury
shares, (vii) non-competition agreements and (viii) loans and
advances to shareholders, directors, officers or employees.
"Total Commitment" means the Tranche A Commitment and
the Tranche B Commitment.
"Tranche A Borrowing Base" means, at any time, an
amount equal to the lesser of (a) the Tranche A Commitment in
effect at such time or (b) an amount equal to the sum of (i) 80%
of Eligible Receivables at such time and (ii) the lesser of (x)
the Tranche A Inventory Amount at such time or (y) $1,700,000.
"Tranche A Commitment" means, during each period set
forth below, the amount set forth below opposite such period:
Period Tranche A Commitment
------ --------------------
Effective Date through
August 31, 1995 $ 3,100,000
September 1, 1995 through
November 30, 1995 $ 3,200,000
December 1, 1995 through
February 29, 1996 $ 3,300,000
March 1, 1996 through
May 31, 1996 $ 3,400,000
June 1, 1996 through
August 31, 1996 $ 3,500,000
September 1, 1996 through
November 30, 1996 $ 3,600,000
December 1, 1996 through
February 28, 1997 $ 3,700,000
March 1, 1997 through
May 31, 1997 $ 3,800,000
June 1, 1997 through
May 31, 1998 $ 4,125,000
as any such amount may be reduced pursuant to Section 1.9.
"Tranche A Interest Rate" means a rate of interest per
annum equal to the Prime Rate in effect from time to time plus
the then Applicable Margin.
"Tranche A Inventory Amount" means, at any time, an
amount equal to the sum of:
(a) 50% of the Eligible Inventory at such time which
in accordance with the Company's historic
practices has been classified in the Company's
accounting records as "trim", "multipurpose",
"drapery" or "woven upholstery";
(b) 40% of the Eligible Inventory at such time which
in accordance with the Company's historic
practices has been classified in the Company's
accounting records as "casement/sheer",
"wallpaper" or "other"; and
(c) 25% of the Eligible Inventory at such time which
in accordance with the Company's historic
practices has been classified in the Company's
accounting records as "sample".
"Tranche A Termination Date" means May 31, 1998.
"Tranche B Commitment" means, during each period set
forth below, the amount set forth below opposite such period:
Period Tranche B Commitment
------ --------------------
Effective Date through
August 31, 1995 $1,025,000
September 1, 1995 through
November 30, 1995 $ 925,000
December 1, 1995 through
February 29, 1996 $ 825,000
March 1, 1996 through
May 31, 1996 $ 725,000
June 1, 1996 through
August 31, 1996 $ 625,000
September 1, 1996 through
November 30, 1996 $ 525,000
December 1, 1996 through
February 28, 1997 $ 425,000
March 1, 1997 through
May 31, 1997 $ 325,000
as any such amount may be reduced pursuant to Section 1.9.
"Tranche B Excess Amount" means, for any consecutive
three month period commencing on March 1 and ending on May 31,
commencing on June 1 and ending on August 31, commencing on
September 1 and ending on November 30 or commencing on December 1
and ending on February 28 (or February 29, if applicable), the
amount by which the average principal amount of the Tranche B
Loans outstanding during such three month period exceeds the
Tranche B Commitment to be in effect on the first day of the next
succeeding three month period.
"Tranche B Interest Rate" means a rate of interest per
annum equal to the Prime Rate in effect from time to time plus 2%
(or, if the aggregate principal amount of Tranche B Loans
outstanding as of May 31, 1996 is greater than $500,000, then,
from and after May 31, 1996, plus 3%).
"Tranche B Termination Date" means May 31, 1997.
"Receivable" means any "account" as such term is
defined in the UCC as in effect on the date hereof in the State
of Ohio.
"UCC" means the Uniform Commercial Code as from time to
time in effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Employee Benefit
Plan means the amount, if any, by which the present value of the
accrued benefits under such Employee Benefit Plan as of the close
of its most recent plan year exceeds the fair market value of the
assets allocable thereto, determined in accordance with Section
412 of the Code.
"Written" or "in writing" shall mean any form of
written communication or a communication by means of telex,
telecopier device, telegraph, or cable.
8.2 Accounting Principles; Computations. (a) Except
as otherwise provided herein, all financial statements to be
prepared, and all accounting and other financial computations and
determinations to be made, under this Agreement shall be prepared
and made in accordance with GAAP.
(b) All computations of interest and Commitment Fees
hereunder shall be made on the basis of the actual number of days
elapsed over a year of 360 days.
(c) If, at any time, there is any change (i) in
generally accepted accounting principles (including any change in
the application or interpretation thereof and any introduction of
any new accounting principles) or (ii) any applicable law or
rule, regulation, order, guideline or request (whether or not
having the force of law) of any Governmental Authority (including
any change in the application, interpretation or administration
thereof and any introduction of any new law, rule, regulation,
order, guideline or request) and the Bank determines that any
such change (either individually or in the aggregate have or
would have, directly or indirectly, a material effect (either
positively or negatively) upon any accounting or financial
computation or determination to be made under the Loan Documents
(including those computations and determinations to be made under
Section 5.19, 5.20 and 5.21)), then the Bank shall give written
notice of such determination to the Company and the Guarantor and
thereafter the Bank, the Company and the Guarantor shall promptly
negotiate in good faith to make such modifications or amendments
to the Loan Documents as may be appropriate in view of any such
change. If the Bank, the Company and Guarantor shall fail to
agree upon such modifications or amendments within 60 days after
the date of the Bank's notice, then such failure shall constitute
an Event of Default under the Loan Documents and, thereupon, the
Bank shall be entitled to all of the rights and remedies which
result from the occurrence of an Event of Default.
8.3 Exercise of Rights. Neither the failure nor delay
on the part of the Bank to exercise any right, power, or
privilege hereunder shall, in and of itself, operate as a waiver
thereof, nor shall any single or partial exercise of any right,
power, or privilege hereunder preclude any other or further
exercise thereof, or the exercise of any other right, power, or
privilege. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies which the
Bank would otherwise have. No notice to or demand on the Company
or the Guarantor in any case shall, in and of itself, entitle the
Company or the Guarantor to any other or further notice or demand
in similar or other circumstances or constitute a waiver of the
right of the Bank to any other or further action in any
circumstances without notice or demand.
8.4 Amendment. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the Company, the Guarantor and
the Bank.
8.5 Expenses. The Company shall promptly pay all out-
of-pocket expenses of the Bank reasonably incurred in connection
with the development, preparation, execution, delivery,
recordation, filing, administration, amendment, modification,
waiver and enforcement of Loan Documents, including the
reasonable fees and expenses of Chernesky, Heyman & Kress,
counsel for the Bank, as well as any other counsel for the Bank.
In addition, the Company agrees to pay, and to save the Bank
harmless from all liability for, any stamp or other documentary
taxes which may be payable in connection with the execution or
delivery of the Loan Documents, the borrowings hereunder or the
issuance of the Notes. Moreover, the Company shall indemnify,
defend, and hold the Bank (and its Affiliates, directors,
officers, employees, representatives, and agents) harmless from
and against any and all liabilities, obligations, losses,
damages, penalties, claims, amounts paid in settlement, actions,
judgments, suits, costs, expenses or disbursements (including
interest and reasonable attorneys' fees and expenses) of
whatsoever kind or nature which may be imposed on, asserted
against or incurred by any of the them, directly or indirectly,
as a result of, arising out of or based upon: (i) any of the
Loan Documents or in any other way connected with the
administration of the transactions contemplated thereby or the
enforcement of any of the terms thereof or the preservation of
any rights thereunder; (ii) the manufacture, ownership, ordering,
purchase, delivery, control, acceptance, lease, financing,
possession, operation, condition sale, return or other
disposition of or use of the Collateral (including latent or
other defects, whether or not discoverable), the violation or
alleged violation by the Company or the Guarantor of any law or
governmental rule or regulation, any tort (including claims
arising or imposed under the doctrine of strict liability or for
or on account of injury to or the death of any Person or for
property damage) or any contract claim against the Company or the
Guarantor; (iii) a breach by the Company or the Guarantor of any
of its representations, warranties or agreements contained in or
made pursuant to any Loan Document or any action taken or omitted
to be taken by the Company or the Guarantor in violation of any
of the Loan Documents; or (iv) any pending or threatened
litigation, investigation or proceeding or any pending or
threatened claim arising under any Environmental Law or otherwise
as a result of the storage, use, disposal, generation, seepage,
spill or discharge of any hazardous, toxic or other material or
substance on any real property owned or leased by the Company or
as a result of any hazardous, toxic or other material or
substance contained therein or thereon or as a result of any
violation or alleged violation by the Company of any Environment
Law; provided that the Company shall not be liable hereunder with
respect to any claim directly arising out of the gross negligence
or willful misconduct of the Bank, as established by a final,
non-applicable judicial determination. All obligations under
this Section 8.5 shall survive any termination of this Agreement.
8.6 Successors. The Loan Documents shall bind, and
the benefits thereof shall inure to, the Company, the Guarantor
and the Bank and their respective successors and assigns provided
that the Company and the Guarantor may not transfer or assign any
of their rights or obligations thereunder without the prior
written consent of the Bank. The Bank may make, carry or
transfer Loans at, to or for the account of, any of its branch or
lending offices or the office (or any branch or lending office)
of any Affiliate of the Bank and the Bank may assign or grant
participation in its rights and obligations under the Loan
Documents, provided that no such assignment shall release the
Bank from its obligations thereunder without the prior written
consent of the Company and the Guarantor. Notwithstanding the
foregoing, the Bank shall not assign its rights or obligations
under the Loan Documents to any Person (other than to an
Affiliate of the Bank) without the prior written consent of the
Company and the Guarantor (which consent shall not be
unreasonably withheld or delayed).
8.7 Interpretation. The descriptive headings of the
provisions of this Agreement are inserted for convenience of
reference only and shall not be deemed to affect the meaning or
construction of any of the provisions hereof. The terms "this
Agreement", "hereto", "herein", "hereby", "hereunder", "hereof"
and similar expressions refer to this Agreement (including the
Schedules and Annexes hereto) in its entirety and not to any
particular provision or portion of this Agreement. When a
reference is made to Sections, Schedules or Annexes, such
reference shall be to a Section of, or a Schedule or Annex to,
this Agreement, unless otherwise indicated. Whenever the words
"include", "includes" or "including" are used herein, they shall
be deemed to be followed by the words "without limitation".
8.8 Notices. (a) All notices, requests, demands or
other communications to or upon the parties shall be in writing
and shall be deemed to have been given or made, when (i)
delivered personally, (ii) one Business Day has elapsed after
being sent by the use of a reputable overnight courier service,
(iii) sent by a facsimile transmission (which is confirmed), or
(iv) three Business Days have elapsed after being mailed by
certified or regular mail, postage prepaid, addressed to the
Company, the Guarantor or the Bank, as the case may be, at their
respective addresses shown opposite their signatures hereto or at
such other address as any party may hereafter specify in writing,
except that any notice or other communication given by the
Company to the Bank pursuant to Section 1 and any notice with
respect to a change of address shall be deemed to be given or
made only when actually received by the party to whom such
communication was sent. No other method of giving notice is
hereby precluded.
(b) The Bank is authorized to act on oral or
telephonic instructions from a person who the Bank in good faith
believes to have the authority to act on behalf of the Company.
If there is any conflict between any oral or telephonic
instructions given to the Bank and any subsequent written
confirmation thereof, the oral or telephonic instructions shall
control.
8.9 Survival. All representations and warranties
contained in the Loan Documents or otherwise made in writing in
connection therewith shall survive the execution and delivery of
Loan Documents.
8.10 Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by, and
construed and enforced in accordance with, the laws of the State
of Ohio.
8.11 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be
an original instrument.
8.12 Set-Off. In addition to any rights now or
hereafter granted under applicable law and not by way of
limitation of any such rights, upon the occurrence of an Event of
Default, the Bank is hereby authorized at any time or from time
to time, without notice to the Company, the Guarantor or any
other Person, any such notice being hereby expressly waived, to
set-off and to appropriate and apply any and all deposits
(general or special) and any other indebtedness at any time held
or owing by the Bank to or for the credit or the account of the
Company or the Guarantor against and on account of the
obligations and liabilities of the Company and the Guarantor to
the Bank under the Loan Documents, including all claims of any
nature or description arising out of or connected with any of the
Loan Documents, irrespective or whether or not the Bank shall
have made any demand hereunder and although such obligations,
liabilities or claims, or any of them, shall be contingent or
unmatured.
8.13 Severability. If any provision of any Loan
Document or the application thereof to any party or to any
circumstance shall be held invalid or unenforceable to any
extent, the remainder thereof and the application of such
provision to other circumstances shall not be affected thereby
and shall be enforced to the greatest extent permitted by
applicable law.
8.14 Subsidiaries. Although the Company does not have
any Subsidiaries as of the date hereof, this Agreement makes
reference to Subsidiaries of the Company throughout in the event
that the Company subsequently organizes or owns any Subsidiary so
that any such Subsidiary will be subject to and governed by the
applicable provisions of this Agreement, it being understood that
the Company will not organize or own any Subsidiary without the
prior written consent of the Bank.
8.15 Credit Information. The Company and Guarantor
hereby acknowledge and consent to the disclosure by the Bank of
deposit, credit and borrowing information concerning the Company
or the Guarantor to third Persons in accordance with the Bank's
customary practices.
8.17 Entire Agreement. The Loan Documents embody the
entire agreement and understanding between the Company and the
Guarantor, on the one hand, and the Bank on the other hand, and
supersedes all prior agreements (both oral and written),
writings, conversations and understandings relating in any way to
the subject matter hereof.
8.18 Waiver Trial by Jury. IN ANY LITIGATION IN ANY
COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THE
LOAN DOCUMENTS OR THE COLLATERAL, OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY OTHER
CLAIM OR DISPUTE HOWSOEVER ARISING BETWEEN THE BANK AND THE
COMPANY AND/OR THE GUARANTOR, THE BANK, THE COMPANY AND THE
GUARANTOR EACH HEREBY WAIVES TRIAL BY JURY IN CONNECTION WITH ANY
SUCH LITIGATION.
8.19 Consent to Jurisdiction. Each of the Company and
the Guarantor hereby irrevocably agrees that any legal action or
proceeding against it arising out of, connected with or in any
way related to the Loan Documents or the Collateral may be
instituted by the Bank and adjudicated in either the U.S.
District Court for the Southern District of Ohio or the Common
Pleas Court of Montgomery County, Ohio as the Bank may elect, and
each of the Company and the Guarantor hereby irrevocably consents
to the personal jurisdiction of and venue in such courts with
respect to any such legal action or proceeding. In no event
shall the Company or the Guarantor contest the personal
jurisdiction of any such court over it or the venue of any such
court with respect to any such legal action or proceeding. Each
of Company and the Guarantor hereby irrevocably appoints the
statutory agent of the Company in the State of Ohio as its agent
for service of process to receive for and on its behalf service
of process in any such legal action or proceeding. Nothing
herein shall affect or otherwise prejudice the right of the Bank
to commence legal actions or proceedings or otherwise proceed
against the Company or the Guarantor or the Collateral in any
other jurisdiction or court. Neither the Company nor the
Guarantor shall institute any litigation against the Bank in any
court other than the U.S. District Court for the Southern
District of Ohio or the Common Pleas Court of Montgomery County,
Ohio.
