<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(MARK ONE)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended February 29, 1996 OR
-----------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _________ to _________
Commission File Number 0-13946
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INTERNATIONAL DESIGN GROUP, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 59-2521916
- ------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1815 Griffin Road, Suite 402,
Dania, Florida 33004
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 927-9119
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
----
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
---------------------------- -------------------------
Common Stock, $.05 Par Value None
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____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to this Form 10-KSB. The aggregate market value of the voting stock held by
non-affiliates of the registrant as of February 29, 1996 was $289,604, based
on the average of the closing bid and asked prices.
As of April 30, 1996, there were 3,768,401 shares of the Registrant's $.05
par value common stock issued and 3,744,849 were outstanding. Revenues for
the fiscal year ended February 29, 1996 were $3,186,169.
1
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CONTENTS
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Page
Part I
Item 1 - Description of Business 3 - 8
Item 2 - Description of Property 9
Item 3 - Legal Proceedings 9
Item 4 - Submission of Matters to a Vote of Security Holders 9
Part II
Item 5 - Market for Common Equity and Related Stockholder Matters 10
Item 6 - Management's Discussion and Analysis or
Plan of Operation 11-13
Item 7 - Financial Statements 14
Item 8 - Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 15
Part III
Item 9 - Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act 16-17
Item 10 - Executive Compensation 18-23
Item 11 - Security Ownership of Certain Beneficial
Owners and Management 24-25
Item 12 - Certain Relationships and Related Transactions 25
Item 13 - Exhibits and Reports on Form 8-K 26-27
Signature Page 28
Exhibit Index 29
Financial Data Schedule 30
2
<PAGE>
PART I
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ITEM 1
------
DESCRIPTION OF BUSINESS
Business Development
- --------------------
International Design Group, Inc. ("IDG" or the "Company") was formed under
the laws of the State of Delaware in March of 1985, and since August of 1990
has been engaged in the insurance premium finance business through its wholly
owned subsidiary, Finco Financial Corporation ("Finco"). During the fiscal
year ended February 29, 1996, Finco financed insurance premiums in Florida
and South Carolina. During February 1996, the Company began financing
insurance premiums in Tennessee through its wholly owned subsidiary, Federal
Funding Corporation ("Federal"). The Company offers financing primarily to
purchasers of automobile insurance within the States of Florida, South
Carolina, and Tennessee. The Company will typically loan 70% to 85% of the
amount of the total insurance premiums and the loans are collateralized by
the unexpired premiums remaining on the insured's policy which have not yet
been earned by the insurance carrier. A substantial portion of the Company's
financing activities relate to non-standard automobile insurance whereby the
insured is most likely in a high risk category causing the amount of the
premium to be higher than standard automobile insurance.
Currently, there is a statute in Florida which prohibits insurance premium
finance companies from rebating a portion of the interest or origination fees
to insurance brokers in an effort to induce the brokers to refer finance
business to the Company. This prohibition is set to expire on July 1, 1996.
This may result in the Company s costs increasing substantially. See
Regulation Section.
Insurance Premium Financing Services
------------------------------------
Many insurance carriers require full payment of the policy premium upon the
issuance of an insurance policy. When a purchaser of an insurance policy
(the "insured") is unwilling or unable to pay the entire premium in advance,
he may seek financing for at least part of the annual, or semi-annual,
premium. The Company offers financing to qualified purchasers of
predominantly automobile insurance policies. The Company's down payment
requirements vary by state and usually range from 15% to 30% of the entire
annual premium, or 30% to 50% of the entire semi-annual premium.
Alternatively, the insured may be able to finance such premium with either
an affiliated company of the insurance carrier (rather than the insurance
carrier which is permitted to collect certain service charges but is usually
prohibited by law from imposing interest charges), if available, or with an
independent premium finance source such as the Company. The Company's
agreements covering annual policies generally provide for monthly payments
over a period of eight to ten months; agreements covering semi-annual
policies generally provide for monthly payments over a period of three to
four months.
If the insured chooses to obtain financing from the Company, the insurance
broker will complete and have the insured sign one of the Company's premium
finance agreements. The premium finance agreement discloses to the insured,
among other things, the price of the total premium; the amount of the cash
down payment made; the amount financed; the amount of the finance charges;
3
<PAGE>
the amount of the state required documentary tax stamps, if any; the amount
which will be paid after the insured has made all payments as scheduled; the
cost of the credit in terms of an annual percentage rate; late and
cancellation charges; the insured's entitlement to a refund of part of the
finance charge in the event of prepayment; the giving of a security interest
to the Company in any and all unearned return premiums which may become
payable under the policy; and the insured's appointment of the Company as
his attorney-in-fact with authority to cancel the policy and to receive all
unearned premiums due under the policy.
The insurance broker will submit completed finance contracts to the Company,
which are input into the Company's computer system. The computer system
tracks all contracts and automatically generates late notices and cancellation
notices as well as correspondence with insureds, brokers and insurance
companies.
Although the insured is primarily liable on his finance contract, the Company
does not look to his creditworthiness for payment and no investigations are
performed on his credit history. Rather, the insured assigns to the Company
any unearned premium he may attain in the financed insurance policy as
collateral for his loan and grants to the Company the authority to cancel the
insurance policy and collect the unearned premium if there is a default in
payment on the finance contract. Thus, the insurance company, and not the
insured, is the source of payment on a delinquent finance contract.
Additionally, the Company usually will collect the unearned commission from
the broker who acted as agent for the insured on policies that are cancelled,
in the event that the insurance carrier returns the unearned premium to the
Company net of commission.
In most cases, the amount of unearned premiums returned by insurance companies
and the amount of unearned commissions returned from insurance brokers will
cover the majority of the amount loaned by the Company, exclusive of finance
charges and loan origination fees. Any remaining balance will still be due
from the insured. It is the Company's policy to actively pursue all such
balances although in most instances these balances must be written off as
uncollectible bad debts.
From the inception of operations of the Company in September 1990 through
February 29, 1996, the Company has financed the premiums of approximately
150,000 insurance contracts and expects cancellations on approximately
30% -35% of the policies it finances. The allowance for doubtful accounts
reflected in the Company's financial statements takes into account this
anticipated rate of cancellations and the resulting historical rate of
defaults on loans. The Company currently deals with more than 100 insurance
brokers and more than 100 insurance companies. The average amount financed
per contract varies by state but in most cases is less than $1,000. There are
several insurance contracts for commercial insurance that exceed $10,000. No
individual insured accounts for a significant portion of the Company's
receivables. The largest contract outstanding is less than $15,000.
Approximately 38% of the Company's contracts receivable are generated by
referrals from five insurance brokers and approximately 48% of receivables
are written through five insurance companies. No insurance company accounts
for more than 22% of business financed.
There is one broker, however, that accounted for more than 80% of the
Company's finance contracts in South Carolina. As a result of high bad debt
losses and low gross margins associated with the Company's South Carolina
business, the Company is increasing its down payment levels there which may
result in a significant reduction in the finance business generated there.
This change is expected to have a positive impact on overall profitability
4
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for the Company. As of February 29, 1996, approximately 23% of the Company's
total finance receivables were generated in South Carolina. Additionally,
for the three months ended April 30, 1996, 12% of the Company's total number
of contracts financed and 21% of the dollar volume of financing, respectively,
originated in South Carolina.
All of the insurance brokers are referral sources from which the Company
obtains customers. These entities are not themselves customers of the
Company. The Company has no single customer, or a few customers, the loss of
any one or more of which would have a material adverse effect on its
business; however, the loss of any one or more of the referral sources from
which the Company obtains customers could potentially have a material adverse
effect. Additionally, the loss of one of the Company's independent marketing
representatives may have a material adverse effect.
The Company generally has the authority to cancel an insurance policy if
payments due to it from the insured are more than fifteen to twenty days
late. After a payment exceeds the state mandated grace period (usually five
to ten days late), the Company mails out a Notice of Intent to Cancel to the
insured and charges the insured the applicable late fee. If payment is not
received within ten days thereafter, the Company mails out a notice of
cancellation of the policy to the insurance company with a copy to both the
insured and the insurance broker. Under certain circumstances, the Company
may grant the insured additional time to make a delinquent payment, and thus
temporarily delay cancellation. Under certain state laws, the Company must
wait 60 to 90 days from the inception date of many types of policies in order
to cancel those policies. Any monies paid for insurance coverage for time
extending after the cancellation date constitute "unearned premiums" and must
be refunded by the insurance company to the Company, which then applies it to
the balance on the insured s contract. Based upon management's experience,
the time period between the cancellation date and receipt of the refund of
unearned premiums averages between 30 and 90 days.
Most insurance carriers doing business in the states where Finco and Federal
do business must participate in a state insurance guarantee association
which, in the event of the bankruptcy of any such participant, will refund
unearned premiums less a deductible. This deductible may become significant
due to the relatively low average amount financed per contract. To minimize
its risks, the Company does substantially all of its financing with insurance
companies covered by these guarantee associations. The Company is also
subject to risks associated with administrative errors and fraudulent acts
committed by agents and policy holders in which event the Company may find
it difficult to collect from the insurer.
Subsequent to February 29, 1996, it is the Company's intention to conduct all
of its premium finance activities, except for Florida business, through its
wholly-owned subsidiary, Eagle Premium Finance, Inc.
Sales and Marketing
- -------------------
Currently, the Company generates the majority of its business through the
services of independent sales representatives who solicit business from
independent insurance brokers. Additionally, the Company generates
business through advertising in trade publications and through attending
trade shows.
The Company believes that it provides a better quality of service and offers
more flexibility with regard to late payments and policy cancellations than
affiliated companies of insurance carriers, as well as other independent
finance companies. It is the Company's policy to notify the broker
5
<PAGE>
immediately when any payment is past due which allows the broker to arrange
with the insured for payment and to prevent cancellation of the policy.
Under certain circumstances, the grace period can be extended, thereby
avoiding cancellation of the policy and the loss of part of the broker's
commission which may result from such cancellation. No assurances can be
given that the affiliated companies of insurance carriers, as well as
companies carrying non-standard insurance, will not add greater flexibility
to their insurance financing business practices, and in the event this
should occur, there may be a material adverse effect on the Company's
business operations. There also can be no assurance that brokers presently
directing financing business to the Company will continue to do so, or that
the Company will be able to locate and establish relationships with
additional brokers.
Regulation
- ----------
The Company's operations subject it to state regulation governing the
licensing, administration and supervision of insurance premium finance
companies. In a number of states, the Company s officers and 5% stockholders
are subject to an extensive background check and a determination of their
overall fitness to operate and manage a premium finance company before state
regulators allow them to operate the Company. Any future officers or 5%
stockholders will also require approval in those states.
State statutes set maximums on all fees and charges which may be imposed by
the Company. Changes in the regulation of the Company's activities, such as
increased rate regulation, could have an adverse effect on the Company's
operations. Currently, there is a statute in Florida which prohibits
insurance premium finance companies from rebating a portion of the interest
or origination fees to insurance brokers in an effort to induce the brokers
to refer finance business to the Company. This prohibition is set to expire
on July 1, 1996. This may result in the Company s costs increasing
substantially as the Company, in an effort to maintain its market share,
may be forced to rebate a portion of its finance charges and origination fees
to the insurance brokers. The Company's ability to operate profitably may be
adversely affected.
The company was notified in March 1996 by the Florida Department of Insurance
that it is not acceptable for Mr. Gardner to have a lien on the Company's
accounts receivables, as provided by the Company s $1 million revolving credit
facility with Mr. Gardner, the Company s Chairman. See Management's
Discussion and Analysis for additional information.
State statutes also do not currently provide for automatic adjustments in the
rates a premium finance company may charge. Consequently, during periods of
high prevailing interest rates on institutional indebtedness and fixed
statutory ceilings on the rates the Company may charge, the Company's
ability to operate profitably may be adversely affected.
6
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Competition
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The Company encounters intense competition from numerous other firms,
including companies affiliated with insurance carriers that carry
non-standard insurance and independent insurance brokers who provide premium
finance services. Many of the Company's competitors are larger and have
greater financial and other resources and are better known to consumers than
the Company. Insurance companies may also elect to bill insureds directly and
to collect service charges. This practice has become much more predominant
during the past several years. The Company believes that it offers more
flexibility with regard to late payments and policy cancellations than
affiliates of insurance carriers. However, to the extent that affiliates of
insurance carriers add greater flexibility to their financing practices in
the future, the Company's operations could be adversely affected.
Additionally, during the past year, many new competitors have entered into
the premium finance industry as a result of low interest rates. Management
believes that as a result, the Company's growth may be severely curtailed and
profit margins may diminish. Additionally, as a result of the pending
expiration of the Florida rebate prohibition (see Regulation section), the
Company's costs of acquiring finance business may substantially increase,
causing profit margins to diminish. Management is currently exploring the
possibility of expanding the premium finance business to other states as well
as seeking other business opportunities not in the premium finance industry
in an effort to diversify. There can be no assurance that the Company will
be able to continue to compete successfully in its markets.
Investment Activities
- ---------------------
In October 1993, the Company s Board of Directors approved the opening of an
investment account to be used for the buying and selling of stocks and
options in an effort to increase the profitability of the Company and to
diversify its business activities. Although the trading of such securities
is subject to a high degree of risk, it also offers the opportunity to earn
a return that potentially could be in excess of the rate of return generally
received by the Company through its insurance premium finance business for a
similar amount invested. Further, as the Company has in recent years been
engaged solely in the insurance premium finance business ( which is becoming
increasingly competitive), this investment strategy provides some degree of
financial diversification in the event of a downturn in the Company's primary
business activities.
The Board has authorized the utilization of up to $500,000 to be deposited in
its investment account. Such amount is to be utilized for investing purposes
and to meet margin and capital requirements necessary for the trading of these
securities. The Company has no present intentions to expand its current
investment activities or to engage in the investment advisory or
broker-dealer business in the future.
The Company sells options on equities as part of its investment strategy.
This method of trading involves a high degree of risk as the losses which can
be generated from this type of trading can far exceed the value for which the
option was sold. The Company places a large emphasis on the selling of put
options. If the value of a security on which the Company sold put options
were to substantially decrease, the loss to the Company could greatly exceed
the proceeds of the sale of the option. This risk of loss includes the
possibility that the Company could be contractually obligated to go into the
market and purchase securities at losses significantly in excess of the amount
initially received for the option.
7
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The Company believes that it has substantial experience in this area of
investing and will utilize various strategies to maximize profitability and
limit its losses. The Company also intends to purchase securities of listed
companies on margin. Management will use its best efforts to limit the
aggregate amount of its potential liability from investing activities to an
amount that does not exceed the $500,000 that was initially authorized,
although no assurance can be given that management will ultimately be
successful in such efforts.
At February 29, 1996, the Company had a liability resulting from options sold
amounting to $25,469. Additionally, the Company owned trading securities
amounting to $129,188 (see Item 7 - Financial Statements).
Employees
- ---------
The Company presently has 14 employees. Robert Gardner is Chairman of the
Company and David Raymond is the President, Treasurer and Secretary of the
Company. Substantially all of the Company's employees are involved
in the administration of the Company s premium finance operations.
8
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ITEM 2
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DESCRIPTION OF PROPERTY
The Company leases 1,923 square feet of space located at 1815 Griffin Road,
Dania, Florida 33004 which is utilized as the Company's headquarters. This
lease expires on August 31, 1996.
ITEM 3
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LEGAL PROCEEDINGS
None
ITEM 4
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
9
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PART II
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ITEM 5
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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been quoted in the "pink sheets" since October
13, 1989, and is only traded sporadically. Accordingly, there is no current
established public trading market for the Common Stock. Quotations have been
estimated, on a calendar basis, by one of the market makers in the Company's
Common Stock, through 1994. Subsequently, the quotations have been obtained
from the National Quotation Bureau. Quotations represent inter-dealer
quotations without adjustment for retail mark-up, mark-down or commissions,
and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1994
---------------------------------
Low Bid High Bid
<S> <C> <C>
First Quarter.................... .25 .25
Second Quarter................... .25 .25
Third Quarter.................... .25 .25
Fourth Quarter................... .25 .25
<CAPTION>
1995
----------------------------------
Low Bid High Bid
<S> <C> <C>
First Quarter.................... .125 .25
Second Quarter................... .1875 .25
Third Quarter.................... .1875 .25
Fourth Quarter................... .1875 .25
<CAPTION>
1996
----------------------------------
Low Bid High Bid
<S> <C> <C>
First Quarter (through March 29) .1875 .25
</TABLE>
At February 29, 1996, the Company's Common Stock was held by 1,673
stockholders of record.
From time to time, the Company occasionally purchases shares of its common
stock. During the past fiscal year the Company expended approximately
$23,000 to repurchase an aggregate of approximately 73,000 shares.
Dividend History and Policy
- ---------------------------
The Company has not declared or paid any dividends on its common shares since
its inception and does not intend to pay dividends in the near future. All
earnings, if any, which the Company may realize in the future will be
retained to finance the growth and expansion of the Company.
10
<PAGE>
ITEM 6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------
Years Ended February 29, 1996 and February 28, 1995
- ---------------------------------------------------
The Company's growth in the insurance premium finance business during fiscal
1996 increased substantially as compared to fiscal 1995. The number of
contracts financed during 1996 was 43,000 which was a 33% increase from the
32,400 contracts financed during 1995. Premium finance loans increased 58%
to $23.1 million in 1996 from $14.6 million during 1995. Finance receivables
increased to $8.1 million as of February 29, 1996 as compared to $4.9 million
as of February 28, 1995. These increases were primarily attributable to the
Company's entrance into the South Carolina market as well as a 23% growth in
the number of contracts financed in Florida. The Company is continuing its
efforts to increase growth in the premium finance business but it is meeting
stiff competition from both new and existing premium finance companies.
Additionally, direct bill insurance companies, which generally offer lower
down payments than the Company, are increasing their presence in Florida. If
this trend continues, this could limit the Company's future growth prospects.
The following table reflects the Company's expenses as a percentage of total
revenue during the current and prior fiscal year:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
General and Administrative 35% 44%
Sales and Marketing 16% 15%
Provision for Doubtful Accounts 26% 12%
Depreciation and Amortization 1% 1%
Interest 12% 8%
Interest to Directors 5% 6%
--- ---
Total Expenses 95% 86%
</TABLE>
Sales and marketing expenses increased slightly as a percentage of revenue as
a result of increased fees paid to independent sales representatives. The
provision for doubtful accounts has increased substantially as the Company
has been accepting lower down payments on its finance agreements in an effort
to compete effectively. Additionally, the Company expanded its finance
operations to South Carolina where the average down payment on finance
contracts is significantly lower than in Florida. These lower down payments
translate into higher bad debt write-offs when an insurance contract is
cancelled. As a result of increased competition among finance companies, the
Company expects that the down payment levels will continue to decrease which
will have a negative impact on the Company's profit margins. In determining
the provision for doubtful accounts, management takes into account factors
such as its average down payment rate, cancellation rate, unrefunded canceled
contracts, specific problems with insurance agents, and financial condition
of insurance companies among other factors. Interest expense increased
primarily as a result of increased borrowings during the current year.
11
<PAGE>
Currently, there is a statute in Florida which prohibits insurance premium
finance companies from rebating a portion of the interest or origination fees
to insurance brokers in an effort to induce the brokers to refer finance
business to the Company. This prohibition is set to expire on July 1, 1996.
This may result in the Company s costs increasing substantially as the
Company, in an effort to maintain its market share, may be forced to rebate
a portion of its finance charges and origination fees to the insurance
brokers. This will have a negative impact on future profitability.
Net interest margin is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Finance charge income $1,603,783 1,056,042
Interest expense 569,494 334,777
Net interest margin 1,034,289 721,265
Margin percent 65% 68%
</TABLE>
The net interest margin percentage decreased because all of the Company's
growth is being financed with borrowed funds.
Net income decreased to $136,000 for 1996 as compared to $338,000 for 1995.
This resulted primarily from higher bad debts as discussed above.
As a result of increased competition and the pending abolishment of the rebate
prohibition statutes in Florida, management believes that the Company's
growth may be curtailed and that profit margins may continue to diminish.
Management is currently exploring the possibility of expanding the premium
finance business to other states as well as seeking other business
opportunities in an effort to diversify.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital position as of February 29, 1996 was $6,580,224
as compared to $2,196,502 at February 29, 1995. This increase is principally
due to a new long term revolving credit agreement with a bank.
As of April 30, 1996, the Company's revolving credit arrangements and
availability are as follows:
<TABLE>
<CAPTION>
Description Unused Expiration Date
- ----------- ------ ---------------
<S> <C> <C>
$8 million Revolving Credit Agreement with bank $3.5 million March 1, 1999
$1 million Revolving Credit Agreement with Chairman $0 July 31, 1996
$500,000 Revolving Credit Agreement with Director $0 July 31, 1996
</TABLE>
Additionally, the Company has approximately $300,000 in demand loans with
several private investors.