PAGE
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused a
counterpart of this Agreement to be duly executed and delivered
as of the date first above written.
PAYNE FABRICS, INC.
By__________________________
3500 Kettering Boulevard Val G. Blaugh, President
Dayton, Ohio 45439
BELL NATIONAL CORPORATION
By__________________________
4209 Vineland Road Thomas R. Druggish
Suite J-1 Chief Financial Officer
Orlando, Florida 32811
BANK ONE, DAYTON, NATIONAL
ASSOCIATION
By__________________________
Kettering Tower Jack M. Boecker
Dayton, Ohio 45401 Vice President
PAGE
<PAGE>
ANNEX A-1
TRANCHE A
PROMISSORY NOTE
$4,125,000 Dayton, Ohio
May ____, 1995
FOR VALUE RECEIVED, PAYNE FABRICS, INC., a Delaware
corporation (the "Company") hereby promises to pay to the order
of BANK ONE, DAYTON, NATIONAL ASSOCIATION (the "Bank") at its
Principal Office (as defined in the Credit Agreement referred to
below) on May 31, 1998 the principal amount of FOUR MILLION ONE
HUNDRED TWENTY-FIVE THOUSAND DOLLARS ($4,125,000) or, if less,
the aggregate unpaid principal amount of the Tranche A Loans made
pursuant to the Credit Agreement. All such payments are to be
made in lawful money of the United Sates of America (in freely
transferable U.S. dollars and in immediately available funds).
The Company also hereby promises to pay interest on the
unpaid principal amount hereof in like money at such office from
the date hereof until paid at the rates per annum which shall be
determined in accordance with the provisions of the Revolving
Credit Agreement dated as of May 1, 1995 (as the same may be
amended or modified from time to time, the "Credit Agreement")
among the Company, Bell National Corporation and the Bank, such
interest to be payable at the times provided for in the Credit
Agreement.
This Note is the Tranche A Note referred to in the
Credit Agreement and is entitled to the benefits of the Loan
Documents (as defined in the Credit Agreement). As provided in
the Credit Agreement, this Note is subject to prepayment, in
whole or in part, as specified in the Credit Agreement.
In case an Event of Default (as defined in the Credit
Agreement) shall occur and be continuing, the principal of, and
accrued interest on, this Note may be declared to be due and
payable in the manner and with the effect provided in the Credit
Agreement.
The Company hereby waives presentment, demand, protest
or notice of any kind in connection with this Note.
This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of Ohio.
The Company hereby authorizes any attorney-at-law to
appear in any court of record in the State of Ohio or in any
jurisdiction outside of the State of Ohio, after the indebtedness
evidenced hereby becomes due, and to waive the issuing and
service of process and to confess judgment against it in favor of
the Bank for the amount then appearing due, together with costs
of suit, and thereupon to release all errors and waive all rights
of appeal and stay of execution.
_________________________________________________________________
"WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE
AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY
BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS
OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY
CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT OR ANY OTHER CAUSE."
_________________________________________________________________
PAYNE FABRICS, INC.
By__________________________
Val G. Blaugh
President
PAGE
<PAGE>
ANNEX A-2
TRANCHE B
PROMISSORY NOTE
$1,025,000 Dayton, Ohio
May ____, 1995
FOR VALUE RECEIVED, PAYNE FABRICS, INC., a Delaware
corporation (the "Company") hereby promises to pay to the order
of BANK ONE, DAYTON, NATIONAL ASSOCIATION (the "Bank") at its
Principal Office (as defined in the Credit Agreement referred to
below) on May 31, 1997 the principal amount of ONE MILLION
TWENTY FIVE THOUSAND DOLLARS ($1,125,000) or, if less, the
aggregate unpaid principal amount of the Tranche B Loans made
pursuant to the Credit Agreement. All such payments are to be
made in lawful money of the United Sates of America (in freely
transferable U.S. dollars and in immediately available funds).
The Company also hereby promises to pay interest on the
unpaid principal amount hereof in like money at such office from
the date hereof until paid at the rates per annum which shall be
determined in accordance with the provisions of the Revolving
Credit Agreement dated as of May 1, 1995 (as the same may be
amended or modified from time to time, the "Credit Agreement")
among the Company, Bell National Corporation and the Bank, such
interest to be payable at the times provided for in the Credit
Agreement.
This Note is the Tranche B Note referred to in the
Credit Agreement and is entitled to the benefits of the Loan
Documents (as defined in the Credit Agreement). As provided in
the Credit Agreement, this Note is subject to prepayment, in
whole or in part, as specified in the Credit Agreement.
In case an Event of Default (as defined in the Credit
Agreement) shall occur and be continuing, the principal of, and
accrued interest on, this Note may be declared to be due and
payable in the manner and with the effect provided in the Credit
Agreement.
The Company hereby waives presentment, demand, protest
or notice of any kind in connection with this Note.
This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of Ohio.
The Company hereby authorizes any attorney-at-law to
appear in any court of record in the State of Ohio or in any
jurisdiction outside of the State of Ohio, after the indebtedness
evidenced hereby becomes due, and to waive the issuing and
service of process and to confess judgment against it in favor of
the Bank for the amount then appearing due, together with costs
of suit, and thereupon to release all errors and waive all rights
of appeal and stay of execution.
_________________________________________________________________
"WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE
AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY
BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS
OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY
CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT OR ANY OTHER CAUSE."
PAYNE FABRICS, INC.
By
Val G. Blaugh
President
PAGE
<PAGE>
ANNEX B
NON-TITLED PERSONAL PROPERTY
SECURITY AGREEMENT
This Agreement is made as of May 15, 1995 by and between Bank
One, Dayton, National Association ("Bank One") and Payne Fabrics,
Inc., a Delaware corporation ("Debtor"), with Debtor's mailing
address being at 3500 Kettering Boulevard, Dayton, Ohio 45439.
1. Grant of Security Interest. For valuable consideration,
receipt of which is hereby acknowledged, Debtor grants, pledges
and assigns to Bank One a security interest in all of Debtor's
respective right, title and interest, purchase money as
appropriate, in and to the property described below, now or
hereafter arising or acquired wherever located, together with any
and all additions, accessions, parts, accessories, substitutions
and replacements thereof, now or hereinafter installed in,
affixed to or used in connection with said property, in all
products and proceeds thereof, cash and non-cash, including, but
not limited to, proceeds of notes, checks, instruments, indemnity
proceeds, or any insurance on such and any refund or rebate of
premiums on such, and all books, records, ledger cards, files,
correspondence, computer programs, tapes, disks and related data
processing software, owned by Debtor or in which it has an
interest that at any time evidences or contains information
relating thereto or is otherwise necessary or helpful in the
collection thereof or realization thereupon ("Collateral"), to
secure the prompt payment and complete performance of the
Obligations (as hereinafter defined); provided, however, that the
Collateral shall not include any Hazardous Materials (as
hereinafter defined), except for any Hazardous Materials (a)
which are and/or hereafter will be handled, stored and contained
in accordance with all applicable Hazardous Material Laws (as
hereinafter defined) and (b) which either (i) are and/or will be
hereafter used or useful in the ordinary course of business of
Debtor or (ii) have a resale or salvage value which exceeds the
cost of disposing of such Hazardous Materials.
The Collateral in which this security interest is granted is all
of the Debtor's property described below in reference to which an
"X" or checkmark has been placed in the box applicable thereto:
x All inventory, merchandise, raw materials, work in
process and supplies
x All accounts, general intangibles, chattel paper,
instruments, and other forms of obligations and
receivables
x All goods, equipment, machinery, furnishings and
other personal property
Specific collateral described as follows:
2. Secured Obligations. This Agreement secures, the prompt
payment and complete performance in full when due, whether at the
stated maturity, by acceleration or otherwise, any and all
liabilities of Debtor to Bank One, direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter
arising, and without limitation, all indebtedness, debts and
liabilities (including principal, interest, reimbursement
obligations with respect to any letters of credit issued by Bank
One for the account of Debtor, late charges, fees, collection
costs, attorney fees and the like) ("Obligations"). It is
Debtor's expressed intention that this Agreement and the
continuing security interest granted hereby, in addition to
covering all present Obligations of Debtor to Bank One, shall
extend to all future Obligations of Debtor to Bank One, whether
or not such Obligations are reduced or entirely extinguished and
thereafter increase or are reincurred, whether or not such
Obligations are specifically contemplated by Debtor and Bank One
as of the date hereof. The absence of any reference to this
Agreement in any documents, instruments or agreements evidencing
or relating to any Obligations secured hereby shall not limit or
be construed to limit the scope of this Agreement.
For purposes of this Agreement, the term "Credit Agreement"
means the Revolving Credit Agreement dated as of May 1, 1995
among Debtor, Bell National Corporation and Bank One.
3. Debtor's Place(s) of Business and Location(s) of Collateral.
All of Debtor's Place(s) of Business and Location(s) where
Collateral will be kept at are as follows:
(a) 3500 Kettering Boulevard, Dayton, Ohio 45439
(b) 390 Decorative Center, Dallas, Texas 75207
(c) 351 Peachtree Hills Avenue N.E., #141, Atlanta, Georgia
30305
(d) 979 Third Avenue, Space 1510, New York, New York 10022
(e) 41 Madison Avenue at 26th Street, 5th Floor, New York,
New York 10010
4. Debtor's Doing Business As Names, Trade Names, or Fictitious
Names. Debtor is transacting business under the following doing
business as names, trade names or fictitious names:
None
5. Representations, Warranties and Covenants. Debtor
represents, warrants, covenants and agrees as follows:
(a) Debtor is and will continue to be (or, with respect to after
acquired property, will be when acquired), the legal and
beneficial owner of the Collateral free and clear of any Lien (as
such term is defined in the Credit Agreement), except for
Permitted Liens (as such term is defined in the Credit
Agreement). Except as previously disclosed to Bank One in
writing, no effective Uniform Commercial Code ("UCC") financing
statement or other instrument covering all or any part of the
Collateral is on file in any recording office, except those in
favor of Bank One;
(b) Debtor will join with Bank One in executing such financing
statements, security agreements or other instruments, in form
satisfactory to Bank One upon Bank One's request and, in the
event for any reason the law of any jurisdiction becomes or is
applicable to the Collateral or any part thereof, or to any
Obligation, Debtor agrees to execute and deliver all such
instruments and to do all of such other things as may be
reasonably necessary or appropriate to preserve, protect and
enforce the security interest and lien of Bank One under the law
of such jurisdiction to the extent as such security interest
would be protected under that jurisdiction's UCC and will pay all
expenses of filing same in all public offices wherever filing is
deemed necessary or desired by Bank One;
(c) The Collateral will not be attached or affixed to real
estate in such a manner that would become a fixture thereto, or
to become an accession to other goods, without the execution of
an appropriate owner/mortgagee/landlord release/waiver in favor
of Bank One;
(d) Debtor will keep the Collateral insured in the manner and to
the extent required by Section 5.5 of the Credit Agreement. If
Debtor does not keep the Collateral insured as required by
Section 5.5 of the Credit Agreement and/or fails to supply Bank
One with evidence of that insurance naming Bank One as "loss
payee", Bank One shall have the right, in its sole discretion, to
obtain insurance in amounts sufficient to fully protect its
interests, without notifying Debtor. Debtor agrees to
immediately reimburse Bank One for the premium for such insurance
and other costs incurred by Bank One in connection therewith;
(e) Debtor assigns to Bank One all right to receive such
proceeds of insurance not exceeding amounts secured hereby,
directs any insurer to pay all such proceeds directly to Bank One
and authorizes Bank One to endorse any draft for such proceeds.
Debtor agrees that Bank One may, in its sole discretion, apply
any insurance proceeds paid to Bank One to either (i) the repair
and restoration of the Collateral or (ii) the then-outstanding
balance of the Obligations, without regard to whether an Event of
Default (as such term is defined in the Credit Agreement) has or
has not occurred;
(f) Debtor will pay all taxes, assessments and governmental
charges upon or against Debtor, the Collateral or the property or
operations of Debtor in the manner and to the extent required by
Section 5.8 of the Credit Agreement. At its option, Bank One
may discharge all taxes or Liens (other than Permitted Liens) at
any time placed on the Collateral and may pay for maintenance and
preservation of the Collateral, all at Debtor's expense;
(g) Debtor will allow Bank One to examine and inspect the
Collateral at any time, wherever located;
(h) Debtor will, in the event of appropriation or taking of all
or any part of the Collateral, give Bank One prompt written
notice thereof. Bank One shall be entitled to receive directly,
and Debtor shall promptly pay over to Bank One, any awards or
other amounts payable with respect to such condemnation,
requisition or other taking and in its sole discretion may apply
the proceeds as it deems best without regard if an Event of
Default has or has not occurred;
(i) At least thirty (30) days prior to the occurrence of any of
the following events, Debtor will deliver to Bank One written
notice of such impending events: (i) any addition, deletion or a
change in Debtor's Place(s) of Business and/or the Location(s) of
Collateral; or (ii) any addition, deletion or change in Debtor's
name, any doing business as name, trade name, fictitious name,
identity or legal structure;
(j) Debtor will defend the Collateral against all claims and
demands (other than claims or demands with respect to Permitted
Liens) of all persons at any time claiming the same or an
interest therein;
(k) Debtor will from time to time execute and deliver to Bank
One such lists, descriptions and designations of Collateral as
Bank One may reasonably require to identify the nature, extent
and location of the Collateral;
(l) Debtor is in material compliance with all Federal, State and
local laws, statutes, ordinances, regulations, rulings and
interpretations relating to industrial hygiene, public health or
safety, environmental conditions, the protection of the
environment, the release, discharge, emission or disposal to air,
water, land or ground water, the withdrawal or use of ground
water or the use, handling, disposal, treatment, storage or
management of or exposure to Hazardous Materials ("Hazardous
Materials Laws"), the violation of which would have a material
effect on its business, its financial condition or the
Collateral. The term "Hazardous Materials" means any flammable
materials, explosives, radioactive materials, pollutants, toxic
substances, hazardous water, hazardous materials, hazardous
substances, polychlorinated biphenyls, asbestos, urea
formaldehyde, petroleum (including its derivatives, by-products
or other hydrocarbons) or related materials or other controlled,
prohibited or regulated substances or materials, including,
without limitation, any substances defined or listed as or
included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "pollutants" or "toxic
substances" under any Hazardous Materials Laws. Debtor has not
received any written or oral communication or notice from any
judicial or governmental entity nor is it aware of any
investigation by any agency for any violation of any Hazardous
Material Law; and
(m) All representations, warranties, covenants and agreements
set forth herein and all information furnished by Debtor
concerning the Collateral or otherwise in connection with the
Obligations, shall be at the time same is furnished, accurate,
correct and complete in all material respects as of the date
hereof, on the date upon which Debtor acquires any of the
Collateral or any rights therein not presently acquired or
existing and shall continue until the Obligations are paid in
full.