12
<PAGE>
On February 23, 1996, the Company entered into an $8,000,000 revolving credit
facility with a new bank. Borrowings under the facility bear interest, at the
Company's option, at the Wall Street Journal prime rate plus 1.25% or LIBOR
plus 3.25%, with certain conditions. The Company must meet certain covenants
as part of the agreement including minimum net worth, debt to equity, current
ratio, and fixed charge coverage ratios. The facility is secured by all the
assets of the Company. This new agreement will expire on March 1, 1999.
During April 1996, the Company extended the expiration date of its $1 million
revolving credit facility with Robert Gardner, the Company's Chairman to July
31, 1996. Borrowings under the facility bear interest at prime plus 4 1/2
% with a minimum of 12% and a cap of 18%. The facility is secured by all the
assets of the Company ; however this is subordinated to the bank facility.
The Company was notified in March 1996 by the Florida Department of Insurance
that it is not acceptable for Mr. Gardner to have a lien on the Company's
accounts receivables, as provided in the revolving credit facility, as Mr.
Gardner is not a licensed premium finance entity. The Company is presently
researching whether the Department s position is in accordance with Florida
statutes. The Company may be forced to seek to renegotiate the credit
facility with Mr. Gardner and there can be no assurance that it can be
successfully renegotiated. Should the Company not be able to successfully
renegotiate this facility if necessary, the Company's future growth prospects
may be curtailed.
During April 1996, the Company extended the expiration date of its $500,000
revolving credit facility with Marilyn Gardner, a Director of the Company,
to July 31, 1996. Borrowings under the facility bear interest at prime plus
4 1/2 % with a minimum of 12%.
It is the opinion of management that the Company will have sufficient funds
to satisfy its cash requirements for the next 12 months.
Inflation
- ---------
Inflation has not had a significant adverse effect on the Company's business;
however, the Company's finance operations may be adversely affected if
interest rates increase. The maximum interest rate that the Company can
charge on its finance contracts is fixed by law, while its cost of borrowings
may increase during periods of inflation. Accordingly, during periods of
high interest rates, the Company's operating margins may be severely impacted.
13
<PAGE>
ITEM 7
------
FINANCIAL STATEMENTS
Index Page
----- ----
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheet as of
February 29, 1996 F-2
-----------------
Consolidated Statements of Operations for
the years ended February 29, 1996 and February 28, 1995 F-4
-----------------
Consolidated Statements of Stockholders' Equity
for the years ended February 29, 1996 and February 28, 1995 F-6
-----------------
Consolidated Statements of Cash Flows for the
years ended February 29, 1996 and February 28, 1995 F-7
-----------------
Notes to Consolidated Financial Statements F-9
14
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Report of Independent Certified Public Accountants
To the Board of Directors
of International Design Group, Inc.
We have audited the accompanying consolidated balance sheet of International
Design Group, Inc. as of February 29, 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended February 29, 1996 and February 28, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
International Design Group, Inc. at February 29, 1996 and the results of its
operations and its cash flows for the years ended February 29, 1996 and
February 28, 1995, in conformity with generally accepted accounting
principles.
BY(Signature) /s/ BDO Seidman, LLP
(Date) May 10, 1996
Miami, Florida
F-1
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
February 29, 1996
- ------------------------------------------------------------------------------
Assets (Notes 5 and 6)
<S> <C>
Current
Cash and cash equivalents $ 130,679
Trading securities 129,188
Finance receivables, less allowance for
doubtful accounts of $591,000 and unearned
income of $542,000 8,149,416
Drafts receivable 312,793
Current maturities of notes receivable (Note 2) 171,515
Prepaid expenses and other 18,316
- ------------------------------------------------------------------------------
Total current assets 8,911,907
Property and equipment - at cost, less accumulated
depreciation and amortization of $68,720 91,628
Notes receivable, less current maturities (Note 2) 189,579
Other assets, less accumulated amortization
of $16,000 22,945
- ------------------------------------------------------------------------------
$ 9,216,059
==============================================================================
</TABLE>
F-2
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
February 29, 1996
- ------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
<S> <C>
Current liabilities
Accounts payable and accrued expenses $ 230,234
Drafts payable 308,130
Notes payable (Note 6) 267,850
Liability under options sold 25,469
Notes payable to directors (Note 5) 1,500,000
- ------------------------------------------------------------------------------
Total current liabilities 2,331,683
Note payable to bank (Note 6) 4,263,610
- ------------------------------------------------------------------------------
Total liabilities 6,595,293
- ------------------------------------------------------------------------------
Commitments (Note 7)
- ------------------------------------------------------------------------------
Stockholders' equity (Note 3)
Common stock, $.05 par - 10,000,000 shares authorized,
3,768,401 issued and 3,744,849 outstanding 188,420
Additional paid-in capital 5,837,706
Deficit (3,338,571)
Treasury stock - 23,552 shares at cost (8,289)
Common stock subscriptions receivable for 450,000 shares
of common stock (58,500)
- ------------------------------------------------------------------------------
Total stockholders' equity 2,620,766
- ------------------------------------------------------------------------------
$ 9,216,059
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
February 29, February 28,
Year ended 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Finance charge income $ 1,603,783 $ 1,056,042
Origination fees 780,480 655,721
Late fees and other charges 687,649 561,252
Gain (loss) on securities trading 58,212 (703)
Interest income 43,995 29,111
Other income 12,050 49,708
- -----------------------------------------------------------------------------
3,186,169 2,351,131
- -----------------------------------------------------------------------------
Expenses:
General and administrative 1,117,288 1,021,556
Sales and marketing 497,399 339,333
Provision for doubtful accounts 829,473 290,757
Depreciation and amortization 36,500 26,500
Interest 396,620 192,321
Interest to Directors 172,874 142,456
- -----------------------------------------------------------------------------
3,050,154 2,012,923
- -----------------------------------------------------------------------------
Net Income $ 136,015 $ 338,208
=============================================================================
Net Income Per Common Share:
Primary $ .04 $ .11
Fully diluted $ .04 $ .10
=============================================================================
</TABLE>
F-4
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
February 29, February 28,
Year ended 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Computation Of Fully Diluted Earnings:
Net income $ 136,015 $ 338,208
Less preferred dividends (9,000) (9,750)
- ------------------------------------------------------------------------------
Primary net income 127,015 328,458
Assumed conversions:
Preferred dividends eliminated 9,000 9,750
- ------------------------------------------------------------------------------
Fully diluted earnings $ 136,015 $ 338,208
- ------------------------------------------------------------------------------
Average Number of Common Shares
Primary 3,096,107 2,987,025
Fully Diluted 3,593,373 3,487,025
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-in
Shares Amount Capital
--------- -------- ---------
<S> <C> <C> <C>
Balance, February 28, 1994 2,975,337 $148,767 $5,794,040
Net income for the year - - -
Payment of preferred dividend
to Director - - -
Retirement of treasury shares (97,724) (4,886) (28,310)
Purchase of treasury shares - - -
- ------------------------------------------------------------------------------
Balance, February 28, 1995 2,877,613 143,881 5,765,730
Net income for the year - - -
Payment of preferred dividend
to Director - - -
Conversion of preferred stock 500,000 25,000 50,000
Exercise of stock options 450,000 22,500 36,000
Retirement of treasury shares (59,212) (2,961) (14,024)
Purchase of treasury shares - - -
- -------------------------------------------------------------------------------
Balance, February 29, 1996 3,768,401 $188,420 $5,837,706
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6A
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
Subscriptions Treasury
Deficit Receivable Stock Total
------- ----------- -------- --------
<S> <C> <C> <C> <C>
Balance, February 28, 1994 $(3,794,044) $ - $ (8,211) $2,140,552
Net income for the year 338,208 - - 338,208
Payment of preferred
dividend to Director (9,750) - - (9,750)
Retirement of treasury shares - - 33,196 -
Purchase of treasury shares - - (27,870) (27,870)
- ------------------------------------------------------------------------------
Balance, February 28, 1995 (3,465,586) - (2,885) 2,441,140
Net income for the year 136,015 - - 136,015
Payment of preferred
dividend to Director (9,000) - - (9,000)
Conversion of preferred stock - - - 75,000
Exercise of stock options - (58,500) - -
Retirement of treasury shares - - 16,985 -
Purchase of treasury shares - - (22,389) (22,389)
- ------------------------------------------------------------------------------
Balance, February 29, 1996 $(3,338,571) $(58,500) $ (8,289) $2,620,766
===============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6B
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Note 9)
<TABLE>
<CAPTION>
February 29, February 28,
Year ended 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net income $ 136,015 $ 338,208
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 36,500 26,500
Provision for doubtful accounts 829,473 290,757
Changes in operating assets and liabilities:
Increase in unearned income 217,971 78
Increase in drafts receivable (26,393) (30,175)
(Increase) decrease in prepaid expenses
and other (34,194) 729
Increase in accounts payable
and accrued expenses 19,897 109,600
(Decrease) increase in drafts payable (66,218) 147,233
- ------------------------------------------------------------------------------
Net cash provided by operating activities 1,113,051 882,930
- -------------------------------------------------------------------------------
Investing Activities:
Premium finance loans originated (23,091,889) (14,568,623)
Payments received on premium finance loans 18,808,817 14,221,530
Capital expenditures (31,993) (41,141)
Increase in notes receivable (340,257) (325,763)
Payments received on notes receivable 372,748 194,125
Investment in marketable securities 88 (129,276)
(Decrease) increase in liability under
options sold (18,119) 16,897
- ------------------------------------------------------------------------------
Net cash used in investing activities (4,300,605) (632,251)
==============================================================================
</TABLE>
F-7
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Note 9)
<TABLE>
<CAPTION>
February 29, February 28,
Year ended 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Financing Activities:
Purchase of treasury shares (22,389) (27,870)
Increase in notes payable to bank 9,283,112 1,161,000
Increase in notes payable 27,000 58,000
Paydowns in notes payable to bank (6,406,502) (1,654,000)
Paydowns in notes payable (210,150) (43,000)
Increase in notes payable to directors 350,000 -
Preferred dividends paid (9,000) (9,750)
- ------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 3,012,071 (515,620)
- ------------------------------------------------------------------------------
Net decrease in cash (175,483) (264,941)
Cash and cash equivalents, beginning of year 306,162 571,103
- ------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 130,679 $ 306,162
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
- -----------------------------------------------
Company and Basis of Presentation:
- ----------------------------------
International Design Group, Inc. ("the Company") is in the insurance premium
finance business through its wholly-owned subsidiaries. The Company's main
business activity is to grant loans to customers, primarily to finance
automobile insurance policies. The majority of the business activity is in
Florida and South Carolina. Such loans are substantially collateralized by
unearned premiums of the insurance policy.
The consolidated financial statements include the accounts of the Company, and
all of its wholly-owned subsidiaries. All intercompany transactions and
balances have been eliminated in consolidation.
Preparation of Financial Statements:
- ------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents:
- --------------------------
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Marketable Securities:
- ----------------------
In fiscal 1995, the Company adopted Statement of Financial Accounting Standards
No. 115 (FAS 115), Accounting for Certain Investments in Debt and Equity
Securities. FAS 115 requires the Company's investments in securities to be
classified into three categories and accounted for as follows:
Trading Securities - Investment securities that are bought and held for
the purpose of selling them in the near term are carried at estimated market
F-9
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
value. Unrealized holding gains and losses are reported as a component of
earnings.
Securities Held to Maturity - Investment securities for which the Company
has the positive intention and ability to hold to maturity are reported at
cost.
Securities Available for Sale - Investment securities not classified as
trading or held to maturity securities are carried at estimated market value.
Unrealized holding gains and losses, net of income taxes, are reported as a
component of stockholders' equity.
Gains and losses realized from the sale of securities are determined on the
first-in first-out method. Investments are stated at market. Net unrealized
losses amounting to $13,819 and $18,517 have been included in the
determination of net income for the years ended February 29, 1996 and
February 28, 1995, respectively. The adoption of FAS 115 did not have a
material effect on the consolidated financial statements.
Additionally, the Company sells put and call options which may obligate the
Company to either purchase or sell a particular security at a stated price
through certain dates in the future. At February 29, 1996, the Company had
a liability resulting from options sold amounting to approximately $25,000.
Property and Equipment:
- -----------------------
Depreciation is computed on either a straight-line or an accelerated basis
over the estimated useful lives of the various assets, principally five years.
Earnings Per Share:
- -------------------
Primary and fully diluted earnings per common share and common share
equivalents are computed based on the weighted average number of common
shares and common share equivalents outstanding. Accordingly, earnings per
share has been adjusted for the effects of the Company's dividend on the
F-10
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
convertible redeemable preferred stock and for conversion of the convertible
redeemable preferred stock for fully diluted purposes.
Revenue Recognition:
- --------------------
Finance charges and loan origination fees are amortized to income over the
life of the finance contracts using the interest method.
Bank Drafts:
- ------------
Drafts which have been paid by the Company where the finance contracts have
not yet been received are classified as Drafts Receivable. Drafts which have
not yet been presented for payment but where the finance contracts have been
received are classified as Drafts Payable.
Taxes on Income
- ---------------
The Company has adopted Statement No. 109, "Accounting for Income Taxes"
(FAS 109) which utilizes an asset and liability approach. Under FAS 109, the
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
Comparability
- -------------
Certain 1995 accounts have been reclassified to conform with 1996
presentation.
2. Notes Receivable
- ---------------------
Notes receivable consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Various 8%-19% notes receivable, interest and principal
due monthly, maturing through 1999 $ 361,094
Less current maturities 171,515
- ---------------------------------------------------------------------------
$ 189,579
============================================================================
</TABLE>
F-11
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Stockholders' Equity
- -------------------------
In December 1992, the Company's shareholders authorized the creation of
1,000,000 Preferred Shares with a par value of $.01. These shares may be
issued in one or more series at the discretion of the Board of Directors. On
February 27, 1996, Marilyn Gardner, a director of the Company, sold Robert
Gardner her 500 shares of Class "A" 12% Convertible Preferred Stock. Mr.
Gardner then, pursuant to the terms of original issuance, converted the 500
shares of preferred stock into 500,000 shares of the Company's common stock.
As of February 29, 1996, there were no shares of Class "A" 12% Convertible,
Redeemable Preferred Stock outstanding. (See Note 5).
The Company's 1992 and 1987 Stock Option Plans covering 400,000 shares and
180,000 shares of common stock, respectively (subject to adjustment to cover
stock splits, stock dividends, recapitalization, and other capital
adjustments) for employees, including officers and directors, of the Company
provide that options to be granted under the plans will be designated as
incentive stock options or non-incentive stock options by the Board of
Directors or a committee thereof. All options granted under the plans shall
be exercisable during a period of no more than ten years from the date of
grant (five years for options granted to holders of 10% or more of the
outstanding shares of common stock). The option exercise price shall be at
least equal to 100% of the fair market value of the common stock as of the
date of grant (110% for options granted to holders of 10% or more of the
Company's outstanding common stock).
On December 7, 1992, stock options to purchase 150,000 shares of the Company's
common stock at a price of $.19, were granted to each of Robert Gardner,
Chairman, and David Raymond, President, respectively, pursuant to the
provisions of the 1992 Plan. Additionally, stock options to purchase a total
of 12,500 shares at a price of $.19 per share were granted to certain
employees of the Company. On February 27, 1996, Robert Gardner exercised his
option to purchase 150,000 shares of the Company's common stock at a price of
$.19. The total purchase price of $28,500 has not yet been remitted to the
Company and is recorded as a Common Stock Subscription Receivable. No other
ptions have been exercised as of February 29, 1996. Upon the resignation of
F-12
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
one of the Company's employees, options to purchase 7,500 shares expired. No
other stock options have been granted under the 1992 Plan.
On August 31, 1990, stock options to purchase 80,000 and 60,000 of the
Company's common shares at a price of $.375, were granted to Robert Gardner,
Chairman, and David Raymond, President, respectively, pursuant to the
provisions of the 1987 Plan. Mr. Gardner's options expired on August 31,
1995. No options have been exercised as of February 29, 1996. No other
stock options have been granted under the 1987 Plan.
The Company purchased 72,764 treasury shares at various times during fiscal
1996 in the open market at a total price of $22,389. During fiscal 1996,
the Company retired 59,212 shares of treasury stock that it previously
purchased.
In March 1993, the Company issued 100,000 shares to the Company's President,
Mr. David Raymond. These shares revert to the Company if Mr. Raymond leaves
the Company's employment for a period of ten years from the date of grant,
for any reason other than death, disability or retirement. Additionally, the
shares cannot be sold or transferred during the ten year period.
At February 29, 1996, 350,000 shares of the Company's authorized and unissued
common stock were reserved for issuance upon exercise of options.
4. Retirement and Benefit Plans
- ---------------------------------
The Company maintains a Simplified Employee Pension Plan (SEP). Employees
who are at least 21 years old and have been employed by the Company for at
least three of the past five years, are eligible to participate in the SEP.
As of February 29, 1996, the Company's President, Chairman and two other
employees, were eligible to participate in the SEP. Under the terms of the
SEP, the Board of Directors decide if and how much to contribute to the plan
on an annual basis. The allocation to each employee's account is based upon
salary. For the years ended February 29, 1996 and February 28, 1995, the
Company contributed and expensed $18,000 each year to the SEP.
F-13
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1993, the Board of Directors approved payments for the cost of the Florida
Prepaid College Program for three children of certain Company employees,
including the Company's President. It is estimated that the cost to the
company for one child would be approximately $7,000 payable over 55 months.
The Company is not required to make any further payments if the employee is
terminated from the Company.
5. Notes Payable to Directors
- -------------------------------
On April 13, 1992, the Company entered into a $1 million revolving credit
agreement with Mr. Robert Gardner. All loans made prior to this date to the
Company by Mr. Gardner were made part of this agreement. Loans under this
agreement bear interest at Citibank prime plus 4.50% with a minimum of 12% and
a cap of 18% and are collateralized by all of the Company's accounts
receivable and all of the common stock, assets and business of a subsidiary.
The interest rate on this debt was 13.00% at February 29, 1996. Borrowings
under this line of credit are payable on demand and are subordinated to a
line of credit from a bank as described in Note 6. The Company was notified
in March 1996 by the Florida Department of Insurance that it is not
acceptable for Mr. Gardner to have a lien on the Company's accounts
receivable, as Mr. Gardner is not a licensed premium finance entity. The
Company is presently researching whether the Department's position is in
accordance with Florida statutes. The Company may be forced to seek to
renegotiate the credit facility with Mr. Gardner and there can be no assurance
that it can be successfully renegotiated. The line of credit expires July
31, 1996. In conjunction with a prior amendment, the Company gave to Mr.
Gardner an option to purchase 300,000 shares of the Company's Common Stock
at a price of $.10 per share. On February 27, 1996, Mr. Gardner exercised his
option to purchase the 300,000 shares of the Company's common stock for $.10
per share. The purchase price has not yet been remitted to the Company and is
recorded as a Common Stock subscription receivable. As of February 29, 1996,
there was $1,000,000 outstanding under the revolving credit agreement;
$133,245 and $123,825 of interest was incurred during the years ended
February 29, 1996 and February 28, 1995, respectively.
On April 21, 1993, the Company entered into a $500,000 revolving credit
agreement with Marilyn Gardner, a Director of the Company. Loans under this
agreement bear interest at prime plus 4.50% with a minimum of 12%. The
F-14
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
interest rate on this debt was 13.00% at February 29, 1996. In conjunction
with the agreement, the Company sold to Mrs. Gardner 500 shares of its Class
A 12% Convertible Redeemable Preferred Stock at a price of $150 per share.
As of February 29, 1996, there was $500,000 outstanding under this agreement
and $39,629 and $18,581 of interest was incurred during the years ended
February 29, 1996 and February 28, 1995, respectively. Borrowings are payable
on demand and the agreement expires July 31, 1996. Mrs. Gardner is the wife
of Robert Gardner, Chairman of the Company.
6. Notes Payable
- ------------------
On February 23, 1996, the Company and its subsidiaries entered into a
$8,000,000 revolving credit agreement with a bank. Borrowings under the
line are based on eligible finance receivables, interest payable monthly at
the Company's choice of LIBOR plus 3.25% or the bank's prime rate plus 1.25%
(9.75% at February 29, 1996). The note is collateralized by all of the assets
of the Company, matures in 1999 and requires the Company to maintain certain
financial ratios. At February 29, 1996 $4,263,610 was outstanding.
The Company and its subsidiaries have demand notes payable to unrelated
parties with interest at 12% per annum ($67,850) and prime plus 2.25% (10.75% at
February 29, 1996) per annum ($200,000).
7. Commitments
- ----------------
The Company leases office space for its administrative facilities and two
automobiles. These leases expire through August 1996 and are accounted for as
operating leases. Rent expense for the years ended February 29, 1996 and
February 28, 1995 was $53,000 and $46,000, respectively.