6. Provisions as to Accounts and Other Forms of Obligations and
Receivables. If the security interest granted by Debtor herein
consists of accounts, general intangibles, chattel paper,
instruments and other forms of obligations and receivables, or
any part thereof ("Receivable" or "Receivables"), then Debtor
represents, warrants, covenants and agrees as follows:
(a) As of the time any Receivable becomes subject to the
security interest provided for herein, Debtor shall be deemed to
have warranted as to such Receivable that such Receivable and all
papers and documents related thereto are genuine and in all
respects what they purport to be; that such Receivable is due and
payable; that such Receivable arises out of a bona fide sale of
goods sold and delivered to, or in the process of being delivered
to, or out of and for services theretofore actually rendered to
the account debtor ("Account Debtor") named in the Receivable;
that Debtor has in its possession records evidencing the delivery
of the goods or services to the Account Debtor; the amount of
such Receivable represented as owing is the correct amount
actually owing except for normal cash discounts allowed for
prompt payment and adjustments arising in the ordinary course of
Debtor's business and is not disputed, and except for such normal
cash discounts or adjustments is not subject to any set-offs,
claims for credit, allowances, adjustments, credits, deductions
or other counter charges;
(b) Debtor will keep or will cause to be kept, accurate and
complete records of the Receivables and will deliver such records
and other financial information to Bank One as are requested, and
that Bank One or its designee shall have the right at any time
upon request to call at Debtor's Place(s) of Business at
intervals solely determined by Bank One, and without hindrance or
delay, inspect, audit, make test verifications, send verification
of a Receivable to any Account Debtor and otherwise check and
make copies of books, records, journals, orders, receipts,
correspondence and other data related to the Receivables or the
processing or collection thereof;
(c) If any Receivable in an amount in excess of $25,000 arises
out of a contract with the United States government or any
department, agency, or instrumentality thereof, Debtor will
promptly notify Bank One in writing, execute any instruments and
take any steps required by Bank One in order to insure that all
monies due and to become due under said contract will be assigned
to Bank One and proper notice will be given to such party
pursuant to the Federal Assignment of Claims Act;
(d) If any Receivable shall be evidenced by a promissory note,
trade acceptance or any other instrument for the payment of
money, Debtor, upon Bank One's request, will promptly deliver
same to Bank One, properly endorsed to Bank One's order.
Regardless of the form of such endorsement, Debtor hereby waives
presentment, demand, notice of dishonor, protest and notice of
protest and all other notices to which Debtor might be entitled;
(e) Debtor will upon Bank One's demand turn over to Bank One
copies of invoices indicating and certifying thereon the
assignment of such Receivable to Bank One and will furnish Bank
One with a copy of any document which gave rise to the
Receivable; and
(f) At any time and from time to time during the term of this
Agreement, Bank One may give notice of its security interest in
any Receivable to any Account Debtor or any other party otherwise
concerned with any Receivable.
7. Appointment of Attorney-in-Fact. Upon the occurrence of,
and during the continuation of, any Event of Default, Debtor
hereby irrevocably appoints Bank One or its designee as Debtor's
attorney in fact, with full authority in the place instead of
Debtor, from time to time in Bank One's discretion, to take any
action and to execute any instrument which Bank One may deem
necessary or advisable to accomplish the purposes of this
Agreement, including without limitation, (i) to perfect and
continue to perfect the security interests created by this
Agreement; (ii) to ask, demand, collect or sue for, recover,
compound, receive and give acquittance in receipts for any monies
due or become due under or in respect for any Collateral; (iii)
to receive, endorse and collect any drafts or other instruments,
documents and chattel paper, in connection with the Collateral;
and (iv) to file any claims or take any action or institute any
preceding which Bank One may deem necessary or desirable for the
collection of any Collateral or otherwise to enforce the rights
of Bank One in the Collateral.
8. Rights upon Default. If any Event of Default shall occur
and then be continuing, then:
(a) Bank One may, at its option and without notice, declare the
unpaid balance of any or all of the Obligations immediately due
and payable and this Agreement and any or all of the Obligations
in default;
(b) All payments received by Debtor under or in connection with
any of the Collateral shall be held by Debtor in trust for Bank
One, shall be segregated from other funds of Debtor and shall
forthwith upon receipt by Debtor be turned over to Bank One in
the same form as received by Debtor (duly endorsed by Debtor to
Bank One, if required). Any and all such payments so received by
Bank One (whether from Debtor or otherwise) may, in the sole
discretion of Bank One, be held by Bank One, or then or at any
time thereafter be applied in whole or in part by Bank One
against, all or any part of the Obligations in such order as Bank
One may elect;
(c) Bank One shall have the rights and remedies of a secured
party under this Agreement, under any other instrument or
agreement securing, evidencing or relating to the Obligations and
under the UCC as adopted in the state where Bank One's principal
office is located or other applicable laws. Without limiting the
generality of the foregoing, Bank One shall have the right to
take possession of the Collateral in full or in part and for that
purpose Bank One may enter upon any premises on which the
Collateral may be situated and remove the Collateral therefrom;
(d) As to any and/or all Receivables, Bank One shall have the
right to take possession of all Receivables and/or records
thereof and, at its option, shall have the right to collect and
enforce the Receivables in its own name or in the name of Debtor
and may instruct any such Account Debtor or other party to remit
all payments on any Receivable directly to Bank One. Without
limiting its rights and powers to possess, collect and enforce
any Receivable, Bank One may (i) have the right in its own name
or in the name of Debtor to demand, collect, receive, give
receipt for, sue for, adjust, settle, compromise or enforce for
cash, credit, or otherwise and give acquittance for any and all
amounts due or become due on any Receivable and to endorse or
sign the name of Debtor on all Receivables given a full or part
payment thereof, and in Bank One's discretion file any claim or
take any other action or proceeding which Bank One may deem
necessary or appropriate to protect and preserve and realize upon
the security interest of Bank One in the Receivables and proceeds
thereof; (ii) sign Debtor's name on any invoice or document
related to any Receivable or draft against any Account Debtor,
assignments and verifications of any Receivable, and notices to
Account Debtors; (iii) notify the postal authorities to change
the address for delivery of mail addressed to Debtor to any
address which Bank One may designate; (iv) open mail addressed to
Debtor and take possession of any Receivable contained therein;
(v) grant credit extensions of time for payment or performance or
any other indulgences to anyone with respect to any Receivable;
(vi) release any Account Debtor and anyone else from liability on
any Receivable; (vii) accept the return of the goods represented
by any Receivable; or (viii) do anything else which Bank One is
permitted to do under any provision of law or any provision of
this Agreement;
(e) Without demand of performance or other demand, advertisement
or notice of any kind (except the notice(s) specified below
regarding the time and place of public sale or disposition or
time after which a private sale or disposition is to occur) to
Debtor, any Obligor or any other person or entity (all and each
of which demands, advertisements and/or notices are hereby
expressly waived), Bank One may forthwith collect, receive,
appropriate and realize upon the Collateral, in full or in any
part thereof, may abandon, not claim or not take possession of
any Collateral, and/or may forthwith sell, lease, assign, give an
option or options to purchase or sell or otherwise dispose of and
deliver the Collateral (or contract to do so), or any part
thereof, in one or more parcels at public or private sale(s) at
any of Bank One's offices or elsewhere at such price(s) as Bank
One may determine, for cash or on credit or for future delivery
without assumption of any credit risk. Bank One shall have the
right upon any public sale(s), and, to the extent permitted by
law, upon any such private sale(s), to purchase the whole or any
part of the Collateral so sold, free of any right or equity of
redemption of Debtor;
(f) Debtor, at Bank One's request, will assemble the Collateral
and make it available to Bank One at such place(s) as Bank One
may reasonably select, whether at Debtor's Place(s) of Business
and/or the Location(s) of Collateral or elsewhere. Debtor
further agrees to allow Bank One to use or occupy Debtor's
Place(s) of Business and/or Location(s) of Collateral, without
charge, for the purpose of effecting Bank One's remedies in
respect to the Collateral;
(g) Bank One shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or
sale, after deducting all reasonable costs and expenses of every
kind incurred in connection therewith or incidental to the care
or safekeeping of any or all of the Collateral or in any way
relating to the rights of Bank One hereunder, including
reasonable attorneys' fees and legal expenses, to the payment in
whole or in part of the Obligations, in such order as Bank One
may elect, and only after or applying over such net proceeds and
after the payment by Bank One of any other amount required by any
provision of law, need Bank One account for the surplus, if any,
to Debtor;
(h) To the extent permitted by applicable law, Debtor waives all
claims, damages and demands against Bank One arising out of the
repossession, retention, sale or disposition of the Collateral;
(i) Debtor agrees that Bank One need not give more than ten (10)
calendar days' notice, addressed to Debtor at Debtor's mailing
address set forth above, of the time and place of any public sale
or of the time after which a private sale may take place and that
such notice is reasonable notification of such matters; and,
(j) Debtor shall remain liable for any deficiency if the
proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Bank One is entitled.
(k) For purposes of this Agreement, the term "Event of Default"
means (i) the failure of Debtor to reimburse Bank One on the date
of any drawing under any letter of credit issued by Bank One for
the account of Debtor for the amount of such drawing or (ii) the
occurrence of any "Event of Default" as defined in the Credit
Agreement.
9. Processing of Collateral After an Event of Default. Debtor
hereby agrees that Bank One or its designee may do whatever Bank
One in its sole discretion deems to be commercially reasonable to
prepare any Collateral for disposition and to dispose of any
Collateral, including without limitation operating any of
Debtor's manufacturing or other processes relating to the
Collateral and using patents, copyrights, trademarks, trade
names, trade secrets, and the like relating to or affecting such
processes or the Collateral and disposition thereof, and that
Debtor shall not do anything which would restrict Bank One's
right so to act. Bank One may transfer Collateral into its name
or that of a nominee and receive the dividends, royalties or
income thereof. Bank One shall have no duty as to the collection
or protection of the Collateral or any income therefrom, nor as
the preservation of rights against prior parties, nor as to the
preservation of any right pertaining thereto.
10. Construction of Rights and Remedies and Waiver of Notice and
Consent. Unless otherwise expressly provided herein or in the
Credit Agreement, (a) any right or remedy of Bank One may by
pursued without notice to or further consent of Debtor, both of
which Debtor hereby expressly waives; (b) each right or remedy is
distinct from but cumulative to each other right or remedy and
may be exercised independently of concurrently with, or
successively to any other right and remedy; (c) no extension(s)
of time and/or modification(s) of amortization of any Obligation
shall release the liability of or bar the availability of any
right or remedy against Debtor, and Bank One shall not be
required to commence proceedings against Debtor or to extend time
for payment or otherwise to modify amortization of any
Obligation; and (d) Bank One has the right to proceed at its
election against any or all of the Collateral against all such
property together or against any items thereof from time to time,
and no action against any item(s) of property shall bar
subsequent actions against any other item(s) or property.
11. Extensions and Compromises. With respect to any Collateral
or any Obligation, Debtor assents to all extensions or
postponements to the time of payment thereof or any other
indulgence in connection therewith, to each substitution,
exchange or release of Collateral, to the release of any party
primarily or secondarily liable, to the acceptance of partial
payment thereon or to the settlement or compromise thereof, all
in such manner and such time or times as Bank One may deem
advisable. No forbearance in exercising any right or remedy on
any one or more occasions shall operate as a waiver thereof on
any future occasion; and no single or partial exercise of any
right or remedy shall preclude any other exercise thereof or the
exercise of any other right or remedy.
12. Indemnity and Expenses. (a) Debtor agrees to indemnify Bank
One from any and all claims, losses and liabilities growing out
of or resulting from this Agreement; (b) Debtor will upon demand
pay or reimburse Bank One, as the case may be, the amount of any
and all expenses, including reasonable fees and disbursements of
counsel, experts and agents, which Bank One may incur in
connection with, (i) the administration of this Agreement; (ii)
the custody, preservation, use or operation of, or the sale of,
collections from, or other realization upon, any Collateral;
(iii) the exercise or enforcement of any of the rights of Bank
One hereunder; or (iv) the failure by Debtor to perform or
observe any of the provisions hereof. Upon Debtor's failure to
promptly pay any said amount, Bank One may add said amount to the
principal amount owed on the Obligations and charge interest on
the same at the Default Rate (as such term is defined in the
Credit Agreement); (c) Debtor shall fully and promptly pay,
perform, discharge, defend, indemnify and hold harmless Bank One
from any and all claims, orders, demands, causes of action,
proceedings, judgments, or suits and all liabilities, losses,
costs or expenses (including, without limitation, technical
consultant fees, court costs, expenses paid to third parties and
reasonable legal fees) and damages arising out of, or as a result
of (i) any release, discharge, deposit, dump, spill, leak or
placement of any Hazardous Material into or on any Collateral or
property owned, leased, rented or used by Debtor (the "Property")
at any time; (ii) any contamination of the soil or ground water
of the Property or damage to the environment and natural
resources of the Property or the result of actions whether
arising under any Hazardous Materials Law, or common law; or
(iii) any toxic, explosive or otherwise dangerous Hazardous
Materials which have been buried beneath or concealed within the
Property. The indemnities set forth in this paragraph shall
survive termination of this Agreement and shall be effective for
the full dollar amount of any said cost, expense, etc.,
regardless of the actual dollar amount of any Obligation(s).
13. Miscellaneous. (a) Any notice, statement, request, demand,
consent, or other document required to be given hereunder (any of
which may be referred to as "notice") by either party shall be in
writing and shall be given as provided in Section 8.8 of the
Credit Agreement; (b) this Agreement shall be construed and
interpreted under the laws of the State of Ohio; (c) this
Agreement shall be binding upon Debtor, Debtor's personal
representatives, heirs, successors and assigns, as the case may
be, and shall be binding upon and inure to the benefit of Bank
One and its successors and permitted assigns. Debtor cannot
assign this Agreement; (d) this Agreement may be amended, but
only by a written amendment signed by Bank One and Debtor; (e) if
any provisions of this Agreement or the application of any
provision to any party or circumstance shall, to any extent, be
adjudged invalid or unenforceable, the application of the
remainder of such provision to such party or circumstance, the
application of such provision to other parties or circumstances,
and the application of the remainder of this Agreement shall not
be affected thereby; (f) the headings contained in this Agreement
have been inserted for convenience of reference only and are not
to be used to interpret this Agreement; (g) Where appropriate,
the number of all words in this Agreement shall be both singular
and plural and the gender of all pronouns shall be masculine,
feminine, neuter, or any combination thereof; (h) a carbon,
photographic or other reproduction of this Agreement or a
financing statement shall be sufficient as a financing statement
and may be filed as such whenever necessary or desirable, in Bank
One's opinion, to perfect the security interest granted by this
Agreement; (i) this Agreement shall take effect when signed by
Debtor; and (j) time is of the essence of all requirements of
Debtor hereunder.
14. Conflict with Credit Agreement. In the event of any
conflict between the provisions of this Agreement and the
provisions of the Credit Agreement, the provisions of the Credit
Agreement shall govern and control.
PAYNE FABRICS, INC.
By: _______________________
Its: ______________________
PAGE
<PAGE>
ANNEX C
=================================================================
OPEN-END MORTGAGE,
ASSIGNMENT OF RENTS
AND
SECURITY AGREEMENT
Maximum Loan Indebtedness Not To Exceed $5,150,000.00
PAYNE FABRICS, INC.
3500 Kettering Boulevard
Dayton, Ohio 45439
Mortgagor
BANK ONE, DAYTON, N.A.