In addition to their base cash compensation per annum, Mr. Gardner and Mr.
Raymond, are each entitled to receive, during their employment by the Company
(i) incentive bonuses equal to 7.50% of the Company's annual consolidated
pre-tax profits and (ii) further incentive bonuses equal to 2.50% of annual
pre-tax profits of the Company's wholly-owned subsidiaries. The President
and Chairman each earned bonuses for fiscal 1996 and 1995 of $17,289 and
$41,908, respectively.
In the event of a change in control of the Company forcing termination of
either Mr. Gardner or Mr. Raymond, he would be entitled to severance pay of
F-15
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
two times the then current annual salary.
Mrs. Gardner also receives $500 per month for her services as an outside
director for the Company.
8. Income Taxes
- -----------------
At February 29, 1996, the Company has net operating loss carryforwards
available to offset future taxable income of approximately $2,470,000, which
expire in the year 2005.
Deferred tax (liabilities) assets are comprised of the following at February
29, 1996:
<TABLE>
<CAPTION>
<S> <C>
Depreciation $ (9,481)
- -----------------------------------------------------------------------------
Gross deferred tax liability (9,481)
- -----------------------------------------------------------------------------
Loss carryforwards 929,651
Accounts receivable reserve 221,842
Other 12,904
- -----------------------------------------------------------------------------
Gross deferred tax asset 1,164,397
Deferred tax asset valuation allowance (1,154,916)
- -----------------------------------------------------------------------------
Net deferred tax asset $ 9,481
- -----------------------------------------------------------------------------
Net $ 0
=============================================================================
</TABLE>
A reconciliation of the expected income taxes based on statutory rates applied
to income before taxes from continuing operations to the actual tax is as
follows:
<TABLE>
<CAPTION>
February 29, February 28,
Year ended 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Expected federal tax $ 46,245 $ 114,982
State income taxes, net of
federal effect 4,937 18,600
Tax effect of net operating
losses utilized (51,182) (133,582)
- ------------------------------------------------------------------------------
$ 0 $ 0
==============================================================================
</TABLE>
F-16
<PAGE>
9. Supplemental Cash flow Information
- ----------------------------------------
<TABLE>
<CAPTION>
February 29, February 28,
Year ended 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Cash paid during the year
for:
Interest $ 560,162 $ 334,778
</TABLE>
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
- -----------------------------------------------------------------------
During fiscal 1996 and 1995, the Company retired 59,212 and 97,724 treasury
shares, respectively.
On February 27, 1996, 500 shares of Class A 12% Convertible Redeemable
Preferred Stock were converted into 500,000 shares of the Company's common
stock.
On February 27, 1996, Mr. Gardner exercised two of his options to purchase
shares of the Company's common stock. Mr. Gardner purchased 150,000 shares
at a price of $.19 per share. He also purchased 300,000 at $.10 per share.
The total purchase price of $58,500 has not yet been remitted to the Company
and is recorded as a Common Stock Subscription Receivable.
10. Fair Value of Financial Instruments
- ----------------------------------------
The Company's financial instruments consist principally of cash and cash
equivalents, trading securities, finance receivables, drafts and notes
receivable, accounts and drafts payable, accrued expenses and borrowings.
The carrying amounts of such financial instruments as reflected in the
consolidated balance sheet approximate their estimated fair value as of
February 29, 1996. The estimated fair value is not necessarily indicative of
the amounts the Company could realize in a current market exchange or of
future earnings or cash flows.
F-17
<PAGE>
ITEM 8
------
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
<PAGE>
PART III
--------
ITEM 9
------
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
----------------- --- ---------------------
<S> <C> <C>
Robert L. Gardner 63 Chairman of the Board
and Director
David Raymond 37 President, Treasurer,
Secretary and Director
Marilyn Gardner 54 Director
</TABLE>
Each director is elected at the Company's annual meeting of stockholders, if
any, and serves until a successor is duly elected and qualified. Officers
are elected by and serve at the will of the Board of Directors. No director
receives any compensation for his services as a director except for Marilyn
Gardner who receives a fee of $500 per month for her services as an outside
director.
Mr. Gardner has served as the Chairman of the Board of the Company since
December 1986 and as a director of the Company since September 1986 and as
the Treasurer of the Company from September 1986 through July 1988.
From September 1986 to December 1986, Mr. Gardner served as the President of
the Company. Prior to purchasing a substantial number of shares of the
Company, Mr. Gardner was a private investor. Mr. Gardner was the Chairman of
Griggs International, Inc., a publicly-held manufacturer of office, school
and theater seating from 1978 to 1983. In 1983, the business was sold and
the company liquidated.
Mr. Raymond has served as Treasurer of the Company since July, 1988 and was
appointed President, Secretary and a Director on July 10, 1990. From 1981
until 1987, Mr. Raymond was employed by the accounting firm of Touche Ross
and Co. (currently Deloitte & Touche). Mr. Raymond is a Certified Public
Accountant licensed in Florida and is a member of the American Institute of
Certified Public Accountants.
Marilyn Gardner was appointed as a Director of the Company on February 22,
1993. Mrs. Gardner is a private investor who has made investments in a wide
variety of business ventures.
16
<PAGE>
Marilyn Gardner is the wife of the Company's Chairman, Mr. Robert Gardner.
No other family relationship exists between any director or executive officer
and any other director or executive officer.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors
and greater than ten-percent stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that during the fiscal year ended February 29, 1996, all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with, except that one filing of a Form 4 for Robert
Gardner and one filing of a Form 4 for Marilyn Gardner were both filed 12
days late.
17
<PAGE>
ITEM 10
-------
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the executive officers
of the Company which individually earned more than $60,000 for the year ended
February 29, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------
Annual Compensation Awards Payouts
------------------------ --------------- --------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Annual Restricted Securities All Other
Name and Compen- Stock Underlying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($)(2) ($) ($) (3) SARs(#) ($)(3) ($) (4)
- -------- ---- ------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert
Gardner1 1996 $135,000 $17,289 $8,115 0 0 0 7,607
Chairman
of the 1995 $125,000 $41,908 $8,316 0 0 0 7,607
Board 1994 $115,000 $41,773 $8,393 0 0 0 6,555
David
Raymond
1,3 1996 $110,000 $17,289 $7,099 0 0 0 8,456
President,
Secre- 1995 $100,000 $41,908 $7,078 0 0 0 7,303
tary and
Treasurer 1994 $ 90,000 $41,773 $6,607 0 0 0 4,683
</TABLE>
_______________________
1 On August 31, 1990, the Board of Directors approved a resolution
providing that in the event that there is a change in control of the
Company forcing the termination of any of the Company's officers, those
officers shall be entitled to severance pay of two times their then
current annual salary.
2 The Company has no written employment agreements with either Mr. Gardner
or Mr. Raymond. In addition to their base cash compensation per annum,
each of Mr. Gardner and Mr. Raymond is entitled to receive, during his
employment by the Company (i) an incentive bonus equal to 7-1/2% of the
Company's annual consolidated pre-tax profits, and (ii) a further
incentive bonus equal to 2-1/2% of annual pre-tax profits of the
Company's wholly-owned subsidiaries. To the extent that employment
18
<PAGE>
terminates prior to the end of any fiscal year, the incentive bonus shall
be pro-rated based on the period of time during the fiscal year for which
he was employed by the Company. Based on the foregoing, a bonus of
$17,289 was earned by each of Mr. Gardner and Mr. Raymond for fiscal
1996. Both Mr. Gardner and Mr. Raymond devoted substantially their full
business time to the affairs of the Company.
3 On February 22, 1993, Mr. Raymond was granted 100,000 shares of the
Company's Common Stock as a condition of his continued employment. These
shares cannot be sold or transferred by Mr. Raymond for a period of 10
years and are forfeited by Mr. Raymond if he ceases to be employed by
the Company. The shares were issued to Mr. Raymond in March 1993.
4 Included are automobile lease payments made for Robert Gardner and David
Raymond as well as Florida Prepaid College Fund payments made for David
Raymond's two children.
Stock Option Plans
In March, 1987, the Company adopted its 1987 Stock Option Plan (the "Plan")
covering 180,000 shares of Common Stock (subject to adjustment to cover stock
splits, stock dividends, recapitalizations and other capital adjustments) for
employees, including officers and directors of the Company. The Plan provides
that options to be granted under the Plan will be designated as incentive
stock options or non-incentive stock options by the Board of Directors or a
committee thereof, which also will have discretion as to the persons to be
granted options, the number of shares subject to the options and the terms of
the option agreements. The options to be granted under the Plan and
designated as incentive stock options are intended to receive incentive stock
option tax treatment pursuant to Section 422A of the Internal Revenue Code of
1986 (the "Code"). Options will be granted to key employees or those
employees, officers or directors who the Company believes are or will be
important to its success.
The Plan provides that all options granted thereunder shall be exercisable
during a period of no more than ten years from the date of grant (five years
for options granted to holders of 10% or more of the outstanding shares of
Common Stock), depending upon the specific stock option agreement, and that
the option exercise price shall be at least equal to 100% of the fair market
value of the Common Stock on the date of grant (110% for options granted to
holders of 10% or more of the outstanding shares of Common Stock). Pursuant
to the provisions of the Plan, the aggregate fair market value (determined on
the date of the grant) of the shares of Common Stock for which incentive
stock options are first exercisable under the terms of the Plan by an option
holder during any one calendar year, cannot exceed $100,000.
If the employment of an optionee is terminated other than by reason of death,
disability or retirement at age 65, any options granted to the optionee will
immediately terminate. If employment is terminated by reason of disability or
retirement at age 65, the optionee may, within one year from the date of
termination, in the event of termination by reason of disability, or three
months from the date of termination, in the event of termination by reason of
retirement at age 65 (but not after ten years from the date of grant),
19
<PAGE>
exercise the option. If employment is terminated by death, the person or
persons to whom the optionee's rights under the option are transferred by
will or the laws of descent and distribution shall have similar rights of
exercise within three months after such death (but not after ten years from
the date of grant). Options are not transferable otherwise than by will or
the laws of descent and distribution, and during the optionee's lifetime are
exercisable only by the optionee. Shares subject to options which expire or
terminate may be the subject of future options. The Plan terminates on March
25, 1997.
During the fiscal year ended February 28, 1991, stock options to purchase
80,000 and 60,000 of the Company's common shares at a purchase price of
$.375 were granted to Robert Gardner and David Raymond, respectively,
pursuant to the provisions of the Plan. None of these options had been
exercised as of February 29, 1996. No other stock options have been granted
under the 1987 Plan. Robert Gardner s options expired during the fiscal year
ended February 29, 1996.
In December 1992, the Company adopted its 1992 Stock Option Plan (the "1992
Plan") covering 400,000 shares of Common Stock (subject to adjustment to
cover stock splits, stock dividends, recapitalizations and other capital
adjustments) for employees, including officers and directors of the Company.
The 1992 Plan provides that options to be granted under the 1992 Plan will be
designated as incentive stock options or non-incentive stock options by
the Board of Directors or a committee thereof, which also will have
discretion as to the persons to be granted options, the number of shares
subject to the options and the terms of the option agreements. The options
to be granted under the 1992 Plan and designated as incentive stock options
are intended to receive incentive stock option tax treatment pursuant to
Section 422A of the Code. Options will be granted to key employees or those
employees, officers or directors who the Company believes are or will be
important to its success.
The 1992 Plan provides that all options granted thereunder shall be
exercisable during a period of no more than ten years from the date of grant
(five years for options granted to holders of 10% or more of the outstanding
shares of Common Stock), depending upon the specific stock option agreement,
and that the option exercise price shall be at least equal to 100% of the
fair market value of the Common Stock on the date of grant (110% for options
granted to holders of 10% or more of the outstanding shares of Common Stock).
Pursuant to the provisions of the 1992 Plan, the aggregate fair market value
(determined on the date of the grant) of the shares of Common Stock for
which incentive stock options are first exercisable under the terms of the
1992 Plan by an option holder during any one calendar year, cannot exceed
$100,000.
If the employment of an optionee is terminated other than by reason of death,
disability or retirement at age 65, any options granted to the optionee will
immediately terminate. If employment is terminated by reason of disability
or retirement at age 65, the optionee may, within one year from the date of
termination, in the event of termination by reason of disability, or three
months from the date of termination, in the event of termination by reason of
retirement at age 65 (but not after ten years from the date of grant),
exercise the option. If employment is terminated by death, the person or
persons to whom the optionee's rights under the option are transferred by will
20
<PAGE>
or the laws of descent and distribution shall have similar rights of exercise
within three months after such death (but not after ten years from the date
of grant). Options are not transferable otherwise than by will or the laws
of descent and distribution, and during the optionee's lifetime are
exercisable only by the optionee. Shares subject to options which expire or
terminate may be the subject of future options. The 1992 Plan terminates on
July 31, 2002.
During the fiscal year ended February 28, 1993, stock options to purchase
150,000 shares of the Company's common stock at a price of $.19, were granted
to Robert Gardner, Chairman, and David Raymond, President, respectively,
pursuant to the provisions of the 1992 Plan. Additionally, stock options to
purchase a total of 12,500 shares at a price of $.19 per share were granted
to certain employees of the Company, of which 7,500 have expired. During
February 1996, Robert Gardner exercised options to purchase 150,000 shares
of the Company's Common Stock. No other options have been exercised as of
February 29, 1996 No other stock options have been granted under the 1992
Plan.
The following table shows certain information with respect to stock options
granted to the Company's executive officers during the fiscal year ended 1996:
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- -------------- ----------- ------------ ----------------- ---------
<S> <C> <C> <C> <C>
Robert Gardner 300,000 N/A $.10 *
David Raymond -0- N/A N/A N/A
</TABLE>
* Option was exercised on February 26, 1996.
21
<PAGE>
The following table sets forth certain information with respect to option
exercises during the fiscal year ended February 29, 1996 by the executive
officers of the Company and the value of each such officer's unexercised
options at February 29, 1996.
Aggregated Option/SAR Exercises in
Last Fiscal Year and Fiscal Year - End Option/SAR Values
------------------------------------------------------------------
<TABLE>
<CAPTION>
Value of
Unexercised
Shares Number of Securities Underlying in-the-Money
Acquired Unexercised Options/SARs Options/SARs
on Value at Fiscal Year-End(#) Fiscal Year-End($)*
Exercise Realized ---------------------------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert
Gardner 450,000 $25,875* 0 0 $ 0 0
David
Raymond None None 210,000 0 $ 0 0
</TABLE>
_______________
* Based on the closing bid price of the Company's common stock at February
29, 1996 at $ .1875 as reported by one of the Company's market makers as
the stock is not listed on an exchange.
<TABLE>
<CAPTION>
Estimated Future Payouts under Non-Stock
Price-Based Plans
----------------------------------------
Performance
Number of or Other
Shares, Units Period Until
or Other Maturation or Threshold Target Maximum
Name Rights(#) Payout ($ or #) ($ or #) ($ or #)
- ------- ------------ ------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Robert
Gardner -0- -0- N/A N/A N/A
David
Raymond -0- -0- N/A N/A N/A
</TABLE>
Directors' Fees
The Company has not authorized the payment of fees to any Directors for
attendance at Directors' meetings, except for payments to Marilyn Gardner,
who receives $500 per month for her services as an outside director.
22
<PAGE>
Employee Benefit Plans
On December 27, 1991, the Board of Directors approved a Simplified Employee
Pension Plan for all employees who have been employees of the Company for at
least 3 of the 5 prior years with the Company. The annual contribution to
the plan is at the discretion of the Board and allocated to employees based
on their salary. Robert Gardner, David Raymond and two other employees were
eligible to participate in the plan during the fiscal year ended February 29,
1996. During the current fiscal year a total of $18,000 was contributed to
the SEP, including $8,115 and $7,099 to Mr. Gardner's and Mr. Raymond's
accounts, respectively.
The Company has no other bonus, profit sharing, pension, retirement, stock
purchase, deferred compensation, or other incentive plans.
During December 1993, the Board of Directors approved payments for
the cost of the Florida Prepaid College Program for three children of Company
employees, including David Raymond. It is estimated that the cost to the
Company for one eligible child would be approximately $7,000 payable over 55
months. The Company is not required to make any further payments if the
employee is terminated from the Company.
23
<PAGE>
ITEM 11
-------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 30, 1996, the shares of Common
Stock owned beneficially and of record (unless otherwise indicated) by each
person owning more than 5% of the outstanding shares of Common Stock, each
director of the Company and all directors and officers of the Company as a
group:
<TABLE>
<CAPTION>
Title of Name and Address Amount and Nature of Percentage
Class of Beneficial Owner Beneficial Owner(1) of Class (1)
- -------- -------------------- --------------------- ------------
<S> <C> <C> <C>
Common Robert L. Gardner(D) 2,326,073 58.5%
1815 Griffin Rd
Dania, Florida 33004
Common Kenneth Gardner(A) 200,000 5.0%
1815 Griffin Rd
Dania, Florida 33004
Common David Raymond(D) 316,000(2) 7.9%
1815 Griffin Rd
Dania, Florida 33004
Common Marilyn Gardner(D)(B) 51,000 1.3%
1815 Griffin Rd
Dania, Florida 33004
Common All Officers and 2,693,073(2) 67.7%
Directors as a Group
(3 persons)
</TABLE>
______________________________________________________________________________
(1) The calculations set forth above assume that as of April 30, 1996, there
were 3,978,401 shares of common stock issued and outstanding (which
amount includes 210,000 options to purchase shares).
(2) Includes outstanding stock options to purchase 210,000 shares of common
stock.
(D) Director of Company
(A) Kenneth Gardner is Robert Gardner's son.
(B) Marilyn Gardner is Robert Gardner's wife.
24
<PAGE>
Changes in Control
- ------------------
On April 13, 1992, the Company entered into a revolving credit agreement with
the Company's Chairman, Mr. Robert Gardner. The line of credit has been
amended to change the termination date to July 31, 1996 and is collateralized
by all of the Company's accounts receivable and by all of the common stock of
the Company. Borrowings under this revolving credit agreement, as disclosed
in Note 5 to the consolidated financial statements, are subordinated to the
Company's line of credit. In the event of a default by the Company of its
obligations under the agreement, Mr. Gardner would, in effect, have the power
to exercise complete control over the business and operations of the Company.
ITEM 12
-------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 21, 1993, Finco, a wholly owned subsidiary of the Company, entered
into a $500,000 revolving credit facility with Marilyn Gardner, a Director of
the Company. The agreement has been amended to terminate on July 31, 1996
and all borrowings under the new agreement are also due on July 31, 1996.
Loans under this agreement bear interest at Citibank prime plus 4-1/2 % with
a minimum of 12%. In consideration of granting this loan, the Company has
sold to Mrs. Gardner 500 shares of Class "A" 12% Convertible Redeemable
Preferred Stock for a total price of $75,000. These shares were sold to
Robert Gardner. In turn, Mr. Gardner converted the 500 Preferred Shares into
500,000 shares of the Company's Common Stock on February 26, 1996. As of
February 29, 1996 there was $500,000 outstanding under this agreement and
$39,629 of interest was paid during the year ended February 29, 1996. In
addition, during fiscal year 1996, the Company paid $9,000 as dividends on
the Preferred Stock held by Mrs. Gardner. Mrs. Gardner is the wife of Robert
Gardner.
On April 13, 1992, the Company entered into a $1 million revolving credit
facility with the Company's Chairman, Robert Gardner. The revolving credit
facility has been amended to change the termination date to July 31, 1996.
Loans under this agreement bear interest at Citibank prime plus 4 1/2% with a
minimum of 12% and a maximum of 18% and are collateralized by all of the
Company's accounts receivable and all of the common stock, assets and
business of the Company. Borrowing under this line of credit as disclosed
in Note 5 to the consolidated financial statements are payable on demand and
are subordinated to a line of credit from a bank. As part of the agreement,
the Company gave an option to purchase 300,000 shares of the Company's Common
Stock to Mr. Gardner at a price of $.10 per share. This option was exercised
on February 26, 1996. As of February 29, 1996, there was $1,000,000
outstanding under this agreement; $133,245 of interest was paid by the
Company to Mr. Gardner during the year ended February 29, 1996.
In connection with the maintenance of the Company's SEP Plan and securities
trading through Prudential Securities, the Company uses Kenneth Gardner as
an account manager. Kenneth Gardner owns approximately 5% of the Company's
issued and outstanding shares, and is the son of Robert Gardner, an officer,
director and controlling stockholder of the Company. Commissions paid to
Prudential in connection with these activities for the years ended February
29, 1996 and 1995 were not significant.
The basic principle followed in determining rates and amounts for each of the
above transactions was whether or not the transaction then under
consideration by the Board of Directors was on terms more favorable to the
25
<PAGE>
Company than it could reasonably have expected to obtain from third parties.
If the Company could have received better terms from independent parties with
respect to the disclosed transactions, it would not have entered into the
subject transactions with related parties.
ITEM 13
-------
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
- -------------
3(i) Certificate of Incorporation, as amended(1)
(ii) By-Laws, as amended(1)
4(i) Specimen of Common Stock Certificate(1)
4(ii) Form of Warrant Agreement between the Company and American Securities
Transfer, Inc. and Specimen Warrant Certificate(1)
4(iii) Form of Stock Purchase Warrant between the Company and The Stuart-
James Company Incorporated(1)
10(i) Copy of 1987 Stock Option Plan(1)
(ii) Copy of Revolving Credit Facility between the Company Financial
Corp. and Robert Gardner dated April 13, 1992, as amended March
28, 1995 and April 12, 1995 and as amended on April 15, 1996.
(2)(5)(6)
(iii) Copy of 1992 Stock Option Plan
(iv) Copy of Revolving Credit Facility between the Company Financial
Corp. and Marilyn Gardner dated April 21, 1993, as amended on May
11, 1993 and as amended on March 28, 1995 and as amended on April
15, 1996.(3)(5)(6)
(v) Copies of Revolving Credit Agreements between International Design
Group, Inc., Finco Financial Corporation and Capital Bank, as
amended on September 30, 1994 and May 15, 1995.(4)(5)
(vi) Copies of Revolving Credit Agreements between International Design
Group, Inc., Finco Financial Corporation, Eagle Premium Finance,
Inc. and Nations Bank, as of February 26, 1996(6)
EX-27 Financial Data Schedule
26
<PAGE>
21. Subsidiaries of the Registrant
(b) Reports on Form 8-K:
- ------------------------
No Reports on Form 8-K were filed by the Registrant during the fiscal
year ended February 29, 1996.
(1) Incorporated by reference to the Company's Registration Statement on
Form S-l (No. 14236) filed with the Securities and Exchange Commission
which became effective on June 29,1987.
(2) Incorporated by reference to the Company's Form 8-K, dated April 13,
1992.
(3) Incorporated by reference to the Company's Forms 8-K, dated April 21,
1993 and May 11, 1993.
(4) Incorporated by reference to Company's Form 10-K dated February 28, 1993.
(5) Incorporated by reference to Company's Form 10-K dated February 28, 1995.
(6) Amendment included herewith.
27
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
(Registrant) INTERNATIONAL DESIGN GROUP, INC.
BY (Signature) /s/ Robert L. Gardner
(Date) May 29, 1996
(Name and Title) Robert L. Gardner, Chairman of the Board
(Principal Executive Officer)
BY (Signature) /s/ David Raymond
(Date) May 29, 1996
(Name and Title) David Raymond, President and Treasurer
(Principal Financial and Accounting
Officer)
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
BY (Signature) /s/ Robert L. Gardner
(Date) May 29, 1996
(Name and Title) Robert L. Gardner, Director
BY (Signature) /s/ David Raymond
(Date) May 29, 1996
(Name and Title) David Raymond, Director
28
<PAGE>
EXHIBIT INDEX
10(ii) Copy of Revolving Credit Facility between the Company Financial
Corp. and Robert Gardner dated April 13, 1992, as amended March 28,
1995 and April 12, 1995 and as amended on April 15, 1996.
(iv) Copy of Revolving Credit Facility between the Company Financial
Corp. and Marilyn Gardner dated April 21, 1993, as amended on May
11, 1993 and as amended on March 28, 1995 and as amended on April
15, 1996.
(vi) Copies of Revolving Credit Agreements between International Design
Group, Inc., Finco Financial Corporation, Eagle Premium Finance,
Inc. and Nations Bank, as of February 26, 1996
21. Subsidiaries of the Registrant
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<CASH> 130,679
<SECURITIES> 129,188
<RECEIVABLES> 8,740,416
<ALLOWANCES> 591,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,911,907
<PP&E> 160,348
<DEPRECIATION> 68,720
<TOTAL-ASSETS> 9,216,059
<CURRENT-LIABILITIES> 2,331,683
<BONDS> 0
<COMMON> 3,768,401
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,216,059
<SALES> 3,071,912
<TOTAL-REVENUES> 3,186,169
<CGS> 0
<TOTAL-COSTS> 3,050,154
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 396,620
<INCOME-PRETAX> 136,015
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,015
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
<PAGE>
EXHIBIT 10(ii)
THIRD AMENDMENT TO
REVOLVING CREDIT AGREEMENT
This Third Amendment to Revolving Credit Agreement (this "Third
Amendment") is made and entered into by and among Robert L. Gardner
(the "Lender"), FINCO Financial Corporation, a Florida corporation
(the "Debtor") and International Design Group, Inc., a Delaware
corporation (the "Guarantor"), effective the 15th day of April,
1996.
WHEREAS, the Debtor, the Lender and the Guarantor are parties
to a Revolving Credit Agreement dated April 13, 1992 which was first
amended by the parties hereto effective March 28, 1995 and again
amended effective April 14, 1995 (the "Original Loan Agreement"),
pursuant to which (among other things) the Lender agreed to make
revolving credit loans to the Debtor in an aggregate principal
amount not to exceed $1,000,000 outstanding at any one time, which
loans are evidenced by the Debtor's Revolving Credit Note Secured by
Security Agreement and Other Collateral dated April 13, 1992 which
was subsequently first amended and restated effective March 28, 1995
and again amended and restated pursuant to an Amendment and
Restatement dated as of April 14, 1995, and again amended and
restated pursuant to a Second Amendment and Restatement dated as of
April 15, 1996 (the "Original Note"); and
WHEREAS, in connection with the execution and delivery of the
Original Loan Agreement and the Original Note (a) the Debtor, the
Lender and the Guarantor entered into a Security Agreement dated
April 13, 1992 (which was subsequently first amended effective March
28, 1995 and again amended effective April 14, 1995) (the "Security
Agreement"), (b) the Debtor and the Guarantor entered into a Pledge
Agreement dated April 13, 1992 (which was subsequently amended
effective March 28, 1995 and again amended effective April 14, 1995)
(the "Pledge Agreement"), (c) the Guarantor and the Lender entered
into a Subscription Agreement dated April 13, 1992, (d) the
Guarantor and the Lender entered into a Call Agreement dated April
13, 1992, (e) the Guarantor delivered to the Lender its Guaranty
dated April 13, 1992 (which was subsequently amended effective March
28, 1995 and again amended effective April 14, 1995) (the
"Guaranty") and (f) the Guarantor and the Lender entered into an
Option Agreement dated April 14, 1995 (all of the foregoing being
sometimes hereinafter referred to collectively as the "Security
Documents"); and
WHEREAS, at the Debtor's request, the parties have agreed,
subject to the terms and conditions of this Third Amendment, to
further amend the Original Loan Agreement to provide for the
extension of the Termination Date from March 31, 1996 to July 31,
1996; and
<PAGE>
WHEREAS, the Lender is willing to accommodate the Debtor and to
make the requested amendment to the Original Loan Agreement as set
forth below;
NOW, THEREFORE, for value received and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the Original Loan Agreement (as
previously amended) or the Security Documents (as previously
amended).
2. The definition of the term "Maturity Date" in Section 1.01
of the Original Loan Agreement (as previously amended) is hereby
deleted in its entirety and replaced with the following:
"Maturity Date" shall mean July 31, 1996.
-------------
3. The definition of the term "Note" in Section 1.01 of the
Original Loan Agreement (as previously amended) is hereby deleted in
its entirety and replaced with the following:
"'Note' shall mean the Second Amended and Restated Revolving
Credit Note dated April 13, 1992 (as amended and restated as of
April 15, 1996) issued by the Debtor to the Lender in the form
of Attachment I annexed hereto, with all blanks appropriately
completed."
4. The Original Note and Exhibit A to the Original Loan
Agreement are hereby amended in their entirety to read as set forth
in Attachment I to this Third Amendment. In order to evidence such
changes in the Original Note, the Debtor shall, on the date hereof,
issue to the Lender a new note (the "New Note") in the form of
Attachment I annexed hereto in replacement of the Original Note.
The New Note shall not constitute a satisfaction of or a novation of
the Original Note, but merely a replacement thereof.
5. To induce the Lender to enter into this Third Amendment,
the Debtor hereby represents and warrants that on the date hereof
there exists neither an "Event of Default" under the Original Loan
Agreement or the Original Note (or under any other agreement or
document executed pursuant thereto), nor any event which would
constitute such an Event of Default but for the passage of time, or
the giving of notice, or both. The Debtor hereby reaffirms and
restates as of the date hereof all representations and warranties
set forth in Article III of the Original Loan Agreement (except as
and to the extent specifically amended by this Third Amendment),
except that for the purposes of such restated representations and
warranties, all references hereto to the "Agreement" shall be deemed
to refer to the Original Loan Agreement, as amended hereby, and the
use of "hereunder", "herein", and words of similar import shall be
deemed to refer to the Original Loan Agreement as amended hereby,
and all references to the Note shall be deemed to refer to the New
<PAGE>
Note issued hereunder. All covenants and agreements of the Debtor
contained in Articles V and VI of the Original Loan Agreement and
all Events of Default and remedies contained in Article VII of the
Original Loan Agreement, all except as amended hereby, are
incorporated in this Third Amendment by reference as though
specifically set forth herein.
6. This Third Amendment may be executed in any number of
counterparts, which shall together constitute an entire original
agreement, shall be construed in accordance with the laws of the
State of Florida and shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed as of the day and year first above
written.
LENDER:
BY (Signature) /s/Robert L. Gardner
Address for Notices:
Robert L. Gardner
4101 North Ocean Boulevard
Boca Raton, Florida 33431
DEBTOR:
FINCO FINANCIAL CORPORATION, a
Florida corporation
BY (Signature) /s/David Raymond, President
Address for Notices:
FINCO FINANCIAL CORPORATION
1815 Griffin Road, Suite 402
Dania, Florida 33004
Telecopier Number: (305) 927-9110
<PAGE>
GUARANTOR:
INTERNATIONAL DESIGN GROUP, INC., a
Delaware corporation
BY (Signature) /s/David Raymond, President
Address for Notices:
INTERNATIONAL DESIGN GROUP, INC.
1815 Griffin Road, Suite 402
Dania, Florida 33004
Telecopier Number: (305) 927-9110
with copies to:
Krys Boyle Golz Reich Freedman & Scott, P.C.
Dominion Plaza, Suite 2700
South Tower
600 Seventeenth Street
Denver, Colorado 80202
Telecopier No.: (303) 893-2882
Attention: Stanley F. Freedman, Esq.
(loanagt3.amd)
<PAGE>
SECOND AMENDED AND RESTATED REVOLVING CREDIT NOTE
SECURED BY SECURITY AGREEMENT
AND OTHER COLLATERAL
$1,000,000 April 13, 1992
(as amended and restated
pursuant to this Second
Amendment and Restatement
as of April 15, 1996)
FOR VALUE RECEIVED, the undersigned FINCO FINANCIAL
CORPORATION, a Florida corporation with a principal office in Dania,
Florida (the "Maker"), does hereby promise to pay to the order of
ROBERT L. GARDNER, an individual residing in Boca Raton, Florida
(hereinafter referred to as the "Lender"), ON DEMAND, as provided in
Section 2.01 of the Revolving Credit Agreement dated April 13, 1992
as was first amended as of April 14, 1995 and as was again amended
pursuant to the Third Amendment to Revolving Credit Agreement dated
as of April 15, 1996 and as may be amended in the future from time
to time, among the Maker, the Lender and International Design Group,
Inc. as Guarantor (the "Loan Agreement"), the principal sum of One
Million Dollars ($1,000,000) or, if less, the aggregate unpaid
principal amount of advances made by the Lender to the Maker
pursuant to the Loan Agreement (the "Revolving Credit Principal"),
together with interest to the extent permitted by law on any and all
Revolving Credit Principal amounts remaining unpaid hereunder from
the date hereof until payment in full, payable monthly in arrears on
the tenth day of each month commencing on the date hereof and ending
July 31, 1996, at the rates per annum as set forth at Section 2.07
of the Loan Agreement. Interest on the Revolving Credit Principal
shall be calculated on the basis of a three hundred sixty (360) day
year counting the actual number of days elapsed.
If the Lender has not exercised its right to demand immediate
payment of all amounts hereunder on or before July 31, 1996 (the
"Termination Date"), the Maker promises to pay the Lender in full on
the Termination Date the entire amount of Revolving Credit Principal
outstanding and any and all accrued but unpaid interest thereon as
of the Termination Date. All Revolving Credit Principal and
interest hereunder are payable in lawful money of the United States
of America at the following address in immediately available funds:
4101 North Ocean Boulevard, Boca Raton, Florida 33431.
The Maker of this Note for itself and for its legal
representatives, successors and assigns, hereby expressly waives
presentment, demand, protest, notice of protest, presentment for the
purpose of accelerating maturity, diligence in collection, and the
benefit of any exemption under the homestead exemption laws, if any,
or any other exemption or insolvency laws, and consents that the
Lender may release or surrender, exchange or substitute any personal
property or other collateral security now held or which may
hereafter be held as security for the payment of this Note, and may
extend the time for payment or otherwise modify the terms of payment
of any part or the whole of the debt evidenced hereby.
<PAGE>
This Note is the Note referred to in, and is entitled to the
benefits of, the Loan Agreement, and is also entitled to the
benefits of all other instruments evidencing and/or securing the
indebtedness hereunder. The occurrence or existence of an "Event of
Default" as defined in the Loan Agreement or in any other
instruments securing and/or evidencing this indebtedness shall
constitute a default under this Note and shall entitle the Lender to
accelerate the entire indebtedness hereunder and to take such other
action as may be provided for in the said agreements.
This Note is subject to Late Payment Penalties as set forth in
the Loan Agreement.
All agreements between the Maker and the Lender are hereby
expressly limited so that in no contingency or event whatsoever,
whether by reason of acceleration of maturity of the indebtedness or
otherwise, shall the amount paid or agreed to be paid to the Lender
for the use, forbearance or detention of the indebtedness evidenced
hereby exceed the maximum permissible under applicable law. If, for
any circumstances whatsoever, fulfillment of any provision hereof or
of the Loan Agreement, at the time performance of such provision
shall be due, shall involve transcending the limit of validity
prescribed by law, then, ipso facto the obligation to be fulfilled
shall be reduced to the limit of such validity, and if from any
circumstance the Lender should ever receive as interest an amount
which would exceed the highest lawful rate, such amount which would
be excessive interest shall be applied to the reduction of the
principal balance evidenced hereby and not to the payment of
interest. As used herein, the term "applicable law" shall mean the
law in effect as of the date hereof; provided, however, that in the
event there is a change in the law which results in a higher
permissible rate of interest, then this Note shall be governed by
such new law as of its effective date. This provision shall control
every other provision of all agreements between the Maker and the
Lender.
This Note and all transactions hereunder and/or evidenced
herein shall be governed by, construed and enforced in accordance
with the laws of the State of Florida.
If this Note shall not be paid when due and shall be placed by
the holder hereof in the hands of any attorney for collection,
through legal proceedings or otherwise, the Maker will pay a
reasonable attorney's fee to the holder hereof together with
reasonable costs and expenses of collection.
IN WITNESS WHEREOF, the Maker has caused this Note to be
executed by its duly authorized officer as of the date first above
written.
ATTEST: FINCO FINANCIAL CORPORATION
______________________________ By:____________________________
Secretary David Raymond, President
<PAGE>
EXHIBIT 10(iv)
THIRD AMENDMENT TO
REVOLVING CREDIT AGREEMENT
This Second Amendment to Revolving Credit Agreement (this
"Second Amendment") is made and entered into by and among Marilyn H.
Gardner (the "Lender"), FINCO Financial Corporation, a Florida
corporation (the "Debtor") and International Design Group, Inc., a
Delaware corporation (the "Guarantor"), effective the 15th day of
April, 1996.
WHEREAS, the Debtor, the Lender and the Guarantor are parties
to a Revolving Credit Agreement dated May 11, 1993 which was amended
by the parties hereto in accordance with the terms and provisions of
a letter agreement dated effective March 31, 1995 (the "Original
Loan Agreement"), pursuant to which (among other things) the Lender
agreed to make revolving credit loans to the Debtor in an aggregate
principal amount not to exceed $500,000 outstanding at any one time,
which loans are evidenced by the Debtor's Revolving Credit Note
Secured by Security Agreement and Other Collateral dated May 11,
1993 (the "Original Note"); and
WHEREAS, in connection with the execution and delivery of the
Original Loan Agreement and the Original Note (a) the Debtor, the
Lender and the Guarantor entered into a Security Agreement dated May
11, 1993 (the "Security Agreement"), (b) the Debtor and the
Guarantor entered into a Pledge Agreement dated May 11, 1993 (the
"Pledge Agreement"), (c) the Guarantor and the Lender entered into a
Subscription Agreement dated May 11, 1993, and (d) the Guarantor
delivered to the Lender its Guaranty dated May 11, 1993 (the
"Guaranty") (all of the foregoing being sometimes hereinafter
referred to collectively as the "Security Documents"); and
WHEREAS, at the Debtor's request, the parties have agreed,
subject to the terms and conditions of this Second Amendment, to
further amend the Original Loan Agreement to provide for the
extension of the Termination Date from September 30, 1995 to July
31, 1996; and
WHEREAS, the Lender is willing to accommodate the Debtor and to
make the requested amendment to the Original Loan Agreement as set
forth below;
NOW, THEREFORE, for value received and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the Original Loan Agreement (as
previously amended) or the Security Documents (as previously
amended).
<PAGE>
2. The definition of the term "Maturity Date" in Section 1.01
of the Original Loan Agreement (as previously amended) is hereby
deleted in its entirety and replaced with the following:
"Maturity Date" shall mean July 31, 1996.
3. The definition of the term "Note" in Section 1.01 of the
Original Loan Agreement (as previously amended) is hereby deleted in
its entirety and replaced with the following:
"'Note' shall mean the Amended and Restated Revolving Credit
Note dated May 11, 1993 (as amended and restated as of April
15, 1996) issued by the Debtor to the Lender in the form of
Attachment I annexed hereto, with all blanks appropriately
completed."
4. The Original Note and Exhibit A to the Original Loan
Agreement are hereby amended in their entirety to read as set forth
in Attachment I to this Second Amendment. In order to evidence such
changes in the Original Note, the Debtor shall, on the date hereof,
issue to the Lender a new note (the "New Note") in the form of
Attachment I annexed hereto in replacement of the Original Note.
The New Note shall not constitute a satisfaction of or a novation of
the Original Note, but merely a replacement thereof.
5. To induce the Lender to enter into this Second Amendment,
the Debtor hereby represents and warrants that on the date hereof
there exists neither an "Event of Default" under the Original Loan
Agreement or the Original Note (or under any other agreement or
document executed pursuant thereto), nor any event which would
constitute such an Event of Default but for the passage of time, or
the giving of notice, or both. The Debtor hereby reaffirms and
restates as of the date hereof all representations and warranties
set forth in Article III of the Original Loan Agreement (except as
and to the extent specifically amended by this Second Amendment),
except that for the purposes of such restated representations and
warranties, all references hereto to the "Agreement" shall be deemed
to refer to the Original Loan Agreement, as amended hereby, and the
use of "hereunder", "herein", and words of similar import shall be
deemed to refer to the Original Loan Agreement as amended hereby,
and all references to the Note shall be deemed to refer to the New
Note issued hereunder. All covenants and agreements of the Debtor
contained in Articles V and VI of the Original Loan Agreement and
all Events of Default and remedies contained in Article VII of the
Original Loan Agreement, all except as amended hereby, are
incorporated in this Second Amendment by reference as though
specifically set forth herein.
6. This Second Amendment may be executed in any number of
counterparts, which shall together constitute an entire original
agreement, shall be construed in accordance with the laws of the
State of Florida and shall be binding upon and inure to the benefit
<PAGE>
of the parties hereto and their respective heirs, successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed as of the day and year first above
written.
LENDER:
BY (Signature) /s/Marilyn H. Gardner
Address for Notices:
Marilyn H. Gardner
4101 North Ocean Boulevard
Boca Raton, Florida 33431
DEBTOR:
FINCO FINANCIAL CORPORATION, a
Florida corporation
BY (Signature) /s/David Raymond, President
Address for Notices:
FINCO FINANCIAL CORPORATION
1815 Griffin Road, Suite 402
Dania, Florida 33004
Telecopier Number: (305) 927-9110
GUARANTOR:
INTERNATIONAL DESIGN GROUP, INC., a
Delaware corporation
BY (Signature) /s/David Raymond, President
<PAGE>
Address for Notices:
INTERNATIONAL DESIGN GROUP, INC.
1815 Griffin Road, Suite 402
Dania, Florida 33004
Telecopier Number: (305) 927-9110
with copies to:
Krys Boyle Golz Reich Freedman & Scott, P.C.