300 Kettering Tower
Dayton, Ohio 45401
Mortgagee
Dated as of __________, 1995
=================================================================
PAGE
<PAGE>
OPEN-END MORTGAGE, ASSIGNMENT OF RENTS
AND
SECURITY AGREEMENT
Maximum Loan Indebtedness Not To Exceed $5,150,000.00
THIS OPEN-END MORTGAGE, ASSIGNMENT OF RENT AND SECURITY
AGREEMENT (the "Mortgage"), dated as of the ____ day of ________,
1995, is made by and between PAYNE FABRICS, INC., a Delaware
corporation, having a mailing address at 3500 Kettering
Boulevard, Dayton, Ohio 45439 (the "Mortgagor") to BANK ONE,
DAYTON, N.A., a national banking association, having a mailing
address at 300 Kettering Tower, Dayton, Ohio 45401 (the
"Mortgagee").
W I T N E S E T H:
WHEREAS, the Mortgagee entered into that certain
Revolving Credit Agreement of even date herewith with
the Mortgagor, pursuant to which the Mortgagee has
agreed to loan to the Borrowers principal sums not to
exceed in the aggregate $5,150,000.00 (being two
separate loans of $4,125,000 and $1,025,000) on the
terms and conditions set forth therein (the Revolving
Credit Agreement, as from time to time amended,
modified, restated and supplemented, being herein
referred to the "Credit Agreement");
WHEREAS, the Mortgagor, to evidence indebtedness
owing to the Mortgagee, has executed and delivered to
the Mortgagee that certain Tranche A Promissory Note of
even date herewith in the principal amount of
$4,125,000.00 (the "Tranche A Note") and that certain
Tranche B Promissory Note of even date herewith in the
principal amount of $1,025,000.00 (the "Tranche B
Note"). Interest on the outstanding principal balances
of the Tranche A Note and the Tranche B Note is at a
rate that may vary from time to time, as provided in
the Credit Agreement. All outstanding principal and
accrued interest under the Tranche A Note is due no
later than April 30, 1998 and all outstanding principal
and accrued interest under the Tranche B Note is due no
later than April 30, 1997. The Tranche A Note and the
Tranche B Note, together with any renewals,
modifications, extensions, replacements, restatements
or substitutions thereof, being herein referred to
collectively as the "Note";
WHEREAS, unless otherwise defined herein, all
capitalized terms used herein shall have the respective
meanings ascribed to them in the Credit Agreement; and
WHEREAS, the Mortgagor has agreed to execute and
deliver this Mortgage to secure to the Mortgagee the
following (collectively, the "Entire Indebtedness"):
(a) the payment of all principal of and
interest heretofore or hereafter owing or
outstanding on the Note (including any promissory
note substituted therefor), including, without
limitation, future advances made by the Mortgagee
that are evidenced by the Note, regardless of
whether the Mortgagee is obligated to make such
advances;
(b) the payment of all amounts from time to
time owing to the Mortgagee under or in connection
with this Mortgage, the Credit Agreement, the
Collateral Security Documents and any other Loan
Document;
(c) the payment of all cost and expenses
(including reasonable attorneys' fees and
expenses) incurred by the Mortgagee in the
collection of the Note and in the enforcement of
its rights under the Credit Agreement, the Note,
this Mortgage, the Collateral Security Documents
and any other Loan Document;
(d) the payment of all sums expended or
advanced by the Mortgagee pursuant to the terms of
any Loan Document;
(e) the performance of all obligations under
the Credit Agreement, the Note, the Collateral
Security Documents and any other Loan Document by
the respective obligors thereunder; and
(f) the payment of any and all other
indebtedness (including principal, interest or
fees, if any) of any kind or description now or
thereafter owing by any of the Borrowers or the
Mortgagor to the Mortgagee, including, without
limitation, overdrafts, amounts owing under other
promissory notes, bonds, debentures or other
evidences of indebtedness and contingent
obligations; provided, however, all amounts and
obligations secured under preceding clauses (a)
through (e), inclusive, shall be paid in full
before proceeds realized under the Collateral
Security Documents are applied to obligations
secured under this clause (f).
Notwithstanding the foregoing, any Collateral Security
Document may, at the option of the Mortgagee, secure less than
all the enumerated obligations. In particular, in order to
minimize substantial recording and/or filing fees in certain
states, the Mortgagee, may consent to the appropriate Collateral
Security Documents covering property in those states securing
only a portion of the indebtedness evidenced by the Notes. In
addition, without limitation, the Mortgagee may also consent to
the appropriate Collateral Security Documents securing only a
portion of the obligations if to secure the remainder of the
obligations would raise legal issues or considerations as to the
validity of any Collateral Security Document.
NOW, THEREFORE, for good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of securing the Entire Indebtedness, the
Mortgagor does hereby irrevocably assign, hypothecate, mortgage
and warrant, pledge, grant a security interest in and set over
unto the Mortgagee, all right, title and interest of the
Mortgagor in and to the following property (collectively, the
"Mortgaged Property"):
(a) the entire interest of Mortgagor as tenant in
the leasehold estate created by the lease described and
defined in Exhibit A attached hereto (the "Lease"), and
all right, title and interest whether legal or
equitable, that the Mortgagor has or may hereafter have
in and to the parcels of real property described in
Exhibit A attached hereto relating to the Lease
(collectively, the "Leased Premises");
(b) all and singular right, title and interest of
the Mortgagor including any after acquired title or
reversion, in and to the ways, easements, streets,
alleys, passages, air rights, water, water course,
riparian rights, railroad side-track agreements,
rights, liberties and privileges thereof, if any, and
in any way appertaining to the Leased Premises;
(c) all buildings and improvements of every kind
and description now or hereafter erected or placed on
the Leased Premises and all materials intended for
construction, reconstruction, alteration and repair of
such improvements now or hereafter erected thereon, all
of which materials shall be deemed to be included
within the Mortgaged Property immediately upon the
delivery thereof to the Leased Premises, and all
fixtures and articles of personal property now or
hereafter owned by the Mortgagor and attached to or
contained in and used in connection with the Leased
Premises, including, but not limited to, all furniture,
furnishings, apparatus, machinery, equipment, antennae,
motors, elevators, fittings, radiators, gas ranges, ice
boxes, mechanical refrigerators, awnings, shades,
screens, blinds, office equipment, carpeting and other
furnishings, and all plumbing, heating, lighting,
cooking, laundry, ventilating, refrigerating,
incinerating, air-conditioning and sprinkler equipment
and fixtures and appurtenances thereof and all renewals
or replacements thereof or articles in substitution
therefor, whether or not the same are or shall be
attached to such building or buildings in any manner,
and all proceeds of any of the foregoing;
(d) all subleases of the Leased Premises, any and
all extensions and renewals thereof and any and all
further subleases (including tenancies following
attornment and oil and gas leases) upon all or any part
of the Leased Premises, any and all guarantees of
sublessee's performance under any of said subleases,
the immediate and continuing right to collect and
receive all of the rents, income, receipts, revenues,
issues and profits now due or which may become due or
to which the Mortgagor may now or shall hereafter
(including the period of redemption, if any) become
entitled or may demand or claim, arising or issuing
from or out of said subleases or from or out of the
Leased Premises or any part thereof, including, without
limitation: minimum rents, additional rents,
percentage rents, tax and insurance contributions,
deficiency rents and liquidated damages following
default, the premium payable by any sublessee upon the
exercise of a cancellation privilege originally
provided in any said sublease, and all proceeds payable
under any policy of insurance covering loss of rents
resulting from untenantability caused by destruction or
damage to any Mortgaged Property together with any and
all rights and claims of any kind which the Mortgagor
may have against any sublessee under such subleases or
any subtenants or occupants of any Mortgaged Property;
provided, however, that a license is hereby given to
the Mortgagor so long as no Event of Default (as
hereinafter defined) has occurred and is continuing, to
collect and use such rents, income, receipts, revenues,
issues, profits, and other benefits as they become due
and payable, but not in advance thereof. The Mortgagee
shall be entitled, at its option after an Event of
Default shall have occurred and for so long as it shall
be continuing, to collect all rents, income, receipts,
revenues, issues, profits and other benefits from the
Mortgaged Property hereof whether or not the Mortgagee
takes possession of such property or any part thereof,
and to notify any payor of such rents, income,
receipts, revenues, issues, profits or other benefits
of the rights of the Mortgagee as provided by this
paragraph. Neither the exercise of any rights under
this paragraph by the Mortgagee nor the application of
any such rents, income, receipts, revenues, issues,
profits or other benefits to the Entire Indebtedness
and other sums secured hereby, shall cure or waive any
Event of Default or notice of any Event of Default
hereunder or invalidate any act done pursuant hereto or
to any such notice, but shall be cumulative of all
other rights and remedies. The foregoing provisions
hereof shall constitute an absolute and present
assignment of the rents, income, receipts, revenues,
issues, profits and other benefits from the Mortgaged
Property subject, however, to the conditional license
given to the Mortgagor to collect and use such rents,
income, receipts, revenues, issues, profits and other
benefits as hereinabove provided; and the existence or
exercise of such right of the Mortgagor shall not
operate to subordinate this assignment to any
subsequent assignment, in whole or in part, by the
Mortgagor, and any such subsequent assignment by the
Mortgagor shall be subject to the rights of the
Mortgagee hereunder; and
(e) all awards and other compensation heretofore
or hereafter to be made to the Mortgagor for any taking
by eminent domain, either permanent or temporary, of
all or any part of the Mortgagor's interest in the
Leased Premises or any easement or appurtenance
thereof, including severance and consequential damage
and change in grade of streets, which said awards and
compensation are hereby assigned to the Mortgagee, and
the Mortgagor hereby appoints the Mortgagee its
attorney-in-fact, coupled with an interest, and
authorizes, directs and empowers such attorney, at the
option of the attorney, on behalf of the Mortgagor or
its successors or assigns to adjust or compromise the
claim for any such award and to collect and receive the
proceeds thereof, and to give proper receipts and
acquittances therefor.
TO HAVE AND TO HOLD, the Mortgaged Property, real and
personal, whether now owned or held or hereafter acquired by the
Mortgagor, unto the Mortgagee, its successors and assigns,
forever.
ARTICLE I
PARTICULAR COVENANTS AND AGREEMENTS OF MORTGAGOR
1.1 Representations and Warranties. The Mortgagor
represents and warrants that the Mortgagor has a good and valid
leasehold estate as tenant under the Lease, that the Mortgagor
has good and valid title to the balance of the Mortgaged
Property, that, subject to obtaining the landlord's consent under
the Lease, the Mortgagor has the right to assign, hypothecate,
mortgage and warrant, pledge and grant a security interest in the
Mortgaged Property, that the Mortgaged Property is free and clear
of all liens and encumbrances except for the Permitted Liens, as
that term is defined in the Credit Agreement and that the
Mortgagor covenants that it will warrant and defend generally the
Mortgagor's leasehold estate as tenant under the Lease against
all claims and demands, except for the Permitted Liens.
1.2 Payment of Taxes and Impositions. The Mortgagor
shall pay, before delinquency and before any penalty for non-
payment attaches thereto, all taxes, assessments and other
governmental or municipal or public dues, charges, fines or
impositions which are or may be levied against the Mortgaged
Property or any part thereof in accordance with the terms of the
Lease and shall pay all claims for labor, materials and supplies
which, if unpaid might become a lien or charge upon the Mortgaged
Property; provided, however, the Mortgagor shall not be required
to pay any such tax, assessment, due, fine, imposition or claim
so long as the validity thereof shall be contested in good faith
and by appropriate proceedings, but this provision shall apply
only if the Mortgaged Property shall not then be subject to sale
or foreclosure in order to satisfy any such tax, assessment, due,
fine, imposition or claim.
1.3 Casualty and Eminent Domain Proceedings. The
Mortgagor will give the Mortgagee prompt notice of any fire or
other casualty, and the actual or threatened commencement of any
proceedings under eminent domain of which the Mortgagor has
notice, affecting all or any part of the Mortgaged Property, or
any easement therein or appurtenance thereof, including,
severance and consequential damage and change in grade of
streets, and will deliver to the Mortgagee, upon request by the
Mortgagee, copies of any and all papers served upon the Mortgagor
in connection with any such proceedings.
1.4 Insurance. The Mortgagor shall keep the
improvements now existing or hereafter erected on the Leased
Premises insured against loss or damage by fire and such other
hazards, casualties and contingencies (including, but not limited
to, extended coverage, vandalism, malicious mischief insurance,
and such other insurable hazards as from time to time may
reasonably be required by the Mortgagee with replacement cost
endorsement (without depreciation), in such amounts for such
periods as may reasonably be required from time to time by the
Mortgagee, but in no event less than that required to avoid co-
insurance, and to pay promptly when due any premiums on such
insurance. All such insurance shall be carried in companies
reasonably approved in writing by the Mortgagee and, upon request
of the Mortgagee, the policies, duplicate policies or
certificates thereof and renewals thereof shall be deposited with
and held by the Mortgagee. Each policy shall require thirty (30)
days' notice to the Mortgagee prior to cancellation, and shall
contain a standard noncontributing mortgagee clause in favor of
the Mortgagee as well as a standard waiver of subrogation
endorsement, all to be in form reasonably acceptable to the
Mortgagee. Within thirty (30) days after request by the
Mortgagee, the Mortgagor shall furnish to the Mortgagee, at the
Mortgagor's expense, evidence of the replacement value of said
improvements. The Mortgagor hereby authorizes the Mortgagee, at
its option, to collect, adjust and compromise any losses under
any of the insurance aforesaid exceeding $50,000.
1.5 Insurance and Condemnation Proceeds. In the event
of any destruction or damage to, or taking by eminent domain of,
the Mortgaged Property, or any part thereof, any and all
insurance proceeds and condemnation awards shall be applied by
the Mortgagee, upon its receipt thereof, to its expenses incurred
in obtaining such proceeds and awards, and thereafter to the
payment of principal and interest on the Note, whether or not
then due and payable, in such priorities and proportions as the
Mortgagee in its discretion shall deem proper, and thereafter to
the reduction or discharge of the Entire Indebtedness in such
priority and proportions as the Mortgagee in its discretion shall
deem proper or, at the discretion of the Mortgagee, shall be paid
in whole or in part, to the Mortgagor for such purposes as the
Mortgagee shall designate. The Mortgagee has no responsibility
to the Mortgagor to assure that insurance proceeds or
condemnation awards released to the Mortgagor for restoration are
properly used or applied.
1.6 Liability Insurance. The Mortgagor shall carry
and maintain comprehensive general public liability and indemnity
insurance in amounts at least equal to the minimum amounts as may
reasonably be required from time to time by the Mortgagee in form
and with companies reasonably satisfactory to the Mortgagee, such
insurance policies to name the Mortgagee as additional insured as
its interests may appear. Upon request of the Mortgagee,
certificates of such insurance, premiums prepaid, shall be
deposited with the Mortgagee and shall contain provision for
thirty (30) days' notice to the Mortgagee prior to any
cancellation thereof. Any insurance maintained pursuant to this
Mortgage may be evidenced by blanket insurance policies covering
the Mortgaged Property and any other properties of the Mortgagor.
1.7 Maintenance, Alterations and Compliance. The
Mortgagor will at all times maintain, preserve, protect and keep
the Mortgaged Property in good repair, working order and
condition, ordinary wear and tear excepted; will from time to
time make all needful and proper repairs, renewals, replacements,
betterments and improvements thereto, unless such alterations do
not materially affect Mortgagee's interest in the Mortgaged
Property or Mortgagor's ability to pay the Entire Indebtedness;
will permit the Mortgagee and its agents to inspect the same at
any reasonable time; will comply in all material respects with
all valid laws and regulations, now in effect or hereafter
promulgated by any properly constituted governmental authority
having jurisdiction, affecting the Mortgaged Property and/or
relating to the ownership, use, occupancy or operation of the
Mortgaged Property; will not make any material change in the use
of the Mortgaged Property which will create a fire or other
hazard or increase any hazard in or about the Mortgaged Property;
will not alter, destroy or remove any of the buildings,
improvements or property covered by this Mortgage except as
expressly permitted herein or in the Credit Agreement; will
complete in a good and workmanlike manner any building or
improvement which is being or may be constructed or repaired
thereon; and will not permit any lien of mechanics or materialmen
nor any judgment lien to attach to the Mortgaged Property except
as expressly permitted in the Credit Agreement.
1.8 Indemnification. Except to the extent that any of
the following may arise out of the misconduct or negligence of
the Mortgagee or its officers, directors, employees or agents,
the Mortgagor hereby indemnifies the Mortgagee, and agrees to
protect, and save harmless the Mortgagee, from and against all
liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses (including, without limitation,
attorneys' fees and expenses except as may be limited by law or
judicial order or decision entered in any action brought to
recover moneys under this Section) imposed upon, incurred by or
asserted against the Mortgagee by reason of (a) ownership of any
interest in the Mortgaged Property or any part thereof, (b) any
accident, injury to or death of persons or loss of or damage to
property occurring on or about the Mortgaged Property or any part
thereof or the adjoining sidewalks, curbs, vaults and vault
space, if any, streets or ways, (c) any use, disuse or condition
of the Mortgaged Property or any part thereof, or the adjoining
sidewalks, curbs, vaults and vault space, if any, streets or
ways, (d) any failure on the part of the Mortgagor to perform or
comply with any of the terms hereof, (e) any necessity to defend
any of the rights, title or interest conveyed by this Mortgage or
(f) the performance of any labor or services or the furnishing of
any materials or other property in respect of the Mortgaged
Property or any part thereof.
1.9 Independence of Premises. Except in accordance
with the Lease, the Mortgagor shall not permit any building or
other improvements on premises not subject to the lien of this
Mortgage to rely on the Leased Premises or any part thereof or
any interest therein to fulfill any municipal or governmental
requirement for the existence of such premises or such building
or improvement; and no building or other improvement on the
Leased Premises shall rely on any premises not subject to the
lien of this Mortgage or any interest therein to fulfill any
governmental or municipal requirement. Mortgagor shall not by
act or omission impair the integrity of the Leased Premises as a
single separate subdivided zoning lot separate and apart from all
other premises.
1.10 After-Acquired Property; Further Assurances. (a)
All property of every kind acquired by the Mortgagor after the
date hereof, which by the terms hereof is intended to be subject
to the lien of this Mortgage, shall immediately upon the
acquisition thereof by the Mortgagor, and without further
mortgage, conveyance or assignment, become subject to the lien of
this Mortgage as fully as though now owned by the Mortgagor and
specifically described herein.
(b) The Mortgagor will execute, acknowledge and
deliver all and every such further assurance in law for the
better assuring, conveying, assigning and transferring unto the
Mortgagee all and singular the Mortgaged Property hereby
conveyed, assigned or transferred or intended so to be or which
the Mortgagor may be or hereafter become bound to convey, assign
or transfer to the Mortgagee, in such manner as the Mortgagee
shall reasonably require.
1.11 Hazardous Materials. (a) The Mortgagor shall,
and the Mortgagor shall cause all employees, agents, contractors
and subcontractors of the Mortgagor and any other persons
lawfully present on or occupying the Mortgaged Property to, keep
and maintain the Mortgaged Property, including, without
limitation, the air, soil and ground water thereof, in compliance
with and not cause or knowingly permit the Mortgaged Property,
including, without limitation, the air, soil and ground water
thereof, to be in violation of any federal, state or local laws,
ordinances or regulations relating to industrial hygiene or to
the environmental conditions thereon (including but not limited
to any "Hazardous Materials Laws" as hereafter defined). Neither
the Mortgagor nor any employees, agents, contractors and
subcontractors of the Mortgagor or any other persons lawfully
occupying or present on the Mortgaged Property shall use,
generate, manufacture, store or dispose of on, under or about the
Mortgaged Property or transport to or from the Mortgaged Property
any flammable explosives, radioactive materials, hazardous
wastes, toxic substances or related materials, including, without
limitation, any substances defined or listed as or included in
the definition of "hazardous substances," hazardous wastes,"
"hazardous materials," or "toxic substances" under any Hazardous
Materials Laws (collectively referred to hereafter as "Hazardous
Materials"), except as such may be required to be used, stored or
transported in connection with the permitted uses of the
Mortgaged Property and then only to the extent permitted by law
after obtaining all necessary permits and licenses therefor.
(b) The Mortgagor shall immediately advise the
Mortgagee in writing of: (i) any notices (whether such notices
are received from the Environmental Protection Agency, or any
other federal, state or local governmental agency or regional
office thereof) of violation or potential violation which are
received by the Mortgagor of any applicable federal, state or
local laws, ordinances or regulations relating to any Hazardous
Materials, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended, the Hazardous Material Transportation Act, the
Resource Conservation and Recovery Act, the Hazardous Substances
Account Act, the Hazardous Substances Act and the Underground
Tank Act of 1984 (collectively, the "Hazardous Materials Laws");
(ii) any and all enforcement, cleanup, removal or other
governmental or regulatory actions of which the Mortgagor has
received written notice that are instituted, completed or
threatened pursuant to any Hazardous Materials Laws; (iii) all
claims of which the Mortgagor has received written notice that
are made or threatened by any third party against the Mortgagor
or the Mortgaged Property relating to damage, contribution, cost
recovery compensation, loss or injury resulting from any
Hazardous Materials (the matters set forth in clauses (i), (ii)
and (iii) above are hereinafter referred to as "Hazardous
Materials Claims"); and (iv) the Mortgagor's receipt of written
notice relating to any occurrence or condition on any real
property adjoining or in the vicinity of the Mortgaged Property
that could cause the Mortgaged Property or any part thereof to be
classified as "borderzone property" under the provisions of any
Hazardous Material Law or any regulation adopted in accordance
therewith, or to be otherwise subject to any restrictions on the
ownership, occupancy, transferability or use of the Mortgaged
Property under any Hazardous Materials Law.
(c) The Mortgagee shall have the right (but not the
obligation) to join and participate in, as a party if it so
elects, any legal proceedings or actions initiated in connection
with any Hazardous Materials Claims and to have its reasonable
attorneys' and consultants' fees in connection therewith paid by
the Mortgagor upon demand.
(d) The Mortgagor shall be solely responsible for, and
hereby indemnifies and agrees to hold harmless the Mortgagee, its
respective directors, officers, employees, agents, successors and
assigns from and against, any loss, damage, cost, expense or
liability directly or indirectly arising out of or attributable
to the use, generation, storage, release, threatened release,
discharge, disposal or presence (whether prior to or during the
term of the Notes secured by this Mortgage) of Hazardous
Materials on, under or about the Mortgaged Property (whether by
Mortgagor or a predecessor in title or any employees, agents,
contractor or subcontractors of the Mortgagor or any predecessor
in title or any third persons at any time occupying or present on
the Mortgaged Property).
(e) Any costs or expenses reasonably incurred by the
Mortgagee for which the Mortgagor is responsible or for which the
Mortgagor has indemnified the Mortgagee shall be paid to the
Mortgagee on demand, and failing prompt reimbursement thereof,
shall be added to the Entire Indebtedness secured by this
Mortgage and earn interest at the Default Rate, as that term is
defined in the Credit Agreement, until paid in full.
1.12 Transfer or Encumbrance of Mortgaged Property.
The Mortgagor shall not sell, assign, transfer, convey, alien,
mortgage, encumber, pledge or otherwise dispose of the Mortgaged
Property except as expressly permitted in the Credit Agreement or
in the Lease.
1.13 Documentary Stamps. If at any time the United
States of America, any State thereof, or any subdivision of any
such State shall require revenue or other stamps to be affixed to
the Note or this Mortgage, or impose any other tax or charge on
the same, the Mortgagor will pay for the same, with interest and
penalties thereon, if any.
1.14 Performance of Other Agreements. The Mortgagor
shall observe and perform each and every term to be performed by
the Mortgagor pursuant to the terms of any agreement or recorded
instrument affecting or pertaining to the Mortgaged Property.
ARTICLE II
DEFAULT AND REMEDIES
2.1 Default. An event of default ("Event of Default")
under this Mortgage shall be deemed to have occurred if an Event
of Default, as that term is defined in the Credit Agreement,
occurs and is continuing. In the case of each and every Event of
Default, the security hereby created shall become enforceable and
the Mortgagee may proceed forthwith to enforce the same as
hereafter set forth.
2.2 Acceleration of Maturity. In case the security
hereby created shall become enforceable as hereinbefore provided,
the Mortgagee may, in its discretion, declare, without notice
other than as may be required under the Credit Agreement, the
Entire Indebtedness immediately due and payable as provided in
the Credit Agreement or the other Loan Documents, and thereupon
or at any time thereafter, the Mortgagee may proceed to foreclose
the lien of this Mortgage (including by sale under power of sale
hereunder [such power, in accordance with the statutes in such
case made, being hereby granted from Mortgagor to Mortgagee], by
strict foreclosure or foreclosure by advertisement and sale or by
other procedure available at law or in equity or otherwise or in
part by any such procedure, and to have the same sold under the
judgment or decree of a court of competent jurisdiction or an
officer of such a court) or otherwise pursue any other right or
remedy herein, or at law or in equity provided. The rights and
remedies in this Section are cumulative of and in addition to any
rights or remedies set forth elsewhere in this Mortgage. The
Mortgagee may proceed under this Mortgage with or without
proceeding under any other Collateral Security Document, or may
proceed under this Mortgage and any other Collateral Security
Document in such order or concurrently as the Mortgagee
determines in its sole discretion, and the Mortgagor, to the
fullest extent permitted by law, waives all rights of marshalling
of assets.
2.3 Protection of Security. If the Mortgagor shall
fail to make any payment or perform any act required to be made
or performed hereunder or under any other Loan Document, the
Mortgagee may, in its reasonable discretion make such payment or
perform the same after ten (10) days notice to the Mortgagor
without waiver of any other remedy, and any amount paid or
advanced by the Mortgagee in connection therewith, or any other
costs, charges or expenses incurred in the protection of the
Mortgaged Property and the maintenance of this lien shall bear
interest at the Default Rate, shall be repayable by the Mortgagor
within fifteen (15) days after demand, shall be a lien upon the
Mortgaged Property prior to any right or title to, interest in or
claim thereon attaching or accruing subsequent to the lien of
this Mortgage, and shall be deemed to be included in and secured
by this Mortgage.
2.4 Entry and Removal. In case the security hereby
created shall become enforceable as hereinbefore provided, the
Mortgagee may, in its discretion to the extent permitted under
applicable law, ten (10) days after notice and in accordance with
the Lease, enter upon and take possession of the Mortgaged
Property or any part thereof by summary proceedings, ejectment or
otherwise and may remove the Mortgagor and all other persons and
any and all property therefrom, and may hold, operate and manage
the same and receive all earnings, income, rents, issues and
proceeds accruing with respect thereto or any part thereof. The
Mortgagee shall be under no liability for or by reason of any
such entry, taking of possession, removal, holding, operation or
management except for gross negligence or willful misconduct.
2.5 Receivership. The Mortgagee in any suit to
foreclose this Mortgage shall be entitled to the appointment of a
receiver of the Mortgaged Property as a matter of right and
without notice (the same being expressly waived), with power to
collect the rents, issues and profits of said Mortgaged Property,
due and to become due during the pendency of such foreclosure
suit to and including the date of confirmation of the sale under
such foreclosure and during the redemption period, if any, after
such confirmation, such rent and profits being hereby expressly
assigned and pledged as security for the payment of the Entire
Indebtedness without regard to the value of the Mortgaged
Property, and regardless of whether the Mortgagee has an adequate
remedy at law. The Mortgagor for itself and any subsequent owner
hereby waives any and all defenses to the application for a
receiver as above provided, but nothing herein contained is to be
construed to deprive the Mortgagee of any other right, remedy or
privilege it may now have under the law to have a receiver
appointed.
2.6 Rights Cumulative; Application of Proceeds. (a)
The rights and remedies herein provided for shall be deemed to be
cumulative and in addition to, and not in limitation of, those
provided by law, and if there be no receiver so appointed, the
Mortgagee may proceed to collect the rents, issues and profits
from the property covered hereby.
(b) The Mortgagee shall deduct from any such rents,
issues and profits collected by the receiver or by the Mortgagee
prior to a foreclosure sale, or from the proceeds of such a
foreclosure sale, the cost of such collection and/or foreclosure
sale, including, without limitation, real estate commissions,
receiver's and reasonable attorneys' fees, if permitted by law,
and court costs, and apply the remainder against the Entire
Indebtedness in such priorities and proportions as the Mortgagee
shall determine in its sole discretion.
2.7 Proceedings by Mortgagee. (a) To the full extent
not prohibited by law, the Mortgagor waives all errors and
imperfections in any proceedings instituted by the Mortgagee
under any documents evidencing or securing the Entire
Indebtedness and all benefit of any present or future moratorium
law or any other present or future law, regulation or judicial
decision which: (i) exempts any of the Mortgaged Property or any
other property, real or personal, or any part of the proceeds
arising from any sale thereof from attachment, levy or sale under
execution; (ii) provides for any stay of execution, marshalling
of assets, exemption from civil process, redemption, extension of
time for payment or valuation or appraisement of any of the
Mortgaged Property; or (iii) conflicts with any provision of any
of the documents evidencing or securing the Entire Indebtedness.
(b) In the event that the Mortgagee elects to
foreclose this Mortgage by advertising and selling the Mortgaged
Property or any part thereof pursuant to any then applicable
statutes the Mortgagor hereby expressly waives, to the extent not
prohibited by law, (i) any right which it may have or claim to
have to prior notice of such foreclosure and sale other than
those by publication and posting as provided in said statutes and
(ii) any right it may have or claim to have to judicial or other
hearing prior to such foreclosure and sale for the purpose of
objecting thereto.
2.8 No Waiver. The failure of the Mortgagee to
exercise the option for acceleration of maturity and/or
foreclosure following any Event of Default or to exercise any
other option granted hereunder in any one or more instances, or
the acceptance of partial payments hereunder shall not constitute
a waiver of any such Event of Default, nor extend or affect the
grace period, if any, but such option shall remain continuously
in force. Acceleration of maturity, once claimed hereunder may,
at the option of the Mortgagee, be rescinded only by written
acknowledgment to that effect by the Mortgagee, but the tender
and acceptance of partial payments alone shall not in any way
affect or rescind such acceleration of maturity, nor extend or
affect the grace period, if any.
ARTICLE III
LEASEHOLD PROVISIONS
3.1 Representations and Warranties. The Mortgagor
represents and warrants that on the date hereof the Lease is in
full force and effect, that all rents (including additional rents
and other charges which have been invoiced to the Mortgagor by
the landlord under the Lease) reserved in the Lease have been
paid to the extent they were payable prior to the date hereof,
and that, to the best of the Mortgagor's knowledge, the Mortgagor
is not in default in the performance of any of its other
obligations under the Lease and no condition or event exists or
has occurred thereunder which would give any party thereto the
right to cancel, terminate or surrender the lease.