Dominion Plaza, Suite 2700
South Tower
600 Seventeenth Street
Denver, Colorado 80202
Telecopier No.: (303) 893-2882
Attention: Stanley F. Freedman, Esq.
(loanagt2.mhg)
<PAGE>
AMENDED AND RESTATED REVOLVING CREDIT NOTE
SECURED BY SECURITY AGREEMENT
AND OTHER COLLATERAL
$500,000 May 11, 1993
(as amended and restated as
of April 15, 1996)
FOR VALUE RECEIVED, the undersigned FINCO FINANCIAL
CORPORATION, a Florida corporation with a principal office in Dania,
Florida (the "Maker"), does hereby promise to pay to the order of
MARILYN H. GARDNER, an individual residing in Boca Raton, Florida
(hereinafter referred to as the "Lender"), ON DEMAND, as provided in
Section 2.01 of the Revolving Credit Agreement dated May 11, 1993 as
amended on March 31, 1995, and as further amended as of April 15,
1996, and as may be amended in the future from time to time, among
the Maker, the Lender and International Design Group, Inc. as
Guarantor (the "Loan Agreement"), the principal sum of Five Hundred
Thousand Dollars ($500,000) or, if less, the aggregate unpaid
principal amount of advances made by the Lender to the Maker
pursuant to the Loan Agreement (the "Revolving Credit Principal"),
together with interest to the extent permitted by law on any and all
Revolving Credit Principal amounts remaining unpaid hereunder from
the date hereof until payment in full, payable monthly in arrears on
the tenth day of each month commencing on the date hereof and ending
July 31, 1996, at the rates per annum as set forth at Section 2.07
of the Loan Agreement. Interest on the Revolving Credit Principal
shall be calculated on the basis of a three hundred sixty (360) day
year counting the actual number of days elapsed.
If the Lender has not exercised its right to demand immediate
payment of all amounts hereunder on or before July 31, 1996 (the
"Termination Date"), the Maker promises to pay the Lender in full on
the Termination Date the entire amount of Revolving Credit Principal
outstanding and any and all accrued but unpaid interest thereon as
of the Termination Date. All Revolving Credit Principal and
interest hereunder are payable in lawful money of the United States
of America at the following address in immediately available funds:
4101 North Ocean Boulevard, Boca Raton, Florida 33431.
The Maker of this Note for itself and for its legal
representatives, successors and assigns, hereby expressly waives
presentment, demand, protest, notice of protest, presentment for the
purpose of accelerating maturity, diligence in collection, and the
benefit of any exemption under the homestead exemption laws, if any,
or any other exemption or insolvency laws, and consents that the
Lender may release or surrender, exchange or substitute any personal
property or other collateral security now held or which may
hereafter be held as security for the payment of this Note, and may
extend the time for payment or otherwise modify the terms of payment
of any part or the whole of the debt evidenced hereby.
This Note is the Note referred to in, and is entitled to the
benefits of, the Loan Agreement, and is also entitled to the
benefits of all other instruments evidencing and/or securing the
indebtedness hereunder. The occurrence or existence of an "Event of
<PAGE>
Default" as defined in the Loan Agreement or in any other
instruments securing and/or evidencing this indebtedness shall
constitute a default under this Note and shall entitle the Lender to
accelerate the entire indebtedness hereunder and to take such other
action as may be provided for in the said agreements.
This Note is subject to Late Payment Penalties as set forth in
the Loan Agreement.
All agreements between the Maker and the Lender are hereby
expressly limited so that in no contingency or event whatsoever,
whether by reason of acceleration of maturity of the indebtedness or
otherwise, shall the amount paid or agreed to be paid to the Lender
for the use, forbearance or detention of the indebtedness evidenced
hereby exceed the maximum permissible under applicable law. If, for
any circumstances whatsoever, fulfillment of any provision hereof or
of the Loan Agreement, at the time performance of such provision
shall be due, shall involve transcending the limit of validity
prescribed by law, then, ipso facto the obligation to be fulfilled
shall be reduced to the limit of such validity, and if from any
circumstance the Lender should ever receive as interest an amount
which would exceed the highest lawful rate, such amount which would
be excessive interest shall be applied to the reduction of the
principal balance evidenced hereby and not to the payment of
interest. As used herein, the term "applicable law" shall mean the
law in effect as of the date hereof; provided, however, that in the
event there is a change in the law which results in a higher
permissible rate of interest, then this Note shall be governed by
such new law as of its effective date. This provision shall control
every other provision of all agreements between the Maker and the
Lender.
This Note and all transactions hereunder and/or evidenced
herein shall be governed by, construed and enforced in accordance
with the laws of the State of Florida.
If this Note shall not be paid when due and shall be placed by
the holder hereof in the hands of any attorney for collection,
through legal proceedings or otherwise, the Maker will pay a
reasonable attorney's fee to the holder hereof together with
reasonable costs and expenses of collection.
IN WITNESS WHEREOF, the Maker has caused this Note to be
executed by its duly authorized officer as of the date first above
written.
ATTEST: FINCO FINANCIAL CORPORATION
______________________________ By:____________________________
Secretary David Raymond, President
<PAGE>
EXHIBIT 10(vi)
LOAN AND SECURITY AGREEMENT
Dated as of February ____, 1996
Between
INTERNATIONAL DESIGN GROUP, INC.,
EAGLE PREMIUM FINANCE, INC.
and
FINCO FINANCIAL CORPORATION
(the Borrowers)
and
NATIONSBANK, N.A. (SOUTH)
(the Lender)
<PAGE>
TABLE OF CONTENTS (1/)
Page
ARTICLE 1 - DEFINITIONS
Section 1.1 Definitions . . . . . . . . . . . . . . .-1-
Section 1.2 Other Referential Provisions. . . . . . -16-
Section 1.3 Exhibits and Schedules. . . . . . . . . -17-
ARTICLE 2 - REVOLVING CREDIT FACILITY
Section 2.1 Revolving Credit Loans. . . . . . . . . -18-
Section 2.2 Manner of Borrowing Revolving Credit
Loans. . . . . . . . . . . . . . . . . -18-
Section 2.3 Repayment of Revolving Credit Loans . . -19-
Section 2.4 Revolving Credit Note . . . . . . . . . -19-
Section 2.5 Extension of Facility . . . . . . . . . -19-
Section 2.6 Letters of Credit . . . . . . . . . . . -19-
ARTICLE 3 - GENERAL LOAN PROVISIONS
Section 3.1 Interest. . . . . . . . . . . . . . . . -20-
Section 3.2 Fees. . . . . . . . . . . . . . . . . . -24-
Section 3.3 Manner of Payment . . . . . . . . . . . -24-
Section 3.4 Statements of Account . . . . . . . . . -25-
Section 3.5 Termination of Agreement. . . . . . . . -25-
Section 3.6 Increased Costs and Reduced Returns . . -25-
Section 3.7 Joint and Several Liability . . . . . . -26-
Section 3.8 Obligations Absolute. . . . . . . . . . -26-
Section 3.9 Waiver of Suretyship Defenses . . . . . -26-
ARTICLE 4 - CONDITIONS PRECEDENT
Section 4.1 Conditions Precedent to Initial Loan. . -27-
Section 4.2 All Loans . . . . . . . . . . . . . . . -30-
- ---------------------------
1/ This Table of Contents is included for reference purposes only and does not
constitute part of the Loan and Security Agreement.
-i-
<PAGE>
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF EACH BORROWER
Section 5.1 Representations and Warranties. . . . . -30-
Section 5.2 Survival of Representations and
Warranties, Etc. . . . . . . . . . . . -35-
ARTICLE 6 - SECURITY INTEREST
Section 6.1 Security Interest . . . . . . . . . . . -35-
Section 6.2 Continued Priority of Security Interest -35-
ARTICLE 7 - COLLATERAL COVENANTS
Section 7.1 Collection of Premium Finance Agreements-36-
Section 7.2 Verification and Notification . . . . . -37-
Section 7.3 Adjustments . . . . . . . . . . . . . . -37-
Section 7.4 Invoices. . . . . . . . . . . . . . . . -37-
Section 7.5 Delivery of Premium Finance Agreements. -37-
Section 7.6 Ownership and Defense of Title. . . . . -38-
Section 7.7 Insurance . . . . . . . . . . . . . . . -38-
Section 7.8 Location of Offices and Collateral. . . -39-
Section 7.9 Records Relating to Collateral. . . . . -39-
Section 7.10 Inspection. . . . . . . . . . . . . . . -39-
Section 7.11 Maintenance of Equipment. . . . . . . . -39-
Section 7.12 Information and Reports . . . . . . . . -39-
Section 7.13 Power of Attorney . . . . . . . . . . . -40-
ARTICLE 8 - AFFIRMATIVE COVENANTS
Section 8.1 Preservation of Corporate Existence
and Similar Matters. . . . . . . . . . -41-
Section 8.2 Compliance with Applicable Law. . . . . -41-
Section 8.3 Conduct of Business . . . . . . . . . . -41-
Section 8.4 Payment of Taxes and Claims . . . . . . -41-
Section 8.5 Accounting Methods and Financial Records-41-
Section 8.6 Use of Proceeds . . . . . . . . . . . . -41-
Section 8.7 Hazardous Waste and Substances;
Environmental Requirements . . . . . . -41-
Section 8.8 Accuracy of Information . . . . . . . . -42-
Section 8.9 Revisions or Updates to Schedules . . . -42-
Section 8.10 Cancellation of Insurance . . . . . . . -42-
Section 8.11 New Credit Insurance Policies . . . . . -42-
-ii-
<PAGE>
ARTICLE 9 - INFORMATION
Section 9.1 Financial Statements. . . . . . . . . . -43-
Section 9.2 Accountants' Certificate. . . . . . . . -43-
Section 9.3 Officer's Certificate . . . . . . . . . -43-
Section 9.4 Copies of Other Reports . . . . . . . . -44-
Section 9.5 Notice of Litigation and Other Matters. -44-
Section 9.6 ERISA . . . . . . . . . . . . . . . . . -44-
ARTICLE 10 - NEGATIVE COVENANTS
Section 10.1 Financial Ratios. . . . . . . . . . . . -45-
Section 10.2 Indebtedness. . . . . . . . . . . . . . -46-
Section 10.3 Guaranties. . . . . . . . . . . . . . . -46-
Section 10.4 Investments . . . . . . . . . . . . . . -46-
Section 10.5 Capital Expenditures. . . . . . . . . . -46-
Section 10.6 Restricted Distributions and
Payments, Etc. . . . . . . . . . . . . -46-
Section 10.7 Merger, Consolidation and Sale of Assets-46-
Section 10.8 Transactions with Affiliates. . . . . . -46-
Section 10.9 Liens . . . . . . . . . . . . . . . . . -47-
Section 10.10 Operating Leases. . . . . . . . . . . . -47-
Section 10.11 Benefit Plans . . . . . . . . . . . . . -47-
Section 10.12 Sales and Leasebacks. . . . . . . . . . -47-
Section 10.13 Amendments of Other Agreements. . . . . -47-
Section 10.14 Minimum Availability. . . . . . . . . . -47-
ARTICLE 11 - DEFAULT
Section 11.1 Events of Default . . . . . . . . . . . -47-
Section 11.2 Remedies. . . . . . . . . . . . . . . . -50-
Section 11.3 Application of Proceeds . . . . . . . . -52-
Section 11.4 Power of Attorney . . . . . . . . . . . -52-
Section 11.5 Miscellaneous Provisions Concerning
Remedies. . . . . . . . . . . . . . . . -53-
Section 11.6 Trademark License . . . . . . . . . . . -54-
ARTICLE 12 - MISCELLANEOUS
Section 12.1 Notices . . . . . . . . . . . . . . . . -54-
Section 12.2 Expenses. . . . . . . . . . . . . . . . -55-
Section 12.3 Stamp and Other Taxes . . . . . . . . . -56-
Section 12.4 Setoff. . . . . . . . . . . . . . . . . -56-
Section 12.5 Litigation. . . . . . . . . . . . . . . -56-
-iii-
<PAGE>
Section 12.6 Waiver of Rights. . . . . . . . . . . . -57-
Section 12.7 Reversal of Payments. . . . . . . . . . -57-
Section 12.8 Injunctive Relief . . . . . . . . . . . -58-
Section 12.9 Accounting Matters. . . . . . . . . . . -58-
Section 12.10 Assignment; Participation . . . . . . . -58-
Section 12.11 Amendments. . . . . . . . . . . . . . . -58-
Section 12.12 Performance of Borrowers' Duties. . . . -58-
Section 12.13 Indemnification . . . . . . . . . . . . -58-
Section 12.14 All Powers Coupled with Interest. . . . -59-
Section 12.15 Survival. . . . . . . . . . . . . . . . -59-
Section 12.16 Severability of Provisions. . . . . . . -59-
Section 12.17 Governing Law . . . . . . . . . . . . . -59-
Section 12.18 Counterparts. . . . . . . . . . . . . . -59-
Section 12.19 Reproduction of Documents . . . . . . . -59-
Section 12.20 Funds Transfer Services . . . . . . . . -59-
EXHIBITS AND SCHEDULES
EXHIBIT A FORM OF REVOLVING CREDIT NOTE
EXHIBIT B FORM OF BORROWING BASE CERTIFICATE
EXHIBIT C FORM OF PREMIUM FINANCE AGREEMENT
SCHEDULE 1.1 Letter of Credit Fees
SCHEDULE 5.1(a) Jurisdictions in Which Borrower is Qualified as a Foreign
Corporation
SCHEDULE 5.1(b) Borrower's Capital Stock
SCHEDULE 5.1(e) Borrower's Business
SCHEDULE 5.1(f) Exceptions to Governmental Approvals
SCHEDULE 5.1(g) Non Lien Title Exceptions and Defects and Property
Disposed of Out of Ordinary Course of Business
SCHEDULE 5.1(h) Liens
SCHEDULE 5.1(i) Indebtedness for Money Borrowed and Guaranties
SCHEDULE 5.1(j) Litigation
SCHEDULE 5.1(k) Tax Returns and Payments
SCHEDULE 5.1(o) ERISA
SCHEDULE 5.1(t) Location of Chief Executive Office
SCHEDULE 5.1(u) Locations of Equipment
SCHEDULE 5.1(v) Corporate and Fictitious Names
SCHEDULE 5.1(y) Employee Relations
SCHEDULE 5.1(z) Proprietary Rights
SCHEDULE 8.6 Use of Proceeds
-iv-
<PAGE>
LOAN AND SECURITY AGREEMENT
Dated as of February ____, 1996
INTERNATIONAL DESIGN GROUP, INC., a Delaware corporation, FINCO FINANCIAL
CORPORATION, a Florida corporation, and EAGLE PREMIUM FINANCE, INC. a Florida
corporation, and NATIONSBANK, N.A. (SOUTH), a national banking association,
agree as follows:
ARTICLE 1 - DEFINITIONS
Section 1.1 Definitions. For the purposes of this Agreement:
"Account Debtor" means a Person who is obligated on a Premium Finance
Agreement or other Receivable.
"Acquire" or "Acquisition", as applied to any Business Unit or I
nvestment, means the acquisition of such Business Unit or Investment by
purchase, exchange, issuance of stock or other securities, or by merger,
reorganization or any other method.
"Advance" means amounts advanced by the Lender to the Borrowers under
the Revolving Credit Facility pursuant to Section 2.1 hereof and shall
include Prime Rate Advances and LIBOR Advances, as the case may be.
"Affiliate" means, with respect to a Person, (a) any officer, director,
employee or managing agent of such Person, (b) any spouse, parents, brothers,
sisters, children and grandchildren of such Person, (c) any association,
partnership, trust, entity or enterprise in which such Person is a director,
officer or general partner, (d) any other Person that, (i) directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, such given Person, (ii) directly or
indirectly beneficially owns or holds 10% or more of any class of voting stock
or partnership or other interest of such Person or any Subsidiary of such
Person, or (iii) 10% or more of the voting stock or partnership or other
interest of which is directly or indirectly beneficially owned or held by
such Person or a Subsidiary of such Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through
ownership of voting securities or partnership or other interests, by contract
or otherwise.
"Agency Account" means an account of any Borrower maintained by it with
a Clearing Bank pursuant to an Agency Account Agreement.
"Agency Account Agreement" means an agreement among any Borrower, the
Lender and a Clearing Bank (if other than the Lender) concerning the
collection of payments which represent the proceeds of Receivables or of any
other Collateral.
-1-
<PAGE>
"Agreement" means this Agreement, including the Exhibits and Schedules
hereto, and all amendments, modifications and supplements hereto and thereto
and restatements hereof and thereof.
"Agreement Date" means the date as of which this Agreement is dated.
"Assignment of Credit Insurance Policy" means an Assignment of Credit
Insurance Policy pursuant to which the Borrowers assign to the Lender their
rights under the Credit Insurance Policy.
"Assignment of Investment Account" means the pledge agreements, dated as
of the Effective Date, pursuant to which the Borrowers grant the Lender a
security interest in the Investment Account.
"Assignments" means any Assignment of Credit Insurance Policy executed
pursuant to Section 8.11 and the Assignment of Investment Account.
"Availability" means as of the date of determination, the amount of
Revolving Credit Loans available to be borrowed by the Borrowers hereunder in
accordance with Section 2.1 less the sum of the outstanding principal balance
of all Revolving Credit Loans of the Borrowers hereunder as of such date.
"Benefit Plan" means an employee benefit plan as defined in Section 3(35)
of ERISA (other than a Multiemployer Plan) in respect of which a Person or any
Related Company is, or within the immediately preceding 6 years was, an
"employer" as defined in Section 3(5) of ERISA, including such plans as may
be established after the Agreement Date.
"Borrowers" means IDG, Finco and Eagle, collectively, and "Borrower"
means IDG, Finco or Eagle individually.
"Borrowing Base" means at any time an amount equal to the sum of the
Individual Borrowing Bases of IDG, Finco and Eagle.
"Borrowing Base Certificate" means a certificate in the form of Exhibit
B attached hereto.
"Business Day" means any day other than a Saturday, Sunday or other day
on which banks in the city in which the principal office of the Lender is
located are authorized to close.
"Business Unit" means the assets constituting the business, or a division
or operating unit thereof, of any Person.
"Capital Expenditures" means, with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets
(other than assets which constitute a Business Unit) which are not, in
accordance with GAAP, treated as expense items for such Person in the year
made or incurred or as a prepaid expense applicable to a future year or years.
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"Capitalized Lease" means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
"Capitalized Lease Obligation" means Indebtedness represented by
obligations under a Capitalized Lease, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Clearing Bank" means the Lender and any other banking institution with
which an Agency Account has been established pursuant to an Agency Account
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means and includes all of the Borrowers' right, title and
interest in and to each of the following, wherever located and whether now or
hereafter existing or now owned or hereafter acquired or arising:
(a) all Receivables,
(b) all Inventory,
(c) all Equipment,
(d) all Contract Rights,
(e) all General Intangibles,
(f) all Deposit Accounts, the Investment Account, and the Credit
Insurance Policy,
(g) all goods and other property, whether or not delivered, (i) the
sale or lease of which gives or purports to give rise to any
Receivable, including, but not limited to, all merchandise returned
or rejected by or repossessed from customers, or (ii) securing any
Receivable, including, without limitation, all rights as an unpaid
vendor or lienor (including, without limitation, stoppage in
transit, replevin and reclamation) with respect to such goods and
other properties,
(h) all mortgages, deeds to secure debt and deeds of trust on real or
personal property, guaranties, leases, security agreements and
other agreements and property which secure or relate to any
Receivable or other Collateral or are acquired for the purpose of
securing and enforcing any item thereof,
(i) all documents of title, policies and certificates of insurance,
securities, chattel paper and other documents and instruments
evidencing or pertaining to any and all items of Collateral,
(j) all files, correspondence, computer programs, tapes, disks and
related data processing software which contain information
identifying or pertaining to any of the Collateral or any Account
Debtor or showing the amounts thereof or payments thereon or
otherwise necessary or helpful in the realization thereon or the
collection thereof,
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(k) all cash deposited with the Lender or any Affiliate thereof or
which the Lender is entitled to retain or otherwise possess as
collateral pursuant to the provisions of this Agreement or any of
the Security Documents, and
(l) any and all products and cash and non-cash proceeds of the foregoing
(including, but not limited to, any claims to any items referred to
in this definition and any claims against third parties for loss
of, damage to or destruction of any or all of the Collateral or for
proceeds payable under or unearned premiums with respect to policies
of insurance) in whatever form, including, but not limited to, cash,
negotiable instruments and other instruments for the payment of
money, chattel paper, security agreements and other documents.
"Contract Rights" means and includes, as to any Person, all of such
Person's then owned or existing and future acquired or arising rights under
contracts not yet earned by performance and not evidenced by an instrument or
chattel paper, to the extent that the same may lawfully be assigned.