3.2 Covenants. The Mortgagor shall (a) promptly
perform and observe all of the terms, covenants and conditions
required to be performed and observed by the Mortgagor under the
Lease and do all things reasonably necessary to preserve and to
keep unimpaired its rights thereunder, (b) promptly deposit with
the Mortgagee an original executed copy of the Lease (if a
complete copy of the Lease is not filed for record) and a true
and complete copy of any notice, communication, plan or other
instrument or document received by it in any way relating to or
affecting the Lease, (c) promptly notify the Mortgagee of any
default by the Mortgagor under the Lease in the performance of
any of the terms, covenants or conditions on the part of the
Mortgagor to be performed or observed thereunder or of the giving
of any notice by the lessor under the Lease to the Mortgagor of
any such default or of such lessor's intention to end the term
thereof and (d) promptly cause a copy of each such notice given
by the lessor under the Lease to the Mortgagor to be delivered to
the Mortgagee.
3.3 Right to Cure. If the Mortgagor shall fail
promptly to perform or observe any of the terms, covenants or
conditions required to be performed by it under the Lease,
including, without limitation, payment of all basic rent and any
additional rent due thereunder, the Mortgagee may, without
obligation to do so, take such action as is reasonably
appropriate to cause such terms, covenants or conditions to be
promptly performed or observed on behalf of the Mortgagor in
accordance with the Lease but no such action by the Mortgagee
shall release the Mortgagor from any default under this Mortgage.
Upon receipt by the Mortgagee from the lessor under the Lease of
any notice of default by the Mortgagor thereunder, the Mortgagee
may rely thereon and take any action as aforesaid to cure such
default even though the existence of such default or the nature
thereof be questioned or denied by the Mortgagor or by any party
on behalf of the Mortgagor.
3.4 Consent of Mortgagee. The Mortgagor shall not
surrender its leasehold estate and interests under the Lease, nor
terminate or cancel the Lease, and the Mortgagor shall not
materially modify, change, supplement, alter or amend the Lease
orally or in writing (including, without limitation, any change
in the rent), and the Mortgagor does hereby expressly release,
relinquish and surrender unto the Mortgagee all its right, power
and authority, if any, to materially modify, change, supplement,
alter or amend the provisions of the Lease in any way, and any
attempt on the part of the Mortgagor to exercise any such right
without the consent of the Mortgagee shall be null and void.
Notwithstanding the foregoing, the Mortgagor may surrender its
leasehold estate without the consent of the Mortgagee upon
expiration of the initial term of the Lease.
3.5 No Release. No release or forbearance of any of
the Mortgagor's obligations under the Lease, pursuant to the
terms thereof or otherwise, shall release the Mortgagor from any
of its obligations under this Mortgage.
3.6 No Merger. Except for the merger of the fee
estate and the leasehold estate upon purchase of the premises
subject to the Lease by the Mortgagor, the fee title to the
property demised by the Lease and the leasehold estates shall not
merge, but shall always remain separate and distinct,
notwithstanding the union of the aforesaid estates in the lessor
under the Lease or in a third party by purchase or otherwise,
unless the Mortgagee shall, at its option, execute and record a
document evidencing its intent to merge the estates. If the
Mortgagor acquires the fee title or any other estate, title or
interest in any property covered by the Lease, this Mortgage
shall attach to, be a lien upon and spread to the fee title or
such other estate so acquired, and such fee title or such other
estate shall, without further assignment, mortgage or conveyance,
become and be subject to the lien of the Mortgage. The Mortgagor
shall notify the Mortgagee of any such acquisition by the
Mortgagor and, on written request by the Mortgagee, shall cause
to be executed and recorded all such other and further assurances
or other instruments in writing as may in the opinion of the
Mortgagee be required to carry out the intent and meaning hereof.
3.7 Enforcement. The Mortgagor shall enforce the
obligations of the lessor under the Lease to the end that the
Mortgagor may enjoy all of the rights granted to it under the
Lease, and shall promptly notify the Mortgagee of any notice of
default by the lessor under the Lease in the performance or
observance of any of the terms, covenants and conditions on the
part of such lessor to be performed or observed under the Lease
and the Mortgagor shall promptly advise the Mortgagee of the
occurrence of any event of default under the Lease of which the
Mortgagor receives notice.
3.8 Estoppel. The Mortgagor shall use reasonable
efforts to obtain from the lessor under the Lease and deliver to
the Mortgagee, within twenty (20) days after demand from the
Mortgagee, a statement in writing certifying that the Lease is
unmodified and in full force and effect and the dates to which
the basic rent, additional rent and other charges, if any, have
been paid in advance, and stating whether or not, to the best
knowledge of the signer of such certificate, the Mortgagor is in
default in the performance of any covenant, agreement or
condition contained in the Lease, and, if so, specifying each
such default of which the signer may have knowledge.
3.9 Casualty. In the event of a casualty loss to or a
condemnation of any part of the Mortgaged Property that is
subject to the Lease, the Mortgagor shall promptly notify the
Mortgagee of (a) such casualty loss or condemnation (b) the
amount of any insurance or condemnation proceeds arising
therefrom, and (c) the present name and address of the entity
holding such proceeds.
ARTICLE IV
MISCELLANEOUS
4.1 Advances. The Loan Documents obligate the
Mortgagee to advance definite and certain sums under definite
conditions, in a particular manner, and at the times and upon the
conditions set forth therein. The parties hereto intend that in
addition to any other indebtedness or obligations secured hereby,
this Mortgage shall secure the unpaid balance of such loan
advances made by the Mortgagee at the request of the Mortgagor
after this Mortgage is delivered to the recorder for record. The
maximum amount of such unpaid principal balances, in the
aggregate and exclusive of interest accrued thereon, which may be
outstanding at any time is $5,150,000.00). In addition to any
other indebtedness or obligation secured hereby, this Mortgage
shall also secure unpaid balances of advances, made after this
Mortgage is delivered to the recorder for record, in order to
protect the Mortgaged Property, including without limitation for
the payment of taxes, assessments, insurance premiums, water and
sewer rents, and principal or interest on any prior liens.
4.2 Security Agreement. This Mortgage is hereby
deemed to be as well a Security Agreement for the purpose of
creating hereby a security interest securing the indebtedness
secured hereby in and to the collateral, as described below. The
Mortgagor has executed and delivered to the Mortgagee a Security
Agreement of even date herewith. To the extent the Mortgaged
Property is covered by both this Mortgage and the Security
Agreement, the provisions of both shall apply, but in the event
of a conflict, the provisions of this Mortgage shall govern as to
all portions of the Mortgaged Property as constitutes real
property and fixtures, and interest therein, and the provisions
of the Security Agreement shall govern as to all portions of the
Mortgaged Property as constitutes personal property.
4.3 Financing Statement. This Mortgage is intended to
be effective as a financing statement filed as a fixture filing,
and, in compliance therewith, the following information is set
forth:
If to the Debtor: Payne Fabrics, Inc.
3500 Kettering Boulevard
Dayton, Ohio 45439
Attention: Val G. Blaugh
With a copy to: Dechert Price & Rhoads
477 Madison Avenue
New York, New York 10022
Attention: Claude A. Baum
If to the Secured Party: Bank One, Dayton, N.A.
300 Kettering Tower
Dayton, Ohio 45401
Attention: Jack M. Boecker
With a copy to: Chernesky, Heyman & Kress
10 Courthouse Plaza, SW
Dayton, Ohio 45401-3808
Attention: Andrew K. Cherney, Esq.
The property covered hereby is described in detail in
the granting clauses of the within Mortgage and elsewhere in the
within Mortgage, some of said property being goods which are or
are to become fixtures on the Leased Premises described in the
within Mortgage. Douglas D. Payne and Maryann P. Cox are the
record owners of the Leased Premises.
4.4 Notices. A notice to, demand upon or other
request of the Mortgagor shall be deemed to have been duly given
or made pursuant to this Mortgage, the Note and the other Loan
Documents upon the earlier of (1) hand delivery to or other
actual receipt by any of the Mortgagor, or (2) two days after
being mailed by registered or certified mail to the Mortgagor at
the address set forth as below (or to such other address as the
Mortgagor may hereafter furnish to the Mortgagee in writing for
that purpose), irrespective of whether actually received by
Mortgagor:
Payne Fabrics, Inc.
3500 Kettering Boulevard
Dayton, Ohio 45439
Attention: Val G. Blaugh
No other method of giving notice to or making demands or other
requests upon the Borrowers is hereby precluded. Every notice,
report, certificate or other writing required to be given to the
Mortgagee shall be deemed given when delivered (by mail,
messenger or otherwise) to the Mortgagee at Bank One, Dayton,
N.A., 300 Kettering Tower, Dayton, Ohio 45401, Attention: Jack
M. Boecker.
4.5 No Assumption of the Mortgagor's Obligations.
Neither this Mortgage, any assignment of leases nor any action or
inaction on the part of the Mortgagee shall constitute an
assumption on the part of the Mortgagee of any obligation as
lessor under any occupancy lease or as lessee under the Lease.
4.6 Provisions Severable. Nothing herein contained
nor any transactions related thereto shall be construed or shall
so operate either presently or prospectively, (a) to require the
Mortgagor to pay interest at a rate greater than is permitted
under applicable law, but shall require payment of interest only
to the extent of such lawful rate, or (b) to require the
Mortgagor to make any payment or do any act contrary to law, but
if any clause and provision herein contained shall otherwise so
operate to invalidate this Mortgage in whole or in part then such
clauses and provisions only shall be held for naught as though
not herein contained and the remainder of this Mortgage shall
remain operative and in full force and effect.
4.7 Governing Law. This Mortgage shall be construed,
interpreted, enforced and governed by and in accordance with the
internal laws of the state in which the Mortgaged Property is
located, without regard to principles of conflicts of law.
4.8 Binding Effect. The provisions of this Mortgage
shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns and the covenants of the
Mortgagor herein shall run with the land.
4.9 Amendment. This Mortgage cannot be modified,
changed or discharged except by an agreement in writing, duly
acknowledged in form for recording, signed by both the Mortgagor
and the Mortgagee.
4.10 Values. It is expressly understood that the
Mortgagee has taken no part in the determination of the value of
any of the properties covered hereby for recordation tax,
insurance or other purposes. In the event of any foreclosure
sale hereunder, all net proceeds shall be available for
application to the Entire Indebtedness, whether or not such
proceeds may exceed the value of any property or properties for
recordation tax, insurance or other purposes.
4.11 Release and Discharge. If the Entire Indebtedness
shall have been paid and all the terms, conditions and
requirements hereof and of the Credit Agreement and the other
Loan Documents shall have been complied with, then this Mortgage
shall be null and void and of no further force and effect. Upon
the written request and at the expense of the Mortgagor, the
Mortgagee will execute and deliver within ten (10) days after
request such proper instruments of release and discharge as may
reasonably be requested to evidence such defeasance, release and
discharge.
4.12 Capitalized Terms. Unless otherwise defined
herein, all capitalized terms used herein shall have the
respective meanings ascribed to them in the Credit Agreement.
ARTICLE V
ADDITIONAL PROVISIONS - OHIO
5.1 Priority of Mortgage Lien. The Mortgagee is
authorized and empowered to do all things provided to be done by
a mortgagee under Section 1311.14 of the Ohio Revised Code for
the protection of the Mortgagor's interest in the Mortgaged
Property.
5.2 Protective Advances. This Mortgage secures, in
addition to the Entire Indebtedness, all unpaid advances of the
Mortgagee with respect to the Mortgaged Property for the payment
of taxes, assessments, insurance premiums, or costs incurred for
the protection of the Mortgaged Property as provided in Section
5301.233 of the Ohio Revised Code.
IN WITNESS WHEREOF, this Mortgage has been executed as
of the day and year first above written.
Signed and Acknowledged
in the Presence of:
PAYNE FABRICS, INC.
________________________ By:_________________________
Name: Val G. Blaugh
________________________ Title: President
STATE OF OHIO )
) SS:
COUNTY OF MONTGOMERY )
The foregoing instrument was acknowledged before me
this ____ day of May, 1995, by Val G. Blaugh, President of Payne
Fabrics, Inc., a Delaware corporation, on behalf of the
corporation.
___________________________
Notary Public
This Instrument Prepared By:
Joan H. Roddy, Esq.
Chernesky, Heyman & Kress
1100 Courthouse Plaza, SW
Dayton, Ohio 45402
(513) 449-2829
PAGE
<PAGE>
EXHIBIT A
Situate in the City of Moraine, Montgomery
County, Ohio and being Lots Numbered 3132,
3133 and 3134 of the consecutive numbers of
lots on the revised plat of the City of
Moraine, Ohio.
PAGE
<PAGE>
ANNEX D
SUBORDINATION AGREEMENT
PAYNE FABRICS, INC., ("Borrower") is indebted to the
undersigned BELL NATIONAL CORPORATION ("Creditor"), for fees for
administration services and Borrower may hereafter from time to
time become indebted to Creditor in further amounts (such fees
and all other indebtedness of Borrower to Creditor or other
amounts payable by Borrower to Creditor, whether now existing or
hereafter arising, are hereinafter referred to collectively as
the "Obligations").
THEREFORE, in order to induce Bank One, Dayton, National
Association ("Bank One"), having its principal office at: Dayton,
Ohio its permitted successors or assigns, at any time or form
time to time, at its option, to make loans or extend credit or
other accommodation or benefit to or for the account of Borrower,
with or without security, or to purchase or extend credit upon
any instrument or writing in respect of which Borrower may be
liable in any capacity, or to grant such renewals or extensions
of any thereof as Bank One may deem advisable, Creditor agrees
that until all indebtedness of Borrower to Bank One, whether now
existing or hereafter arising, direct or indirect, absolute or
contingent, joint or several, secured or unsecured, due or not
due, and whether arising directly between Borrower and Bank One
or acquired outright, conditionally or as collateral security
from another by Bank One, shall have been fully paid, Creditor
will not ask, demand, sue for, accept or receive payment from
Borrower, by setoff or in any other manner, either in whole or in
part, of the principal and interest the Obligations, nor receive
any security therefor. Furthermore, any security interest,
mortgage, pledge, assignment or other collateral now held by
Creditor as security for the Obligations shall likewise be
subordinated to any such collateral security now or hereafter
also held Bank One to effect the purposes intended hereby, and
Creditor agrees to sign such other instruments as may be required
to accomplish the purposes hereof. , or other amounts
payable in respect of,
1. Notwithstanding any other provision of this Agreement,
Borrower may pay, and Creditor may accept payment of, fees to
Creditor for administrative services in an amount not to exceed
$15,000 per month, if at the time of any such payment and after
giving effect thereto, no Event of Default described in Section
6.1 or 6.2 of the Revolving Credit Agreement dated as of May 1,
1995 among Borrower, Creditor and Bank One shall exist.
1A. Notwithstanding any other provision of this Agreement,
Borrower may pay, and Creditor may accept payment of, in addition
to amounts permitted under the foregoing paragraph 1, from time
to time such amounts as may be necessary to reimburse the
Creditor for taxes paid by it on a consolidated basis on behalf
of itself and the Borrower to the extent that such taxes are in
respect of the earnings, income or assets of the Borrower.
2. Creditor and Borrower shall make an appropriate record
of this subordination on their respective books and records and
on the evidence of the Obligations and deliver such evidence of
the Obligations as may exist, such as promissory notes and other
instruments, to Bank One to be held by Bank One during the term
hereof. Any promissory notes, agreements or other evidence of
the Obligations so delivered to Bank One shall be endorsed "Pay
to the order of Bank One, Dayton, National Association. If any
portion of the Obligation is not evidenced by an instrument at
the time of execution of this Subordination Agreement, Borrower
shall be prohibited from executing and Creditor shall be
prohibited from accepting any such instrument unless at Bank
One's sole discretion: (a) Bank One is notified in writing of
such execution of an instrument and it is deposited with Bank One
endorsed as mentioned above or (b) it is property legended as
follows: "This ________________ and payment hereof is subject to
and governed by the terms of a certain Subordination Agreement
dated as of May 15, 1995 by and among Borrower, Creditor and Bank
One, Dayton, National Association, the provisions of which are
incorporated herein and made a part hereof."
3. All indebtedness of Borrower to Creditor now existing,
is hereby assigned to Bank One as security for the payment of all
indebtedness of Borrower to Bank One, whether now existing or
hereafter contracted, and nothing provided in this Agreement
shall diminish the effect of the assignment contained in this
paragraph. Furthermore, all indebtedness of Borrower to Creditor
hereafter contracted and all collateral held therefor will be
subordinated and assigned to Bank One as such new debt comes into
existence and Creditor agrees to notify Bank One, in writing
prior to the actual creation of any such additional indebtedness.
4. Creditor agrees that, in the event of any distribution,
division or application, partial or complete, voluntary or
involuntary, by operation of law or otherwise, of all or any part
of the assets of Borrower or the proceeds thereof, to creditors
of Borrower, or upon any indebtedness of Borrower, by reason of
the liquidation, dissolution or other winding up of Borrower or
Borrower's business, or any sale, receivership, insolvency or
bankruptcy proceeding, or assignment for the benefit of
creditors, or any proceeding by or against Borrower for any
relief under any bankruptcy or insolvency law or laws relating to
the relief of debtors, readjustment of indebtedness,
reorganizations, compositions or extensions, then, and in any
such event, any payment or distribution of any kind or character,
either in cash, securities or other property, which shall be
payable or deliverable upon or with respect to any or all of the
Obligations of Borrower to Creditor shall be paid or delivered
directly to Bank One for application on any indebtedness, due or
not due, of Borrower to Bank One until such indebtedness to Bank
One shall have first been fully paid and satisfied. Creditor
irrevocably authorizes and empowers and hereby constitutes and
appoints any duly qualified acting officer of Bank One as the
true and lawful attorney of Creditor, for and in the name and
stead of Creditor, to demand, sue for, collect and receive every
such payment or distribution and give acquittance therefor and to
file claims and take such other proceedings, in Bank One's own
name or in the name of Creditor or otherwise, as Bank One may
deem necessary or advisable for the enforcement of this Agreement
and Creditor acknowledges that the aforesaid powers are coupled
with an interest and shall not be revoked by the death or the
incapacity of Creditor or otherwise; and Creditor agrees to
execute and deliver to Bank One such other powers of attorney,
assignments or other instruments as may be reasonably requested
by Bank One in order to enable Bank One to enforce any and all
claims upon or with respect to any of the Obligations, and to
collect and receive any and all payments or distributions which
may be payable or deliverable at any time upon or with respect to
the Obligations.
5. Should any payment, distribution, security or proceeds
thereof, the receipt of which is prohibited by this Agreement, be
received by Creditor upon or with respect to the Obligations
prior to the satisfaction of all of said indebtedness of Borrower
to Bank One, Creditor will forthwith deliver the same to Bank One
in precisely the form received (except for the endorsement or
assignment of Creditor where necessary), for application on any
indebtedness, due or not due, of Borrower to Bank One, and, until
so delivered, the same shall be held in trust by Creditor as
property of Bank One. In the event of the failure of Creditor to
make any such endorsement or assignment or assignment, Bank One,
or any of its officers or employees, are hereby irrevocably
authorized to make the same.
6. Creditor agrees not to sell, pledge, assign or transfer
to others any claim Creditor has or may have against Borrower or
any collateral securing any such claim or securing any one or
more of the Obligations while any indebtedness of Borrower to
Bank One remains unpaid, unless such assignment or transfer is
made expressly subject to this Agreement.
7. This is a continuing agreement of subordination and
Bank One may, but shall not be obligated to continue, without
notice to Creditor, to extend unlimited credit or other
accommodation or benefit and loan money in unlimited amounts to
or for the account of Borrower on the faith hereof until written
notice of revocation of this Agreement shall be delivered by Bank
One to Creditor. Any such notice of revocation shall not affect
this Agreement in relation to any obligations or liabilities
created thereafter pursuant to any previous commitment of Bank
One to Borrower, or any extensions or renewals of any such
obligations and liabilities.
8. Bank One, without notice to Creditor and without in any
way affecting this Agreement, shall have the right at any time
and from time to time to deal in any manner in which Bank One
deems fit with any indebtedness of Borrower to Bank One, whether
now existing or hereafter arising, including, but not limited to,
(i) accepting partial payments on any such indebtedness, (ii)
granting extensions or renewals of all or any part of any such
indebtedness, (iii) releasing or accepting substitutes for any or
all security which Bank One holds or may hereafter hold for any
such indebtedness, and (iv) modifying waiving, supplementing or
otherwise changing any of the terms, conditions or provisions
contained in any notes, instruments or agreements evidencing or
securing any such indebtedness. Creditor consents and agrees
that all indebtedness and liabilities of Borrower to Bank One
shall be deemed to have been made or incurred in reliance upon
this Agreement. Furthermore, Creditor agrees that any and all
settlements, compromises, compositions, accounts stated and
agreed balances made in good faith between Bank One and Borrower
shall be binding upon Creditor.
9. No waiver shall be deemed to be made by Bank One of any
of its rights hereunder unless the same shall be in writing and
signed on behalf of Bank One and each waiver, if any, shall be a
waiver only with respect to the specific instance involved and
shall in no way otherwise impair the rights of Bank One with
respect to the obligations of Creditor to Bank One in any other
respect at any other time.
10. Notice of acceptance of this Agreement is hereby
waived, and this agreement shall be immediately binding upon
Creditor and its successors and assigns. Creditor also expressly
waives notice of the incurring by Borrower of any future
indebtedness to Bank One and waives presentment, demand for
payment, protest and notice of dishonor or nonpayment or
nonperformance of any indebtedness of Borrower to Bank One.
11. This Agreement shall be construed according to the laws
of the state where Bank One's principal office is located.
IN WITNESS WHEREOF, Credit has executed this Agreement as of
the 15th day of May, 1995.
CREDITOR:
BELL NATIONAL CORPORATION
By: _________________________
CONSENT OF BORROWER
PAYNE FABRICS, INC. the Borrower under the terms and provisions
of the foregoing Subordination Agreement, hereby acknowledges and
accepts the terms and noticed of the foregoing Agreement this
15th day of May, 1995.
PAYNE FABRICS, INC.
By: _____________________________
PAGE
<PAGE>
ANNEX E
Assignment of Life Insurance
Policy as Collateral
----------------------------------------------------------------
A. For value received the undersigned hereby
assign, transfer and set over to
_______________________________________________
____________
_______________________________________________
_____________
(Name and address)
its successors and assigns, (hereinafter
"Assignee") Policy No _____________ issued by
the __________________________
_______________________________________________
____________
(hereinafter "Insurer") and any supplementary
contracts issued in connection therewith (said
policy and contracts being herein called
"Policy"), upon the life of ___________
_______________________________________________
____________
(Name and address)
_____________________________________________
and all claims, options, privileges, rights,
title and interest therein and thereunder
(except as provided in Paragraph C hereof),
subject to all the terms and conditions of the
Policy and to all superior liens, if any, which
the insurer may have against the Policy. The
undersigned by this instrument jointly and
severally agree and the Assignee by the
acceptance of this assignment agrees to the
conditions and provisions herein set forth.
B. It is expressly agreed that, without detracting
from the generality of the foregoing, the
following specific rights are included in this
assignment and pass by virtue hereof:
1. The sole right to collect from the insurer
the net proceeds of the Policy when it
becomes a claim by death or maturity;
2. The sole right to surrender the Policy and
receive the surrender value thereof at any
time provided by the terms of the Policy
and at such other times as the Insurer may
allow.
3. The sole right to obtain one or more loans
or advances on the Policy, either from the
Insurer or, at any time, from other
persons, and to pledge or assign the
Policy as security for such loans or
advances;
4. The sole right to collect and receive all
distributions or shares of surplus,
dividend deposits or additions to the
Policy now or hereafter made or
apportioned thereto, and to exercise any
and all options contained in the Policy
with respect thereto; provided, that
unless and until the Assignee shall notify
the Insurer in writing to the contrary,
the distributions or shares of surplus,
dividend deposits and additions shall
continue on the plan in force at the time
of this assignment; and
5. The sole right to exercise all
nonforfeiture rights permitted by the
terms of the Policy or allowed by the
Insurer and to receive all benefits and
advantages derived therefrom.
C. It is expressly agreed that the following
specific rights, so long as the Policy has not
been surrendered, are reserved and excluded
from this assignment and do not pass by virtue
hereof:
1. The right to collect from the Insurer any
disability benefit payable in cash that
does not reduce the amount of insurance;
2. The right to designate and change the
beneficiary;
3. The right to elect any optional mode of
settlement permitted by the Policy or
allow by Insurer, but the reservation of
these rights shall in no way impair the
right of the Assignee to surrender the
Policy completely with all its incidents
or impair any other right of the Assignee
hereunder, and any designation or change
of beneficiary or election of a mode of
settlement shall be made subject to this
assignment and to the rights of the
Assignee hereunder.
D. This assignment is made and the Policy is to be
held as collateral security for any and all
liabilities of the undersigned, or any of them,
to the Assignee, either now existing or that
may hereafter arise in the ordinary course of
business between any of the undersigned and the
Assignee (all of which liabilities secured or
to become secured are herein called
"Liabilities").
E. The Assignee covenants and agrees with the
undersigned as follows:
1. That any balance of sums received
hereunder from the insurer remaining after
payment of the then existing liabilities,
matured or unmatured;
2. That the Assignee will not exercise either
the right to surrender the Policy or
(except for the purpose of paying
premiums) the right to obtain policy loans
from the insurer, until there has been
default in any of the liabilities or a
failure to pay any premium when due, nor
until twenty days after the Assignee shall
have mailed, by first-class mail, to the
undersigned at the addresses last supplied
in writing to the Assignee specifically
referring to this assignment, notice of
intention to exercise such right; and
3. That the Assignee will upon request toward
without unreasonable delay to the insurer
the Policy for endorsement of any
designation or change of beneficiary or
any election of an optional mode of
settlement.
F. The insurer is hereby authorized to recognize
the Assignee's claims to rights hereunder
investigating the reason for any action taken
by the Assignee, or the validity or the amount
of the Liabilities or the existence of any
default therein, or the giving of any notice
under Paragraph E(2) above or otherwise, or the
application to be made by the Assignee of any
amounts to be paid to the Assignee. The sole
signature of the Assignee shall be sufficient
for the exercise of any rights under the Policy
assigned hereby and the sole receipt of the
Assignee for any sums received shall be a full
discharge and release therefor to the Insurer.
Checks for all or any part of the sums payable
under the Policy and assigned herein shall be
drawn to the exclusive order of the Assignee
if, when, and in such amounts as may be
requested by the Assignee.
G. The Assignee shall be under no obligation to
pay any premium, or the principal of or
interest on any loans or advances on the Policy
whether or not obtained by the Assignee, or any
other charges on the Policy, but any such
amounts so paid by the Assignee from its own
funds shall become a part of the liabilities
hereby secured, shall be due immediately, and
shall draw interest at a rate fixed by the
Assignee from time to time not exceeding 15%
per annum.
H. The exercise of any right, option, privilege or
power given herein to the Assignee shall be at
the option of the Assignee, but (except as
restricted by Paragraph E(2) above) the
Assignee may exercise any such right, option,
privilege or power without notice to, or assent
by, or affecting the liability of, or releasing
any interest hereby assigned by the
undersigned, or any of them.
I. The Assignee may take or release other
security, may release any party primarily or
secondarily liable for any of the Liabilities,
may grant extensions, renewals or indulgences
with respect to the Liabilities, or may apply
to the Liabilities in such order as the
Assignee shall determine, the proceeds of the
Policy hereby assigned or any amount received
on account of the Policy by the exercise of any
right permitted under this assignment, without
resorting or regard to other security.
J. In the event of any conflict between the
provisions of this assignment and provisions of
the note or other evidence of any liability,
with respect to the Policy or rights of
collateral security therein, the provisions of
this assignment shall prevail.
K. Each of the undersigned declares that no
proceedings in bankruptcy are pending against
him and that his property is not subject to any
assignment for the benefit of creditors.
L. All amounts payable to the Assignee shall be
paid in a single sum, and any portion of the
proceeds payable under any policy settlement
option or as retirement income shall be reduced
by the amount so paid.
Signed and sealed this
______________________________ day of
___________________________________, 19____.
OWNER
_____________________________ _____________________________
Witness Street/City/State/Zip
_____________________________ _____________________________
INSURED
_____________________________ _____________________________
Witness Street/City/State/Zip
_____________________________ _____________________________
BENEFICIARY
_____________________________ _____________________________
Witness Street/City/State/Zip
<PAGE>
ANNEX F
[Letterhead of Dechert Price & Rhoads]
May ___, 1995
Bank One, Dayton,
National Association
Kettering Tower
Dayton, Ohio 45401
Payne Fabrics, Inc.
Bell National Corporation
-------------------------
Dear Sirs:
We have acted as counsel to Payne Fabrics, Inc., a Delaware
corporation (the "Company"), and Bell National Corporation, a
California corporation (the "Guarantor"; and collectively with
the Company, the "Loan Parties"), in connection with the
preparation, execution and delivery of the following documents
(collectively, the "Loan Documents"):
(A) Revolving Credit Agreement, dated as of May 1,
1995 (the "Credit Agreement"), among the Company, the
Guarantor and Bank One, Dayton, National Association (the
"Bank");
(B) Tranche A Promissory Note dated May ___, 1995
executed by the Company and payable to the order of the
Bank;
(C) Tranche B Promissory Note dated May ___, 1995
executed by the Company and payable to the order of the
Bank;
(D) Open-End Mortgage, Assignment of Rents and
Security Agreement, dated as of May ___, 1995 between the
Company and the Bank;
(E) Non-Titled Personal Property Security
Agreement, dated as of May ___, 1995, between the Company
and the Bank;
(F) Assignment of Life Insurance Policy as
Collateral, dated May ___, 1995, executed by the Company
and Val G. Blaugh, the President of the Company; and
(G) Subordination Agreement, dated May ___, 1995,
executed by the Guarantor and (in order to consent to the
provisions thereof) the Company.
This letter is being furnished to you pursuant to Section 3.1(m)
of the Credit Agreement. Capitalized terms used but not
otherwise defined herein have the respective meanings ascribed to
such terms in the Credit Agreement.