"Control Group" means Gardner, Raymond and Marilyn Gardner.
"Credit Insurance Policy" means any credit insurance policy maintained by
the Borrowers, pursuant to which the Borrowers maintain insurance, in
connection with the insolvency or failure of any insurance company, against
any deductible not covered by the Florida Insurance Guarantee Fund or any
similar fund of any other state in which the Borrowers transact business.
"Default" means any of the events specified in Section 11.1 that, with
the passage of time or giving of notice or both, would constitute an Event of
Default.
"Default Margin" means 2%.
"Deposit Accounts" means any demand, time, savings, passbook or like
account maintained with a bank, savings and loan association, credit union or
like organization, other than an account evidenced by a certificate of
deposit that is an instrument under the UCC.
"Disbursement Account" means the account maintained by and in the name
of any Borrower with the Lender for the purpose of disbursing Revolving Credit
Loan proceeds and amounts credited thereto pursuant to Sections 2.2(b)(i) and
7.1(b)(ii).
"Dollar" and "$" means freely transferable United States dollars.
"ERISA" means the Employee Retirement Income Security Act of 1974, as in
effect from time to time, and any successor statute.
"Eagle" means Eagle Premium Finance, Inc., a Florida corporation.
"Effective Date" means the later of (a) the Agreement Date, and (b) the
first date on which all of the conditions set forth in Section 4.1 shall have
been fulfilled or waived by the Lender.
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"Effective Interest Rate" means the rate of interest per annum on the
Loans in effect from time to time pursuant to the provisions of Section 3.1.
"Eligible Premium Finance Agreement" means the unpaid portion of a
Premium Finance Agreement payable in Dollars to a Borrower net of any claims,
credits, charges or other allowances, offsets, deductions, counterclaims,
disputes or other defenses and reduced by the aggregate amount of all
reserves, limits and deductions provided for in this definition and elsewhere
in this Agreement which is deemed by the Lender in the exercise of its sole
and absolute discretion to be eligible for inclusion in the calculation of
the Borrowing Base. Unless otherwise approved in writing by the Lender, no
Premium Finance Agreement shall be deemed an Eligible Premium Finance
Agreement unless it meets all of the following requirements: (a) such
Premium Finance Agreement is owned by a Borrower and represents a complete
bona fide transaction which requires no further act under any circumstances
on the part of such Borrower to make such Premium Finance Agreement payable
by the Account Debtor; (b) such Premium Finance Agreement does not arise out
of any transaction with any Subsidiary, Affiliate, creditor, lessor or
supplier of a Borrower; (c) no Borrower is in breach of any representation or
warranty with respect to such Premium Finance Agreement; (d) the Account
Debtor with respect to such Premium Finance Agreement is not insolvent or the
subject of any bankruptcy or insolvency proceedings of any kind or of any
other proceeding or action, threatened or pending, which might, in the
Lender's sole judgment, have a materially adverse effect on such Account
Debtor; (e) such Premium Finance Agreement is a valid, legally enforceable
obligation of the Account Debtor with respect thereto and is not subject to
any present, or contingent (and no facts exist which are the basis for any
future), offset, deduction or counterclaim, dispute or other defense on the
part of such Account Debtor; (f) such Premium Finance Agreement shall not have
been cancelled for 60 or more days; (g) such Premium Finance Agreement does
not relate to an insurance policy written by an Insurer with respect to which
the Borrowers are party to Premium Finance Agreements which exceed 20% in
Dollar amount of all Premium Finance Agreements (40% in the case of Premium
Finance Agreements covered by the South Carolina Reinsurance Facility),
unless covered by a Credit Insurance Policy which has been assigned to the
Lender; provided that for purposes of this clause (g), only the Premium
Finance Agreements in excess of such 20% limit (40% in the case of the South
Carolina Reinsurance Facility covered Premium Finance Agreements) shall be
ineligible; (h) such Premium Finance Agreement is subject to the Security
Interest, which is perfected as to such Premium Finance Agreement, and is
subject to no other Lien whatsoever other than a Permitted Lien; and (i) such
Premium Finance Agreement arises out of the financing of insurance premiums
in Florida, South Carolina, Tennessee, Maryland or such other State(s) (in
which the applicable Borrower(s) is duly licensed) as the Lender may approve
in writing.
"Environmental Laws" means all federal, state, local and foreign laws
now or hereafter in effect relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes into the environment (including,
without limitation, ambient air, surface water, ground water or land) or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, removal, transport or handling of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or
wastes, and any and all regulations, notices or demand letters issued,
entered, promulgated or approved thereunder.
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"Equipment" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising machinery, apparatus,
equipment, motor vehicles, tractors, trailers, rolling stock, fittings, and
other tangible personal property (other than Inventory) of every kind and
description used in such Person's business operations or owned by such Person
or in which such Person has an interest and all parts, accessories and
special tools and all increases and accessions thereto and substitutions and
replacements therefor.
"Event of Default" means any of the events specified in Section 11.1.
"Financing Statements" means the Uniform Commercial Code financing
statements executed and delivered by the Borrowers to the Lender, naming the
Lender as secured party and the Borrowers as debtor, in connection with this
Agreement.
"Finco" means Finco Financial Corporation, a Florida corporation.
"Fixed Charges" means, for any period, (a) Interest Expense, plus (b)
payments of principal actually made with respect to Indebtedness (other than
Subordinated Indebtedeness and payments under the Loans), including payments
with respect to Capitalized Leases.
"GAAP" means generally accepted accounting principles consistently
applied and maintained throughout the period indicated and consistent with
the prior financial practice of the Person referred to.
"Gardner" means Robert Gardner, a resident of the State of Florida.
"General Intangibles" means, as to any Person, all of such Person's then
owned or existing and future acquired or arising general intangibles, choses
in action and causes of action and all other intangible personal property of
such Person of every kind and nature (other than Receivables), including,
without limitation, Intellectual Property, corporate or other business
records, inventions, designs, blueprints, plans, specifications, trade
secrets, goodwill, computer software, customer lists, registrations, licenses,
franchises, tax refund claims, reversions or any rights thereto and any other
amounts payable to such Person from any Benefit Plan, Multiemployer Plan or
other employee benefit plan, rights and claims against carriers and shippers,
rights to indemnification, business interruption insurance and proceeds
thereof, property, casualty or any similar type of insurance and any proceeds
thereof, proceeds of insurance covering the lives of key employees on which
such Person is beneficiary and any letter of credit, guarantee, claims,
security interest or other security held by or granted to such Person to
secure payment by an Account Debtor of any of the Receivables.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to,
all governmental bodies, whether federal, state, local, foreign national or
provincial, and all agencies thereof.
"Governmental Authority" means any government or political subdivision
or any agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator,
in each case whether foreign or domestic.
"Guarantor" means Federal Funding Corporation, a Florida corporation.
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"Guaranty", "Guaranteed" or to "Guarantee," as applied to any obligation
of another Person shall mean and include
(a) a guaranty (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), directly or indirectly, in
any manner, of any part or all of such obligation of such other Person, and
(b) an agreement, direct or indirect, contingent or otherwise, and
whether or not constituting a guaranty, the practical effect of which is to
assure the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation of such other Person
whether by (i) the purchase of securities or obligations, (ii) the purchase,
sale or lease (as lessee or lessor) of property or the purchase or sale of
services primarily for the purpose of enabling the obligor with respect to
such obligation to make any payment or performance (or payment of damages in
the event of nonperformance) of or on account of any part or all of such
obligation or to assure the owner of such obligation against loss, (iii) the
supplying of funds to, or in any other manner investing in, the obligor with
respect to such obligation, (iv) repayment of amounts drawn down by
beneficiaries of letters of credit, or (v) the supplying of funds to or
investing in a Person on account of all or any part of such Person's
obligation under a guaranty of any obligation or indemnifying or holding
harmless, in any way, such Person against any part or all of such obligation.
"Guaranty Agreement" means the Guaranty dated as of the Effective Date
executed by the Guarantor in favor of the Lender.
"IDG" means International Design Group, Inc., a Delaware corporation.
"Indebtedness" of any Person means, without duplication, (a) Liabilities,
(b) all obligations for money borrowed or for the deferred purchase price of
property or services or in respect of reimbursement obligations under letters
of credit, (c) all obligations represented by bonds, debentures, notes and
accepted drafts that represent extensions of credit, (d) Capitalized Lease
Obligations, (e) all obligations (including, during the noncancellable term
of any lease in the nature of a title retention agreement, all future payment
obligations under such lease discounted to their present value in accordance
with GAAP) secured by any Lien to which any property or asset owned or held
by such Person is subject, whether or not the obligation secured thereby
shall have been assumed by such Person, (f) all obligations of other Persons
which such Person has Guaranteed, including, but not limited to, all
obligations of such Person consisting of recourse liability with respect to
accounts receivable sold or otherwise disposed of by such Person, and (g) in
the case of each Borrower (without duplication) the Loans.
"Individual Borrowing Base" means, at any time with respect to any
Borrower, an amount equal to the sum of:
(a) 80% (or such lesser percentage as the Lender may in its sole and
absolute discretion determine from time to time) of the face value
of Eligible Premium Finance Agreements due and owing at such time,
minus
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(b) the Letter of Credit Reserve applicable to such Borrower and such
other reserves as the Lender may determine from time to time in the
exercise of its reasonable credit judgment.
"Initial Loan" means the Revolving Credit Loan made to any Borrower on
the Effective Date pursuant to the letter referred to in Section 4.1(a)(17).
"Insurers" means the insurance companies issuing the policies relating
to the Premium Finance Agreements.
"Intellectual Property" means, as to any Person, all of such Person's
then owned existing and future acquired or arising patents, patent rights,
copyrights, works which are the subject of copyrights, trademarks, service
marks, trade names, trade styles, patent, trademark and service mark
applications, and all licenses and rights related to any of the foregoing and
all other rights under any of the foregoing, all extensions, renewals,
reissues, divisions, continuations and continuations-in-part of any of the
foregoing and all rights to sue for past, present and future infringements of
any of the foregoing.
"Interbank Offered Rate" means, with respect to any LIBOR Advance for
the Interest Period applicable thereto, the average (rounded upward to the
nearest one-sixteenth (1/16) of one percent) per annum rate of interest
determined by the office of the Lender then determining such rate (each such
determination to be conclusive and binding) as of two Business Days prior to
the first day of such Interest Period, as the effective rate at which
deposits in immediately available funds in Dollars are being, have been, or
would be offered or quoted by the Lender to major banks in the applicable
interbank market for eurodollar deposits at any time during the Business Day
which is the second Business Day immediately preceding the first day of such
Interest Period, for a term comparable to such Interest Period and in an
amount comparable to the amount of the LIBOR Advance. If no such offers or
quotes are generally available for such amount, then the Lender shall be
entitled to determine the LIBOR by estimating in its reasonable judgment the
per annum rate (as described above) that would be applicable if such quotes or
offers were generally available.
"Interest Expense" means the interest on Indebtedness during the period
for which computation is being made, excluding (a) the amortization of fees
and costs incurred with respect to the closing of loans which have been
capitalized as transaction costs, and (b) interest paid in kind.
"Interest Period" means, in connection with any LIBOR Advance, the term
of such Advance selected by the Borrowers or otherwise determined in
accordance with this Agreement, which may have a duration of one, three, six
or twelve months. Notwithstanding the foregoing, however, (i) any applicable
Interest Period which would otherwise end on a day which is not a Business
Day shall end on the next succeeding Business Day unless such Business Day
falls in another calendar month, in which case such Interest Period shall end
on the next preceding Business Day, (ii) any applicable Interest Period which
begins on a day for which there is no numerically corresponding day in the
calendar month during which such Interest Period is to end shall (subject to
clause (i) above) end on the last day of such calendar month, and (iii) no
Interest Period with respect to LIBOR Advances shall extend beyond the
Termination Date or such earlier date as would interfere hereunder with the
repayment obligations of the Borrowers.
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<PAGE>
"Inventory" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising (a) goods intended for
sale or lease or for display or demonstration, (b) work in process, (c) raw
materials and other materials and supplies of every nature and description
used or which might be used in connection with the manufacture, packing,
shipping, advertising, selling, leasing or furnishing of goods or otherwise
used or consumed in the conduct of business, and (d) documents evidencing and
general intangibles relating to any of the foregoing.
"Investment" means, with respect to any Person: (a) the direct or
indirect purchase or acquisition of any beneficial interest in, any share of
capital stock of, evidence of Indebtedness of or other security issued by any
other Person (including without limitation the creation or acquisition of any
Subsidiary), (b) any loan, advance or extension of credit to, or contribution
to the capital of, any other Person, excluding advances to employees in the
ordinary course of business for business expenses, (c) any Guaranty of the
obligations of any other Person, or (d) any commitment or option to take any
of the actions described in clauses (a), (b) or (c) above.
"Investment Account" means, collectively, (a) investment account no.
OBX-964301 maintained by IDG with Prudential Securities Incorporated, and (b)
investment account no. BC 4635-9566 maintained by IDG with Charles Schwab &
Co., and (c) all cash, securities and other investments held therein, and all
substitutions and replacements therefor.
"LIBOR" means, with respect to any LIBOR Advance for the Interest Period
applicable thereto, a simple per annum interest rate determined pursuant to
the following formula:
LIBOR Rate = Interbank Offered Rate
-----------------------------
1 - LIBOR Reserve Percentage
The LIBOR shall be adjusted automatically as of the effective date of any
change in the LIBOR Reserve Percentage.
"LIBOR Advance" means any Advance which bears interest at the time in
question based on the LIBOR Basis.
"LIBOR Basis" means a simple interest rate equal to the sum of the LIBOR
for the Interest Period plus three and one-quarter percent (3.25%) per annum.
"LIBOR Reserve Percentage" means, for any day, that percentage (expressed
as a decimal) which is in effect from time to time under Regulation D of the
Board of Governors of the Federal Reserve System, as such regulation may be
amended from time to time, or any successor regulation, as the maximum
reserve requirement (including, without limitation, any basic, supplemental,
emergency, special, or marginal reserves) applicable to any member bank with
respect to eurocurrency liabilities as that term is defined in Regulation D
(or against any other category of liabilities that includes deposits by
reference to which the interest rate of LIBOR Advances is determined),
whether or not Lender has any eurocurrency liabilities subject to such
reserve requirement at that time. LIBOR Advances shall be deemed to
constitute eurocurrency liabilities and as such shall be deemed subject to
reserve requirements without the benefit of credits for proration, exceptions
or offsets that may be available from time to time to the Lender.
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"Lender" means NationsBank, N.A. (South), a national banking association.
"Lender's Office" means the office of the Lender specified in or
determined in accordance with the provisions of Section 12.1(c).
"Letter of Credit" means any letter of credit issued by the Lender for
the account of any Borrower.
"Letter of Credit Documents" means each of the documents, agreements and
other writings required by the Lender to be executed and/or delivered in
connection with the issuance of a Letter of Credit, including, without
limitation, each letter of credit application and reimbursement agreement.
"Letter of Credit Facility" means, at any time, obligations arising
under Letters of Credit in an aggregate face amount not to exceed $200,000
incurred pursuant to Section 2.6.
"Letter of Credit Fees" means fees charged by the Lender in connection
with the issuance of a Letter of Credit determined in accordance with Schedule
1.1 - Letter of Credit Fees attached hereto.
"Letter of Credit Reserve" means, at any time, 100% of the sum of (i)
the aggregate undrawn amount of all Letters of Credit outstanding at such
time, plus (ii) the aggregate amount of all drawings under Letters of Credit
for which the Lender has not been reimbursed.
"Liabilities" means all liabilities of a Person determined in accordance
with GAAP and includable on a balance sheet of such Person prepared in
accordance with GAAP.
"Lien" as applied to the property of any Person means: (a) any mortgage,
deed to secure debt, deed of trust, lien, pledge, charge, lease constituting a
Capitalized Lease Obligation, conditional sale or other title retention
agreement, or other security interest, security title or encumbrance of any
kind in respect of any property of such Person or upon the income or profits
therefrom, (b) any arrangement, express or implied, under which any property
of such Person is transferred, sequestered or otherwise identified for the
purpose of subjecting the same to the payment of Indebtedness or performance
of any other obligation in priority to the payment of the general, unsecured
creditors of such Person, (c) any Indebtedness which is unpaid more than 30
days after the same shall have become due and payable and which if unpaid
might by law (including, but not limited to, bankruptcy and insolvency laws)
or otherwise be given any priority whatsoever over general unsecured creditors
of such Person, and (d) the filing of, or any agreement to give, any financing
statement under the UCC or its equivalent in any jurisdiction.
"Loan" means any Revolving Credit Loan.
"Loan Documents" means, collectively, this Agreement, the Note, the
Security Documents, the Support Agreements, the Guaranty Agreement and each
other instrument, agreement and document executed and delivered by the
Borrower in connection with this Agreement and each other instrument,
agreement or document referred to herein or contemplated hereby.
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"Lockbox" means any U.S. Post Office Box(es) established pursuant to
Section 7.1(a) for the receipt of proceeds of the Collateral.
"Materially Adverse Effect" means any act, omission, event or undertaking
which would, singly or in the aggregate, have a materially adverse effect upon
(a) the business, assets, properties, liabilities, condition (financial or
otherwise), results of operations or business prospects of any Borrower or
any of its Subsidiaries, (b) upon the respective ability of any Borrower or
any of its Subsidiaries to perform any obligations under this Agreement or
any other Loan Document to which it is a party, or (c) the legality, validity,
binding effect, enforceability or admissibility into evidence of any Loan
Document or the ability of Lender to enforce any rights or remedies under or
in connection with any Loan Document; in any case, whether resulting from any
single act, omission, situation, status, event, or undertaking, together with
other such acts, omissions, situations, statuses, events, or undertakings .
"Money Borrowed" means, as applied to Indebtedness, (a) Indebtedness for
money borrowed, (b) Indebtedness, whether or not in any such case the same was
for money borrowed, (i) represented by notes payable and drafts accepted, that
represent extensions of credit, (ii) constituting obligations evidenced by
bonds, debentures, notes or similar instruments, or (iii) upon which interest
charges are customarily paid (other than trade Indebtedness) or that was
issued or assumed as full or partial payment for property, (c) Indebtedness
that constitutes a Capitalized Lease Obligation, and (d) Indebtedness that is
such by virtue of clause (f) of the definition thereof, but only to the
extent that the obligations Guaranteed are obligations that would constitute
Indebtedness for Money Borrowed.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which any Borrower or a Related Company is required to
contribute or has contributed within the immediately preceding 6 years.
"Net Income" or "Net Loss" means, as applied to any Person, the net
income (or net loss) of such Person for the period in question after giving
effect to deduction of or provision for all operating expenses, all taxes and
reserves (including reserves for deferred taxes and all other proper
deductions), all determined in accordance with GAAP, provided that there shall
be excluded: (a) the net income (or net loss) of any Person accrued prior to
the date it becomes a Subsidiary of, or is merged into or consolidated with,
the Person whose Net Income is being determined or a Subsidiary of such
Person, (b) the net income (or net loss) of any Person in which the Person
whose Net Income is being determined or any Subsidiary of such Person has an
ownership interest, except, in the case of net income, to the extent that any
such income has actually been received by such Person or such Subsidiary in
the form of cash dividends or similar distributions, (c) any restoration of
any contingency reserve, except to the extent that provision for such reserve
was made out of income during such period, (d) any net gains or losses on the
sale or other disposition, not in the ordinary course of business, of
Investments, Business Units and other capital assets, provided that there
shall also be excluded any related charges for taxes thereon, (e) any net
gain arising from the collection of the proceeds of any insurance policy, (f)
any write-up of any asset, and (g) any other extraordinary item.
"Net Worth" of any Person means the total shareholders' equity (including
capital stock, additional paid-in capital and retained earnings, after
deducting treasury stock) which would appear as such on a balance sheet of
such Person prepared in accordance with GAAP.
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"Note" means the Revolving Credit Note.
"Operating Lease" means any lease (other than a lease constituting a
Capitalized Lease Obligation) of real or personal property.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Permitted Indebtedness for Money Borrowed" means Permitted Purchase
Money Indebtedness, Subordinated Indebtedness, and Indebtedness for Money
Borrowed owing to Lisa Paige as of the Effective Date in a principal amount
not to exceed $100,000.
"Permitted Investments" means: (a) Investments of any Borrower in: (i)
negotiable certificates of deposit, time deposits and banker's acceptances
issued by the Lender or any Affiliate of the Lender or by any United States
bank or trust company having capital, surplus and undivided profits in excess
of $250,000,000, (ii) any direct obligation of the United States of America
or any agency or instrumentality thereof which has a remaining maturity at
the time of purchase of not more than one year and repurchase agreements
relating to the same, (iii) sales on credit in the ordinary course of
business on terms customary in the industry, and (iv) notes, accepted in the
ordinary course of business, evidencing overdue accounts receivable arising
in the ordinary course of business, (b) Investments of IDG in money market
accounts, stocks, stock options, and other readily marketable investments,
in each case acceptable to the Lender, in an amount not to exceed $250,000,
provided such securities are maintained in the Investment Account and are
subject to the Lender's perfected first priority security interest pursuant
to the Assignment of Investment Account, (c) loans and advances, existing on
the Effective Date, from IDG to the Guarantor, and the corresponding loans
and advances, existing on the Effective Date, from the Guarantor to insurance
agents, provided such loans and advances shall not be renewed or extended,
(d) loans and advances made by IDG to the Guarantor after the Effective Date,
in an aggregate principal amount not to exceed $150,000, in order to enable
the Guarantor to make loans and advances to insurance agents after the
Effective Date in an aggregate principal amount not to exceed $150,000, (e)
the financing and/or factoring of up to $250,000 of premium finance agreements
under which premium finance companies acceptable to the Lender finance
the payments of automobile insurance premiums on terms acceptable to the
Lender, (f) loans and advances between the Borrowers and their Affiliates
existing as of the Effective Date, (g) loans and advances between the
Borrowers and their Affiliates after the Effective Date in an aggregate
amount outstanding at any time not to exceed $25,000, and (h) advances to QRS
Acquisition Inc. for the payment of the Borrowers' payroll in the ordinary
course of business.
"Permitted Liens" means: (a) Liens securing taxes, assessments and other
governmental charges or levies (excluding any Lien imposed pursuant to any of
the provisions of ERISA) or the claims of materialmen, mechanics, carriers,
warehousemen or landlords for labor, materials, supplies or rentals incurred
in the ordinary course of business, but (i) in all cases, only if payment
shall not at the time be required to be made in accordance with Section 8.4,
and (ii) in the case of warehousemen or landlords, only if such liens have
been waived or subordinated to the Security Interest in a manner satisfactory
to the Lender; (b) Liens consisting of deposits or pledges made in the
ordinary course of business in connection with, or to secure payment of,
obligations under workers' compensation, unemployment insurance or similar
legislation or under surety or performance bonds, in each case arising in the
ordinary course of business; (c) Liens constituting encumbrances in the
nature of zoning restrictions, easements and rights or restrictions of record
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on the use of the Real Estate, which in the sole judgment of the Lender do
not materially detract from the value of such Real Estate or impair the use
thereof in the business of a Borrower; (d) Purchase Money Liens securing
Permitted Purchase Money Indebtedness; (e) Liens of the Lender arising under
this Agreement and the other Loan Documents; and (f) Liens arising out of or
resulting from any judgment or award, the time for the appeal or petition for
rehearing of which shall not have expired, or in respect of which a Borrower
is fully protected by insurance or in respect of which such Borrower shall at
any time in good faith be prosecuting an appeal or proceeding for a review and
in respect of which a stay of execution pending such appeal or proceeding for
review shall have been secured, and as to which appropriate reserves have been
established on the books of such Borrower.
"Permitted Purchase Money Indebtedness" means Purchase Money Indebtedness
secured only by Purchase Money Liens and Capitalized Lease Obligations,
incurred after the Agreement Date by the Borrowers, up to an aggregate amount
outstanding at any time equal to $125,000 (plus up to $100,000 with respect
to the purchase of the IBM AS400 computer system in calendar year 1996).
"Person" means an individual, corporation, partnership, association,
trust or unincorporated organization or a government or any agency or
political subdivision thereof.
"Premium Finance Agreements" means the agreements under which the
Borrowers finance the payments of the automobile insurance premiums for the
Account Debtors.
"Prime Rate" means during the period from the Effective Date through the
last day of the month in which the Effective Date falls, the per annum rate
of interest publicly announced by the Lender at its principal office as its
"prime rate" as in effect on the Effective Date , and thereafter during each
succeeding calendar month, means such "prime rate" as in effect on the last
Business Day of the immediately preceding calendar month. Any change in an
interest rate resulting from a change in the Prime Rate shall become effective
as of 12:01 a.m. on the first day of the month following the month in which
such change was announced. The Prime Rate is a reference used by the Lender
in determining interest rates on certain loans and is not intended to be the
lowest rate of interest charged on any extension of credit to any debtor.
"Prime Rate Advance" means an Advance which bears interest at the time
in question based on the Prime Rate Basis.
"Prime Rate Basis" means a simple interest rate per annum equal to the
Prime Rate plus one and one-quarter percent (1.25%).
"Purchase Money Indebtedness" means Indebtedness created to finance the
payment of all or any part of the purchase price (not in excess of the fair
market value thereof) of any tangible asset (other than Inventory) and
incurred at the time of or within 10 days prior to or after the acquisition
of such tangible asset.
"Purchase Money Lien" means any Lien securing Purchase Money
Indebtedness, but only if such Lien shall at all times be confined solely to
the tangible asset (other than Inventory) the purchase price of which was
financed through the incurrence of the Purchase Money Indebtedness secured
by such Lien.
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"Raymond" means David Raymond, a resident of the State of Florida.
"Real Estate" means all of any Borrower's now owned or hereafter acquired
estates in real property and the improvements thereon.
"Receivables" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising (a) rights to the
payment of money or other forms of consideration of any kind (whether
classified under the UCC as accounts, contract rights, chattel paper,
general intangibles or otherwise) including, but not limited to, Premium
Finance Agreements and all unearned premiums, dividends and commissions with
respect thereto, and all accounts receivable, letters of credit and the right
to receive payment thereunder, chattel paper, tax refunds, insurance
proceeds, Contract Rights, notes, drafts, instruments, documents, acceptances
and all other debts, obligations and liabilities in whatever form from any
Person and guaranties, security and Liens securing payment thereof, (b) goods,
whether now owned or hereafter acquired, and whether sold, delivered,
undelivered, in transit or returned, which may be represented by, or the sale
or lease of which may have given rise to, any such right to payment or other
debt, obligation or liability, and (c) cash and non-cash proceeds of any of
the foregoing.
"Related Company" means, as to any Person, any (a) corporation which is
a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as such Person, (b) partnership or other trade or
business (whether or not incorporated) under common control (within the
meaning of Section 414(c) of the Code) with such Person, or (c) member of the
same affiliated service group (within the meaning of Section 414(m) of the
Code) as such Person or any corporation described in clause (a) above or any
partnership, trade or business described in clause (b) above.
"Restricted Distribution" by any Person means (a) its retirement,
redemption, purchase, or other acquisition for value of any capital stock or
other equity securities or partnership interests issued by such Person, (b)
the declaration or payment of any dividend or distribution on or with respect
to any such securities or partnership interests, (c) any loan or advance by
such Person to, or other investment by such Person in, the holder of any of
such securities or partnership interests, and (d) any other payment by such
Person in respect of such securities or partnership interests.
"Restricted Payment" means (a) any redemption, repurchase or prepayment
or other retirement, prior to the stated maturity thereof or prior to the due
date of any regularly scheduled installment or amortization payment with
respect thereto, of any Indebtedness of a Person (other than the Secured
Obligations and trade debt), and (b) the payment by any Person of the
principal amount of or interest on any Indebtedness (other than trade debt)
owing to an Affiliate of such Person.
"Revolving Credit Facility" means the facility for the Revolving Credit
Loans in the principal sum of up to $8,000,000.
"Revolving Credit Loans" means loans made to the Borrowers pursuant to
Section 2.1.
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"Revolving Credit Note" means the Revolving Credit Note made by the
Borrowers payable to the order of the Lender evidencing the joint and several
obligation of the Borrowers to pay the aggregate unpaid principal amount of
all Revolving Credit Loans made to them by the Lender (and any promissory
note or notes that may be issued from time to time in substitution, renewal,
extension, replacement or exchange therefor, whether payable to the Lender or
a different lender, whether issued in connection with a Person becoming a
lender after the Effective Date or otherwise), substantially in the form of
Exhibit A hereto, with all blanks properly completed.
"Schedule of Premium Finance Agreements" means a schedule delivered by
the Borrowers to the Lender pursuant to the provisions of Section 7.12(a).
"Secured Obligations" means, in each case whether now in existence or
hereafter arising, (a) the principal of and interest and premium, if any, on
the Loans, (b) all reimbursement and other obligations relating to Letters of
Credit, and (c) all indebtedness, liabilities, obligations, overdrafts,
covenants and duties of any Borrower to the Lender or any Affiliate of the
Lender of every kind, nature and description, direct or indirect, absolute or
contingent, due or not due, contractual or tortious, liquidated or
unliquidated and whether or not evidenced by any note and whether or not for
the payment of money under or in respect of this Agreement, any Note or any
of the other Loan Documents.
"Security Documents" means each of (a) the Financing Statements, (b) the
Assignments, and (c) each other writing executed and delivered by any Person
securing the Secured Obligations or evidencing such security.
"Security Interest" means the Liens of the Lender on and in the
Collateral effected hereby or by any of the Security Documents or pursuant to
the terms hereof or thereof.
"Subordinated Indebtedness" means (a) Indebtedness of IDG owing to
Gardner, Marilyn Gardner, and 151740 Canada Inc., which is subject to the
Subordination Agreements, and (b) any other Indebtedness for money borrowed
of any Borrower which is subordinated to the Secured Obligations on
terms and conditions acceptable to the Lender in its sole discretion.
"Subordination Agreements" means the subordination agreements, dated as
of the Effective Date, executed by IDG and Gardner, Marilyn Gardner, and
151740 Canada Inc., in favor of the Lender.
"Subsidiary" when used to determine the relationship of a Person to
another Person, means a Person of which an aggregate of 50% or more of the
stock of any class or classes or 50% or more of other ownership interests is
owned of record or beneficially by such other Person or by one or more
Subsidiaries of such other Person or by such other Person and one or more
Subsidiaries of such Person, (i) if the holders of such stock or other
ownership interests (A) are ordinarily, in the absence of contingencies,
entitled to vote for the election of a majority of the directors (or other
individuals performing similar functions) of such Person, even though the
right so to vote has been suspended by the happening of such a contingency,
or (B) are entitled, as such holders, to vote for the election of a majority
of the directors (or individuals performing similar functions) of such
Person, whether or not the right so to vote exists by reason of the
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happening of a contingency, or (ii) in the case of such other ownership
interests, if such ownership interests constitute a majority voting interest.
"Support Agreements" means the support agreements, dated as of the
Effective Date, pursuant to which Gardner and Raymond agree to assist the
Lender in connection with any liquidation of the Collateral pursuant to
Article 11.
"Tangible Net Worth" means, as applied to any Person, the Net Worth of
such Person at the time in question, after deducting therefrom the amount of
all intangible items reflected therein, including all unamortized debt
discount and expense, unamortized research and development expense,
unamortized deferred charges, goodwill, Intellectual Property, unamortized
excess cost of investment in Subsidiaries over equity at dates of acquisition,
and all similar items which should properly be treated as intangibles
in accordance with GAAP.
"Termination Date" means the earlier of (a) March 1, 1999 or such
later date to which the termination of the Revolving Credit Facility shall be
extended pursuant to Section 2.5, and (b) the date of termination of the
Revolving Credit Facility pursuant to Section 11.2.
"Termination Event" means (a) a "Reportable Event" as defined in Section
4043(b) of ERISA, but excluding any such event as to which the provision for
30 days notice to the PBGC is waived under applicable regulations, (b) the
filing of a notice of intent to terminate a Benefit Plan or the treatment of
a Benefit Plan amendment as a termination under Section 4041 of ERISA, or (c)
the institution of proceedings to terminate a Benefit Plan by the PBGC under
Section 4042 of ERISA or the appointment of a trustee to administer any
Benefit Plan.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of Georgia.
"Unfunded Capital Expenditures" means Capital Expenditures which are paid
for by a Person other than with the proceeds of Indebtedness for Money
Borrowed (other than the Loans) incurred to finance such Capital Expenditures
other than those represented by Capitalized Lease Obligations.
"Unfunded Vested Accrued Benefits" means, with respect to any Benefit
Plan at any time, the amount (if any) by which (a) the present value of all
vested nonforfeitable benefits under such Benefit Plan exceeds (b) the fair
market value of all Benefit Plan assets allocable to such benefits, as
determined using such reasonable actuarial assumptions and methods as are
specified in the Schedule B (Actuarial Information) to the most recent Annual
Report (Form 5500) filed with respect to such Benefit Plan.
Section 1.2 Other Referential Provisions.
-----------------------------
(a) All terms in this Agreement, the Exhibits and Schedules hereto
shall have the same defined meanings when used in any other Loan Documents,
unless the context shall require otherwise.
(b) Except as otherwise expressly provided herein, all accounting terms
not specifically defined or specified herein shall have the meanings
generally attributed to such terms under GAAP including, without limitation,
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applicable statements and interpretations issued by the Financial Accounting
Standards Board and bulletins, opinions, interpretations and statements
issued by the American Institute of Certified Public Accountants or its
committees.
(c) All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural, and the plural shall include the singular.
(d) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provisions of this Agreement.
(e) Titles of Articles and Sections in this Agreement are for
convenience only, do not constitute part of this Agreement and neither limit
nor amplify the provisions of this Agreement, and all references in this
Agreement to Articles, Sections, Subsections, paragraphs, clauses, subclauses,
Schedules or Exhibits shall refer to the corresponding Article, Section,
Subsection, paragraph, clause or subclause of, or Schedule or Exhibit
attached to, this Agreement, unless specific reference is made to the
articles, sections or other subdivisions or divisions of , or to schedules
or exhibits to, another document or instrument.
(f) Each definition of a document in this Agreement shall include such
document as amended, modified, supplemented or restated from time to time in
accordance with the terms of this Agreement.
(g) Except where specifically restricted, reference to a party to a
Loan Document includes that party and its successors and assigns permitted
hereunder or under such Loan Document.
(h) Unless otherwise specifically stated, whenever a time is referred
to in this Agreement or in any other Loan Document, such time shall be the
local time in the city in which the principal office of Lender is located.
(i) Whenever the phrase "to the knowledge of the Borrowers" or words of
similar import relating to the knowledge of the Borrowers are used herein,
such phrase shall mean and refer to (i) the actual knowledge of the President
or chief financial officer of any Borrower or (ii) the knowledge that such
officers would have obtained if they had engaged in good faith in the
diligent performance of their duties, including the making of such reasonable
specific inquiries as may be necessary of the appropriate persons in a good
faith attempt to ascertain the accuracy of the matter to which such phrase
relates.
(j) The terms accounts, chattel paper, documents, equipment,
instruments, general intangibles and inventory, as and when used (without
being capitalized) in this Agreement or the Security Documents, shall have
the meanings given those terms in the UCC.
Section 1.3 Exhibits and Schedules. All Exhibits and Schedules
attached hereto are by reference made a part hereof.
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ARTICLE 2 - REVOLVING CREDIT FACILITY
Section 2.1 Revolving Credit Loans. Upon the terms and subject to
the conditions of, and in reliance upon the representations and warranties
made under, this Agreement, the Lender shall make Revolving Credit Loans to
the Borrowers from time to time from the Effective Date to the Termination
Date, as requested by the Borrowers in accordance with the terms of Section
2.2, in an aggregate principal amount outstanding not to exceed at any time,
in the case of Revolving Credit Loans to any particular Borrower, the
Individual Borrowing Base with respect to such Borrower; provided, however,
in no event shall the aggregate principal amount of outstanding Revolving
Credit Loans of the Borrowers at any time exceed the lesser of (x) the
Revolving Credit Facility minus the Letter of Credit Reserve and (y) the
Borrowing Base. Should Revolving Credit Loans exceed the ceilings so
determined or any other limitation set forth in this Agreement, such
Revolving Credit Loans shall nevertheless constitute Secured Obligations and,
as such, shall be entitled to all benefits thereof and security therefor.
The principal amount of any Revolving Credit Loan which is repaid may be
reborrowed by the Borrowers in accordance with the terms of this Section 2.1.
The Lender is hereby authorized to record each repayment of principal
of the Revolving Credit Loans in its books and records, such books and
records constituting prima facie evidence of the accuracy of the information
contained therein.
Section 2.2 Manner of Borrowing Revolving Credit Loans. Borrowings
of the Revolving Credit Loans shall be made as follows:
(a) Requests for Borrowing. A request for a borrowing shall be made,
or shall be deemed to be made, in the following manner:
(i) with respect to requests for Revolving Credit Loans, any
Borrower may give the Lender notice of its intention to borrow,
specifying the amount of the proposed borrowing, the proposed
borrowing date and whether the Advance shall be a LIBOR Advance or a
Prime Rate Advance, which notice shall be given in accordance with the
provisions of Section 3.1B(i) and 3.1C(i) hereof;
(ii) whenever a check is presented to the Lender for payment
against the Controlled Disbursement Account in an amount greater than
the then available balance in such account, such presentation shall be
deemed to be a request for a Prime Rate Advance on the date of such
notice in an amount equal to the excess of such check over such
available balance;
(iii) unless payment is otherwise made by the Borrowers, the
maturity of any Secured Obligation required to be paid shall be deemed
to be a request for a Prime Rate Advance on the due date in the amount
required to pay such Secured Obligation; and
(iv) whenever a drawing is made under a Letter of Credit and the
Borrowers fail to reimburse the Lender therefor, such failure to
reimburse shall be deemed to be a request for a Prime Rate Advance on
the date such notification is received in the amount so unreimbursed.
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(b) Disbursement of Loans. Each Borrower hereby irrevocably authorizes
the Lender to disburse the proceeds of each borrowing requested, or deemed to
be requested, pursuant to this Section 2.2 as follows: (i) the proceeds of
each borrowing requested under Section 2.2(a)(i) or (ii) shall be disbursed
by the Lender in lawful money of the United States of America in immediately
available funds, (A) in the case of the initial borrowings, in accordance
with the terms of the letter from the applicable Borrower to the Lender
referred to in Section 4.1(a)(17), and (B) in the case of each subsequent
borrowing, by credit to the applicable Disbursement Account or to such other
account as may be agreed upon by any Borrower and the Lender from time to
time; and (ii) the proceeds of each borrowing requested under Section
2.2(a)(iii) or (iv) shall be disbursed by the Lender by way of direct payment
of the relevant principal, interest or other Secured Obligation, as the case
may be.
Section 2.3 Repayment of Revolving Credit Loans. The Revolving
Credit Loans will be repaid as follows: (a) whether or not any Default or
Event of Default has occurred, the outstanding principal amount of all the
Revolving Credit Loans is due and payable, and shall be repaid by the Bor-
rowers in full together with accrued and unpaid interest on the amount
repaid to the date of repayment, on the Termination Date; (b) if at any time
the aggregate unpaid principal amount of the Revolving Credit Loans then
outstanding exceeds the amounts available for borrowing in accordance with
Section 2.1, theBorrowers shall repay the Revolving Credit Loans in an amount
sufficient to reduce the aggregate unpaid principal amount of such Loans by
an amount equal to such excess, together with accrued and unpaid interest on
the amount repaid to the date of repayment; and (c) each Borrower hereby
instructs the Lender to repay the Revolving Credit Loans outstanding on any
day in an amount equal to the amount received by the Lender on such day
pursuant to Section 7.1(b).
Section 2.4 Revolving Credit Note. The Lender's Revolving Credit
Loans and the obligation of each Borrower to repay such Loans shall also be
evidenced by a single Revolving Credit Note payable to the order of the
Lender. Such Note shall be dated the Effective Date and be duly and validly
executed and delivered by the Borrowers.
Section 2.5 Extension of Facility. The Termination Date shall be
automatically extended for successive one-year periods unless either the
Lender or the Borrowers provides to the other written notice of termination
not less than 60 days prior to the then effective Termination Date.
Section 2.6 Letters of Credit. (a) Upon the request of the
Borrowers from time to time, the Lender shall in accordance with the
provisions of this Section 2.6 issue one or more Letters of Credit up to an
aggregate amount available to be drawn (plus the aggregate amount of
unreimbursed drawings under all Letters of Credit) at any time not to exceed
the Letter of Credit Facility; provided, that (1) all Letter of Credit
Documents in connection with each Letter of Credit shall be satisfactory to
the Lender in its sole discretion, (2) no Letter of Credit shall be issued if,
after issuance thereof, the sum of the aggregate principal amount of Revolving
Credit Loans outstanding, plus the aggregate amount available to be drawn
under all Letters of Credit, plus the aggregate amount of any unreimbursed
drawings under Letters of Credit, would exceed the lesser of (A) the
Revolving Credit Facility and (B) the Borrowing Base plus the Letter of
Credit Reserve, (3) each Letter of Credit shall be a standby letter of credit
issued for the benefit of a beneficiary and for a purpose acceptable to the
Lender in its sole discretion, and (4) no Letter of Credit shall have an
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initial term longer than one year or an expiration date later than the
Termination Date.