In acting as such counsel, we have examined original,
photostatic, facsimile, certified or conformed copies of:
(i) the Loan Documents;
(ii) the certificate of incorporation of the
Company, as certified by the Secretary of State of the
State of Delaware, and the by-laws of the Company, as
certified by the Secretary or other officer of the
Company; and resolutions of the Board of Directors of the
Company, as certified by the Secretary or other officer
of the Company;
(iii) the articles of incorporation of the
Guarantor, as certified by the Secretary of State of the
State of California, and the by-laws of the Guarantor, as
certified by the Secretary or other officer of the
Guarantor; and resolutions of the Board of Directors of
the Guarantor, as certified by the Secretary or other
officer of the Guarantor;
(iv) a certificate, telegram and/or other advice
from the Secretary of State of the State of Delaware as
to the good standing of the Company in the State of
Delaware, and a certificate, telegram and/or other advice
from the Secretary of State of the State of California as
to the good standing of the Guarantor in the State of
California; and
(v) a letter, of even date herewith, from certain
officers of the Company and/or Guarantor addressed to
this firm as to certain factual matters relevant to our
opinions hereinbelow, a conformed copy of which is
attached hereto as Annex 1.
As to factual matters relevant to our opinions hereinbelow,
we have relied upon, to the extent we deem necessary or
appropriate, the warranties and representations contained in
(and/or incorporated into) the Loan Documents and upon the letter
referenced above of officers of the Company and/or the Guarantor.
In our examination, we have, with your permission, assumed (a)
the genuineness of all signatures (other than those of officers
of the Loan Parties), (b) the authenticity of all documents,
agreements, instruments, certificates and letters submitted to us
as originals, (c) the conformity to the authentic originals of
all documents, agreements, instruments, certificates and letters
submitted to us as photostatic, facsimile, certified of
conformed copies, (d) the correctness of the information
contained therein, and (e) the authority of all persons executing
documents, agreements, instruments, certificates and letters (but
we have not assumed the authority officers of the Loan Parties in
executing Loan Documents). We have not undertaken a general
investigation of facts, nor have we independently verified the
accuracy or completeness of any documents, agreements,
instruments, certificates, letters, warranties, representations
or advice relied upon by us.
Although we have in the past been engaged to render legal
services to the Loan Parties, our engagements have been limited
to matters specified by their senior officers and, consequently,
we are not routinely or regularly aware of or familiar with all
of their respective legal affairs.
As used herein, the terms "of which we are aware" and "and
far as we are aware" with respect to any particular facts means
that in rendering the opinion or other statement containing such
term we are relying solely on the (I) the representations and
warranties, and the other disclosures, with respect to such facts
contained in the items we have examined listed above, and (II)
the actual knowledge of such facts of the (x) attorney in this
firm who has signed this letter, and (y) the attorney(s) in this
firm who had active involvement in negotiating or preparing the
Loan Documents or this letter.
We have also assumed, with your permission, that the Bank
has the power and authority and has taken the action necessary to
execute and deliver each of the Loan Documents to which it is
party and that each of the Loan Documents constitutes the legal,
valid and binding obligation of the Bank, enforceable against the
Bank in accordance with its terms. We have also considered such
matters of law as we have considered appropriate to enable us to
render the opinions and other statements hereinbelow.
Based upon and subject to the foregoing, and to the
qualifications and limitations set forth below, we are of the
opinion (limited to the application of the laws of the State of
New York, the General Corporation Law of the State of Delaware
and the federal laws of the United States of America) that:
1. Each Loan Party is a corporation incorporated, validly
existing and in good standing under the laws of the jurisdiction
of its incorporation and has all requisite corporate power and
authority to own or lease its property and to transact the
business in which it is now engaged.
2. Each Loan Party has all requisite corporate power and
authority to execute and deliver, and to perform its obligations
under, each of the Loan Documents to which it is a party. The
execution, delivery and performance by each Loan Party of the
Loan Documents to which it is a party have been duly and validly
authorized by all necessary corporate action on its part and do
not and will not: (i) contravene its certificate or articles of
incorporation or bylaws (as in effect on the date hereof); (ii)
violate any provision of any law, rule or regulation or any
order, writ, judgment, injunction, decree, determination or award
of which we are aware; or (iii) result in, or require the
creation or imposition of, any Lien upon or with respect to any
of its properties under any of the foregoing.
3. Each of the Loan Documents has been duly executed and
delivered by each Loan Party party thereto, and each of the Loan
Documents is a legal, valid and binding obligation of each Loan
Party party thereto enforceable against such Loan Party in
accordance with its terms.
4. Other than filings, recordings and registrations in
order to perfect the Liens of the Bank granted under the Loan
Documents, no order, consent, approval, license, authorization or
validation of, or filing, recording or registration with, or
exemption by, any Governmental Authority is required to
authorize, or is required in connection with: (i) the execution,
delivery and performance of the Loan Documents by the Loan
Parties; or (ii) the legality, validity, binding effect or
enforceability of the Loan Documents.
As far as we are aware, there are no actions, suits or
proceedings pending or threatened against or affecting the Loan
Parties or any of their properties before any Governmental
Authority or any arbitrator which are reasonably likely,
individually or in the aggregate, to have a material adverse
effect upon the Loan Parties (taken as a whole).
The opinions expressed in paragraphs 2, 3 and 4 above are
subject to the qualifications that:
(1) Inasmuch as the Loan Documents are, by their
respective terms, governed by the laws of the State of
Ohio law, as to which we express no opinion, we have
assumed, with your permission, that the applicable law of
the State of Ohio is substantively the same as the law of
the State of New York; we express no opinion as to such
conformity.
(2) The availability of equitable remedies,
including without limitation, specific performance and
injunctive relief, is subject to the discretion of the
court before which any proceedings therefor may be
brought (whether such remedies are considered in a
proceeding at law or in equity).
(3) The enforceability of certain provisions of the
Loan Documents may be limited by (a) applicable
bankruptcy, reorganization, arrangement, insolvency,
fraudulent conveyance, moratorium or similar laws
affecting the enforcement of creditors' rights generally,
and (b) general principles of equity and the discretion
of a court in granting equitable remedies (whether
enforceability is considered in a proceeding at law or in
equity).
(4) Certain provisions of the Loan Documents
Agreement that permit the Bank to take action or make
determinations, or to benefit from indemnities and
similar undertakings, may be subject to the requirement
that any such action be taken or any such determination
be made, and that any action or inaction by the Bank that
may give rise to a request for payment under any such
undertaking be taken or not taken, on a reasonable basis
and in good faith. Certain remedial provisions of the
Loan Documents may be limited by, or be unenforceable
under, the statutes and judicial decisions of the courts
of the United States of America, the State of Ohio, or
states in which the collateral covered thereby is deemed
located. Without limiting the generality of the
foregoing, no opinion is expressed herein as to the
legality, validity, binding effect or enforceability of:
(a) set-off and other self-help provisions,
(b) provisions that provide for the
enforceability of the remaining terms and
provisions of an agreement or instrument in
circumstances in which certain terms and provisions
of the agreement or instrument are illegal or
unenforceable,
(c) provisions relating to waivers of
remedies (or the delay or omission of enforcement
of remedies), disclaimers, liability limitations
and limitations on the Bank's obligations in
circumstances in which a failure of condition or a
default by a Designated Party is not material,
(d) waivers of rights to notice, service of
process, trial or appeal and provisions that
purport to authorize other persons to confess
judgments against either of the Loan Parties in
favor of the Bank,
(e) releases or waivers of legal or equitable
rights (including rights of appeal) or defenses,
(f) provisions that purport to establish
evidentiary standards,
(g) indemnification in circumstances in which
the person seeking indemnification has breached its
duties under the applicable agreement or instru-
ment, or otherwise, or itself has been negligent,
(h) provisions relating to the jurisdiction
and location of any judicial forum before which any
proceedings involving or relating to any of the
Loan Documents are brought,
(i) provisions related to the Bank's ability
to accelerate the date of payment or foreclosure on
security in circumstances in which there has not
been a material default by a Designated Party or in
circumstances in which a default has been cured
within a reasonable time, or
(j) provisions providing that waivers,
amendments and other modifications of or to the
Loan Documents are not effective unless in writing.
This letter speaks only as of the date hereof, and the
opinions and statements expressed hereinabove shall not be deemed
to relate to any facts or conditions prevailing, or any law,
statute, rule or regulation in effect, at any time after the date
hereof.
We are members of the Bar of the State of New York and do
not purport to be expert in, and express no opinion with respect
to, the laws of any jurisdiction other than the federal laws of
the United States of America, the laws of the State of New York
and, to the extent necessary to render the opinions expressed
hereinabove, the General Corporation Law of the State of
Delaware.
This letter is being delivered to you for the purposes
hereinabove stated, and this letter may not be relied upon by any
other person or entity or by you for any other purpose.
Very truly yours,
<PAGE>
Annex 1
-------
BELL NATIONAL CORPORATION
PAYNE FABRICS, INC.
c/o Bell National Corporation
4209 Vineland Road, Suite J-1
Orlando, Florida 32811
(407) 849-2090
May ___, 1995
Dechert Price & Rhoads
477 Madison Avenue
New York, New York 10022
Attention: Claude A. Baum, Esq.
RE: Your Opinion Letter of Even Date
--------------------------------
Dear Sirs:
We understand that you are delivering an opinion letter
of even date herewith (the "Opinion Letter") to Bank One, Dayton,
National Association (the "Bank") pursuant to Section 3.1(m) of
that certain Revolving Credit Agreement, dated as of May 1, 1995
(the "Credit Agreement"), among Payne Fabrics, Inc., a Delaware
corporation (the "Company"), Bell National Corporation, a
California corporation (the "Guarantor"), and the Bank.
Capitalized terms used and not defined herein have the respective
meanings ascribed to such terms under the Credit Agreement.
In connection with the rendering of the opinions and
other statements set forth in the Opinion Letter, please be
advised that you are hereby entitled to rely upon any and all
representations, warranties and certifications set forth in the
Credit Agreement or in any other agreement, certificate or other
document contemplated by (or otherwise in respect of) the Credit
Agreement that is executed and delivered by the Company, by the
Guarantor and/or by any of the undersigned as an officer of
either the Company or the Guarantor, as if such representations,
warranties and certifications were addressed to you, it being
understood that such representations, warranties and
certifications shall include, without limitation, those set forth
in the certificates delivered pursuant to Section 3.1(l) of the
Credit Agreement.
Also in connection with the rendering of the opinions
and other statements set forth in the Opinion Letter, please be
advised that:
1. There is no governmental or judicial order, writ,
judgment, injunction, decree or award applicable to the Company
or the Guarantor.
2. The Company has duly executed and delivered each
of the Credit Agreement, Tranche A Note, Tranche B Note,
Mortgage, Security Agreement and Life Insurance Assignment.
3. The Guarantor has duly executed and delivered each
of the Credit Agreement and Subordination Agreement.
4. There are no actions, suits or proceedings pending
or threatened against or affecting the Company or the Guarantor
or any of their respective properties before any Governmental
Authority or any arbitrator.
This letter speaks only as of the date hereof, and our
statements are based on facts, circumstances and actions as of
the time of delivery of this letter.
This letter is being delivered to you on the
understanding that you will be relying on the advice and
statements herein in delivering your Opinion Letter and rendering
the opinions and statements therein. Neither this letter nor any
part hereof may be delivered to, used or relied upon by any other
person or for any other purpose without our prior written
consent.
Very truly yours,
/s/ Alexander M. Milley /s/ Thomas R. Druggish
----------------------- ----------------------
Alexander M. Milley Thomas R. Druggish
/s/ Val G. Blaugh
-----------------------
Val G. Blaugh
PAGE
<PAGE>
ANNEX G
BORROWING BASE CERTIFICATE
Certificate No. ____
Pursuant to Section 5.1(d) or (e) of the Loan Agreement
dated as of May 1, 1995 (the "Agreement") among Payne Fabrics,
Inc. (the "Company"), Bell National Corporation and Bank One,
Dayton, National Association (the "Bank"), the undersigned
[insert name], the [inset title] of the Company, does hereby
certify as follows as of , 199__:
Borrowing Base
Total Receivables as
of __________, 199__ $ __________
Less the following:
Defaulted Receivables $ ________
Finance Charges,
Sales Taxes, etc. $ ________
Sample Book
Receivables $ ________
Accounts with 50%
Defaulted Receivables $ ________
Foreign Receivables $ ________
Employee and Other
Affiliate Receivables $ ________
Contra Accounts $ ________
Other Non-Eligible
Receivables $
Total non-Eligible Receivables $
Total Eligible Receivables $ ________
Advance Rate x 80%
Receivables Borrowing Base $ ________
Total Inventory as
of ________, 199___ $ ________
Less the following:
Raw materials, work-in
process, etc. $
Consigned Inventory $
Rolls under 15 yards $
Obsolete Inventory $ _________
Inventory not located in
Dayton, Ohio $ _________
Other non-Eligible Inventory $ _________
Total non-Eligible Inventory $ _______
_______
Total Eligible Inventory $ _______
Advance Rate on Eligible Inventory:
Advance
Classification Rate
Trim 50% x $________ = $
Multipurpose 50% x $________ = $_________
Drapery 50% x $________ = $_________
Woven Upholstery 50% x $________ = $_________
Casement/Sheer 40% x $________ = $_________
Other 40% x $________ = $_________
Wallpaper 40% x $________ = $_________
Sample 25% x $________ = $_________
_________
Tranche A Inventory Amount
$__________
Availability
The lesser of the Tranche A
Commitment in effect ($________)
or the sum of (a) the Receivables
Borrowing Base ($______) and
(b) the lesser of (i) the Tranche
A Inventory Amount ($________) or
(ii) $1,700,000 $_________
Less the principal amount of the
outstanding Tranche A Loans $_________
_________
$_________
Less the principal amount of the
Tranche A Loans requested
concurrently herewith $_________
_________
$_________
The undersigned does hereby further certify that on and as
the date hereof, and after giving effect to the making of any
Loans being requested concurrently herewith: (i) no Default or
Event of Default has occurred and is continuing [or, if any
Default or Event of Default has occurred and is continuing, this
Certificate shall specify the nature and extent thereof] and (ii)
all representations and warranties of the Company and Guarantor
contained in the Loan Documents or otherwise made in writing in
connection therewith are true and correct in all material
respects with the same force and effect as through such
representations and warranties were made on and as of the date
hereof and (b) attached hereto are calculations establishing that
the Company is in compliance with the provisions of Sections
5.19, 5.20 and 5.21 of the Agreement as of [insert date].
The undersigned does further certify that the calculations
and other determinations set forth herein have been made in
accordance with the Agreement and such calculations and other
determinations are complete and accurate. The undersigned also
understands that the Bank will rely on this Certificate in making
extensions of credit pursuant to the Agreement.
Unless otherwise defined herein, terms defined in the
Agreement are used herein as therein defined. Unless otherwise
indicated herein, all calculations and other determinations are
as of [insert date] and are in thousands of dollars.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate as of ___________, 199__.
______________________________
[Insert name and title]
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,463,000
<ALLOWANCES> 68,000
<INVENTORY> 4,837,000
<CURRENT-ASSETS> 6,549,000
<PP&E> 212,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,721,000
<CURRENT-LIABILITIES> 3,723,000
<BONDS> 0
<COMMON> 15,800,000
0
0
<OTHER-SE> (14,232,000)
<TOTAL-LIABILITY-AND-EQUITY> 8,721,000
<SALES> 7,003,000
<TOTAL-REVENUES> 7,003,000
<CGS> 3,646,000
<TOTAL-COSTS> 6,729,000
<OTHER-EXPENSES> 25,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172,000
<INCOME-PRETAX> 77,000
<INCOME-TAX> 35,000
<INCOME-CONTINUING> 42,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,000
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