(b) The Borrowers acknowledge and agree that if and to the extent the
Borrowers shall fail to reimburse the Lender under any Letter of Credit
Documents, the Borrowers hereby irrevocably request and direct the Lender,
subject to and in accordance with the provisions of Section 2.1, to make
payment on their behalf and the amount of any such payment by the Lender
shall constitute a Revolving Credit Loan made at the time of such payment.
(c) The issuance and negotiation of Letters of Credit shall be governed
by the Uniform Customs and Practices for Documentary Credits (1993 Revision),
as published in the International Chamber of Commerce Uniform Customs and
Practices, Publication No. 500 or such other policies and practices as may be
followed by the Lender with respect to similar letters of credit at the time.
ARTICLE 3 - GENERAL LOAN PROVISIONS
Section 3.1 Interest.
---------
A. Choice of Interest Rate. Each Advance shall, at the option
of the Borrowers, be made as a Prime Rate Advance or a LIBOR Advance. LIBOR
Advances shall in all cases be subject to Section C hereof. Any notice given
to the Lender in connection with a requested Advance hereunder shall be given
prior to 12:00 noon (Eastern Time) in order for such Business Day to count
toward the minimum number of Business Days required. If any Borrower fails
to give the Lender timely notice of its selection of a LIBOR Basis, or if for
any reason a determination of a LIBOR Basis for any Advance is not timely
concluded, the Prime Rate Basis shall apply to such Advance.
B. Prime Rate Advances.
--------------------
(i) Initial Advances. The Borrowers shall give
the Lender, in the case of Prime Rate Advances, irrevocable written
notice of its election by telecopy confirmed immediately in writing;
provided, however, that the failure by the Borrowers to confirm any
notice by telecopy with a written notice shall not invalidate any notice
so given.
(ii) Repayments and Reborrowings. The Borrowers
may repay a Prime Rate Advance at any time and (a) reborrow all or a
portion of the principal amount thereof as one or more Prime Rate
Advances or LIBOR Advances, or (b) not reborrow all or any portion of
such Prime Rate Advance.
(iii) Prepayment. The principal amount of any Prime
Rate Advance may be prepaid in full or in part at any time without
penalty.
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C. LIBOR Advances.
---------------
(i) Initial Advances. The Borrowers shall give
the Lender, in the case of LIBOR Advances, at least two (2) Business
Days irrevocable written notice of their election by telecopy confirmed
immediately in writing; provided, however, that the failure by the
Borrowers to confirm any notice by telecopy with a written notice shall
not invalidate any notice so given. The Lender, whose determination
shall be conclusive, shall determine the available LIBOR Basis and shall
notify the Borrowers of such LIBOR Basis. The Borrowers shall promptly
notify the Lender by telecopy or by telephone, and shall immediately
confirm any such telephonic notice in writing, of their selection of a
LIBOR Basis and Interest Period for such Advance.
(ii) Repayments and Reborrowings. At least two (2)
Business Days prior to the maturity date for a LIBOR Advance, the
Borrowers shall give the Lender written notice specifying whether all or
a portion of any LIBOR Advance outstanding on such maturity date (a)
is to be repaid and then reborrowed in whole or in part as a LIBOR
Advance, (b) is to be repaid and then reborrowed in whole or in part as
a Prime Rate Advance, or (c) is to be repaid and not reborrowed. The
Borrowers' failure to give a proper notice shall be deemed a request to
reborrow the entire maturing amount as a Prime Rate Advance. Upon such
maturity date such LIBOR Advance will, subject to the provisions hereof,
be so repaid and, as applicable, reborrowed. Each repayment shall be in
an amount not less than $1,000,000.
(iii) Limitation on LIBOR Advances. Each LIBOR
Advance shall be in an amount of $1,000,000 or multiples of $25,000 in
excess thereof. Notwithstanding anything to the contrary contained
herein, the Borrowers shall not request, and the Lender shall not make,
additional LIBOR Advances so long as there remains outstanding four or
more prior LIBOR Advances under this Agreement. It is the express
intent of the parties hereto that no more than four (4) LIBOR Advances
may be outstanding under this Agreement at any one time.
(iv) Prepayment. LIBOR Advances may be prepaid
prior to the applicable maturity date, upon four (4) Business Days prior
written notice to the Lender, provided that the Borrowers shall
reimburse the Lender, on the earlier of demand or the Termination Date,
an amount computed as provided in clause (v) below. Any notice of
prepayment of a LIBOR Advance shall be irrevocable. Each prepayment of
any of the LIBOR Advances shall be in an amount not less than $1,000,000.
(v) Payments Not at End of Interest Period; Failure to
Borrow. If for any reason any payment of principal with respect to any
LIBOR Advance is made on any day prior to the last day of the Interest
Period applicable to such LIBOR Advance (including payments made in
connection with the termination of this Agreement) or, after having
given a request for borrowing with respect to any Revolving Credit Loan
to be comprised of a LIBOR Advance or a notice of conversion or
continuation with respect to any Revolving Credit Loan to be continued
as or converted into a LIBOR Advance, such Revolving Credit Loan is not
made or is not continued as or converted into a LIBOR Advance due to the
Borrowers' failure to borrow or to fulfill the applicable conditions set
forth in Article 4, the Borrowers shall pay to the Lender, in addition
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to any amounts that may be due hereunder, an amount (if a positive
number) computed pursuant to the following formula:
L = (R-T) x P x D
-------------
360
L = amount payable to the Lender
R = interest rate applicable to the LIBOR Advance
T = effective interest rate per annum at which any readily
marketable bonds or other obligations of the United States,
selected at the Lender's sole discretion, maturing on or near the
last day of the then applicable or requested Interest Period for
such Advance and in approximately the same amount as such
Advance, can be purchased by the Lender on the day of such
payment of principal or failure to borrow or convert or
continue
P = the amount of principal paid or the amount of the requested
Revolving Credit Loan
D = the number of days remaining in the Interest Period as of the
date of such payment or the number of days in the requested
Interest Period
The Borrowers shall pay such amount upon presentation by the Lender of
a statement setting forth the amount and the Lender's calculation thereof
pursuant hereto, which statement shall be deemed true and correct absent
manifest error.
(vi) LIBOR Basis Determined Inadequate or Unfair.
Notwithstanding anything contained herein which may be construed to the
contrary, if with respect to any proposed LIBOR Advance for any Interest
Period, the Lender determines that deposits in Dollars (in the applicable
amount) are not being offered to the Lender in the relevant market for such
Interest Period on a basis sufficient to permit a fair establishment of the
LIBOR, the Lender shall forthwith give notice thereof to the Borrowers,
whereupon until the Lender notifies the Borrowers that the circumstances
giving rise to such situation no longer exist, the obligations of the Lender
to make such LIBOR Advances shall be suspended.
(vii) Illegality. If any applicable law, rule
or regulation, or any change therein, or any interpretation or change in
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency, shall make it unlawful or impossible for
the Lender to make, maintain or fund its LIBOR Advances, the Lender shall so
notify the Borrowers. Upon receipt of such notice, notwithstanding anything
contained in Section 3.1 hereof, the Borrowers shall repay in full the then
outstanding principal amount of each affected LIBOR Advance of the Lender,
together with accrued interest thereon either (a) on the last day of the then
current Interest Period applicable to such LIBOR Advance if the Lender may
lawfully continue to maintain and fund such LIBOR Advance to such day, or (b)
immediately if the Lender may not lawfully continue to fund and maintain such
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LIBOR Advance, whereupon the Borrowers shall borrow a Prime Rate Advance from
the Lender, and the Lender shall make such Advance, in the amount of the
LIBOR Advances to be repaid.
(viii) Effect on Other Advances. If notice has
been given to the Borrowers suspending the obligation of the Lender to make
any LIBOR Advance, or requiring LIBOR Advances of the Lender to be repaid or
prepaid, then, unless and until the Lender notifies the Borrowers that the
circumstances giving rise to such repayment no longer apply, all Advances
which would otherwise be made by such Lender as LIBOR Advances shall be
made instead as Prime Rate Advances.
D. General Interest Provisions.
----------------------------
(i) The Borrowers shall pay interest on the unpaid
principal amount of each Loan for each day from the day such Loan is made
until such Loan is due (whether at maturity, by reason of acceleration or
otherwise) at a rate per annum equal to the LIBOR Basis or Prime Rate Basis,
as elected by the Borrowers in accordance with the provisions set forth
herein, payable monthly in arrears on the first day of each calendar month
commencing March 1, 1996.
(ii) From and after the occurrence of an Event of
Default, the unpaid principal amount of each Secured Obligation shall bear
interest until paid in full (or, if earlier, until such Event of Default is
cured or waived in writing by the Lender) at a rate per annum equal to the
Default Margin plus the Prime Rate Basis, payable on demand. The interest
rate provided for in this Section 3.1D(ii) shall to the extent permitted by
applicable law apply to and accrue on the amount of any judgment entered with
respect to any Secured Obligation and shall continue to accrue at such rate
during any proceeding described in Section 11.1(g) or (h).
(iii) The interest rates provided for in Sections
3.1 shall be computed on the basis of a year of 360 days and the actual
number of days elapsed.
(iv) It is not intended by the Lender, and nothing
contained in this Agreement or any Note shall be deemed, to establish or
require the payment of a rate of interest in excess of the maximum rate
permitted by applicable law (the "Maximum Rate"). If, in any month, the
Effective Interest Rate, absent such limitation, would have exceeded the
Maximum Rate, then the Effective Interest Rate for that month shall be the
Maximum Rate, and if, in future months, the Effective Interest Rate would
otherwise be less than the Maximum Rate, then the Effective Interest Rate
shall remain at the Maximum Rate until such time as the amount of interest
paid hereunder equals the amount of interest which would have been paid if
the same had not been limited by the Maximum Rate. In this connection, in
the event that, upon payment in full of the Secured Obligations, the total
amount of interest paid or accrued under the terms of this Agreement is less
than the total amount of interest which would have been paid or accrued if
the Effective Interest Rate had at all times been in effect, then the
Borrower shall, to the extent permitted by applicable law, pay to the Lender
an amount equal to the difference between (i) the lesser of (A) the amount of
interest which would have been charged if the Maximum Rate had, at all times,
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been in effect and (B) the amount of interest which would have accrued had
the Effective Interest Rate, at all times, been in effect, and (ii) the
amount of interest actually paid or accrued under this Agreement. In the
event the Lender receives, collects or applies as interest any sum in excess
of the Maximum Rate, such excess amount shall be applied to the reduction of
the principal balance of the applicable Secured Obligation, and, if no such
principal is then outstanding, such excess or part thereof remaining shall be
paid to the Borrowers.
Section 3.2 Fees.
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(a) Commitment Fee. In connection with and as consideration for the
Lender's commitment hereunder, subject to the terms hereof, to lend to the
Borrowers under the Revolving Credit Facility, the Borrowers shall pay a fee
to the Lender, from the Effective Date until the Termination Date, in an
amount equal to 1/4% per annum of the average daily unused portion of the
Revolving Credit Facility, payable monthly in arrears on the first day of
each month and on the date of any permanent reduction in the Revolving
Credit Facility.
(b) Closing Fee. On the Effective Date, the Borrowers shall pay to the
Lender a closing fee in the amount of $15,000 in connection with the
establishment of the Revolving Credit Facility and in consideration of the
making of Loans under this Agreement and in order to compensate the Lender
for the costs associated with structuring, processing, approving and closing
the Revolving Credit Facility and the Loans, but excluding expenses for which
the Borrower has agreed elsewhere in this Agreement to reimburse the Lender.
(c) Administration Fee. For services performed by the Lender in
connection with its continuing administration hereof, the Borrowers shall pay
to the Lender a fee of $6,000 per annum, payable annually in advance, on the
Effective Date and on March 1, 1997 and on each March 1 thereafter, and
continuing so long as any Loan shall remain outstanding or the Revolving
Credit Facility shall not have been terminated.
(d) Letter of Credit Fees. As consideration for the issuance by the
Lender of a Letter of Credit, the Borrowers agree to pay to the Lender all
applicable Letter of Credit Fees. Such fees shall be payable to the Lender
in advance on the date of issuance of each Letter of Credit and shall be
calculated according to the face amount of such Letter of Credit based on
its stated term.
(e) General. All fees shall be fully earned by the Lender when due and
payable and, except as otherwise set forth herein, shall not be subject to
refund or rebate. All fees are for compensation for services and are not,
and shall not be deemed to be, interest or a charge for the use of money.
Section 3.3 Manner of Payment. (a) Each payment (including
prepayments) by the Borrowers on account of the principal of or interest on
the Loans or of any fee or other amounts payable to the Lender under this
Agreement or the Note shall be made not later than 1:30 p.m. on the date
specified for payment under this Agreement (or if such day is not a Business
Day, the next succeeding Business Day) to the Lender at the Lender's Office,
in Dollars, in immediately available funds and shall be made without any
setoff, counterclaim or deduction whatsoever.
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(b) Each Borrower hereby irrevocably authorizes the Lender and each
Affiliate of the Lender to charge any account of any Borrower maintained with
the Lender or such Affiliate with such amounts as may be necessary from time
to time to pay any Secured Obligations which are not paid when due.
Section 3.4 Statements of Account. The Lender will account to the
Borrowers within 30 days after the end of each calendar month with a
statement of Loans, charges and payments made pursuant to this Agreement
during such calendar month, and such account rendered by the Lender shall be
deemed an account stated as between the Borrowers and the Lender and shall be
deemed final, binding and conclusive unless the Lender is notified by the
Borrowers in writing to the contrary within 60 days after the date such
account is delivered to the Borrowers, save for manifest error. Any such
notice shall be deemed an objection only to those items specifically objected
to therein. Failure of the Lender to render such account shall in no way
affect its rights hereunder.
Section 3.5 Termination of Agreement. On the Termination Date, the
Borrowers shall pay to the Lender, in same day funds, an amount equal to the
aggregate amount of all Loans outstanding on such date, together with accrued
interest thereon, the amounts payable under Section 3.1(C)(v) in
connection with any LIBOR Advances with an Interest Period extending beyond
the Termination Date, all fees payable pursuant to Section 3.2 accrued from
the date last paid through the effective date of termination, any amounts
payable to the Lender pursuant to the other provisions of this Agreement,
including, without limitation, Sections 11.2, 12.12 and 12.13, any and all
other Secured Obligations then outstanding, and an amount equal to the Letter
of Credit Reserve to be held by the Lender as cash collateral security for
the payment of and to be applied to the payment of any amounts which may
thereafter become due with respect to any Letter of Credit, and provide the
Lender with an indemnification agreement in form and substance satisfactory
to the Lender with respect to returned and dishonored items and such other
matters as the Lender shall require. Upon 60 days prior written notice to
the Lender, the Borrowers may terminate this Agreement prior to the
Termination Date in effect at such time, provided that, if the Borrowers are
terminating this Agreement on or prior to March 1, 1997 in connection with a
refinancing of the Revolving Credit Facility with another lender, then the
Borrowers shall pay the Lender an early termination fee of $75,000, unless at
the time of such termination the Lender has (a) reduced the advance rate
below 80% in accordance with the definition of Individual Borrowing Base or
(b) made a material adverse change in its standards of eligibility of Premium
Finance Agreements.
Section 3.6 Increased Costs and Reduced Returns. Each Borrower
agrees that if any law now or hereafter in effect and whether or not presently
applicable to Lender or any request, guideline or directive of any
Governmental Authority (whether or not having the force of law and whether or
not failure to comply therewith would be unlawful) or the interpretation or
administration thereof by any Governmental Authority , shall either (a)(i)
impose, affect, modify or deem applicable any reserve, special deposit,
capital maintenance or similar requirement against any Loan, (ii) impose on
the Lender any other condition regarding any Loan, this Agreement, the Note
or the facilities provided hereunder, or (iii) result in any requirement
regarding capital adequacy (including any risk-based capital guidelines)
affecting Lender being imposed or modified or deemed applicable to Lender or
(b) subject Lender to any taxes on the recording, registration, notarization
or other formalization of the Loans or the Note, and the result of any event
referred to in clause (a) or (b) above shall be to increase the cost to the
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Lender of making, funding or maintaining any Loan or to reduce the amount of
any sum receivable by Lender or Lender's rate of return on capital with
respect to any Loan to a level below that which the Lender could have
achieved but for such imposition, modification or deemed applicability
(taking into consideration Lender's policies with respect to capital adequacy)
by an amount deemed by Lender (in the exercise of its discretion) to be
material, then, upon demand by the Lender, Borrowers shall immediately pay to
the Lender additional amounts which shall be sufficient to compensate the
Lender for such increased cost, tax or reduced rate of return. A certificate
of the Lender to a Borrower claiming compensation under this Section 3.6
shall be final, conclusive and binding on all parties for all purposes in the
absence of manifest error. Such certificate shall set forth the nature of
the occurrence giving rise to such compensation, the additional amount or
amounts to be paid to it hereunder and the method by which such amounts were
determined. In determining such amount, the Lender may use any reasonable
averaging and attribution methods.
Section 3.7 Joint and Several Liability. Each Borrower shall be
jointly and severally liable with the other Borrowers for the Secured
Obligations and each of the Secured Obligations shall be secured by all of
the Collateral. Each Borrower acknowledges that it is a co-borrower
hereunder and is jointly and severally liable under this Agreement.
Section 3.8 Obligations Absolute. Each Borrower agrees that the
Secured Obligations will be paid strictly in accordance with the terms of the
Loan Documents, regardless of any law, regulation or order now or hereafter
in effect in any jurisdiction affecting any of such terms or the rights of
the Lender with respect thereto. All Secured Obligations shall be
conclusively presumed to have been created in reliance hereon. The
liabilities of each Borrower under this Agreement shall be absolute and
unconditional irrespective of:
(a) any change in the time, manner or place of payment of, or in
any other term of, all or any part of the Secured Obligations, or any
other amendment or waiver thereof or any consent to departure from,
including, but not limited to, any increase in the Secured Obligations
resulting from the extension of additional credit to any Borrower or
otherwise;
(b) any taking, exchange, release or non-perfection of any
Collateral or any other collateral securing the Secured Obligations,
or any release, amendment or waiver of, or consent to or departure from,
any guaranty for all or any of the Secured Obligations;
(c) any change, restructuring or termination of the corporate
structure or existence of any Borrower, or
(d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, any Borrower, other than
payment or satisfaction of the Secured Obligations and the gross
negligence and willful misconduct of the Lender.
Section 3.9 Waiver of Suretyship Defenses. Each Borrower agrees
that the joint and several liability of the Borrowers provided for in Section
3.7 shall not be impaired or affected by any modification, supplement,
extension or amendment or any contract or agreement to which any other
Borrower may hereafter agree (other than an agreement signed by the Lender
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specifically releasing such liability), nor by any delay, extension of time,
renewal, compromise or other indulgence granted by the Lender with respect to
any of the Secured Obligations, nor by any other agreements or arrangements
whatever with any other Borrower or with anyone else, each Borrower hereby
waiving all notice of such delay, extension, release, substitution, renewal,
compromise or other indulgence, and hereby consenting to be bound thereby as
fully and effectually as if it had expressly agreed thereto in advance. The
liability of each Borrower is direct and unconditional as to all of the
Secured Obligations, and may be enforced without requiring the Lender first
to resort to any other right, remedy or security. Each Borrower hereby
expressly waives promptness, diligence, notice of acceptance and any other
notice with respect to any of the Secured Obligations, the Note, this
Agreement, or any other Loan Document, and any requirement that the Lender
protect, secure, perfect or insure any Lien or any property subject thereto
(except to the extent required by Applicable Law) or exhaust any right or
take any action against any Borrower or any other Person or any collateral,
including any rights any Borrower may otherwise have under O.C.G.A.
Section 10-7-24.
ARTICLE 4 - CONDITIONS PRECEDENT
Section 4.1 Conditions Precedent to Initial Loan. Notwithstanding
any other provision of this Agreement, the Lender's obligation to make the
Initial Loan is subject to the fulfillment of each of the following conditions
prior to or contemporaneously with the making of such Loan:
(a) Closing Documents. The Lender shall have received each of the
following documents, all of which shall be satisfactory in form and substance
to the Lender and its counsel:
(1) this Agreement, duly executed and delivered by each Borrower;
(2) the Note, dated the Effective Date and duly executed and
delivered by each Borrower;
(3) an intercreditor agreement from Gardner subordinating any and
all Liens against the Collateral in favor of Gardner to the Lien of the
Lender therein;
(4) the Guaranty Agreement, dated the Effective Date and duly
executed by the Guarantor;
(5) the Assignment of Investment Account, dated the Effective
Date and duly executed by each Borrower party thereto;
(6) the Support Agreements, dated the Effective Date and duly
executed by Gardner and Raymond;
(7) the Subordination Agreements, dated the Effective Date and
duly executed by IDG and Gardner, Marilyn Gardner, 151740 Canada Inc.,
and Lisa Paige;
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(8) certified copies of the articles of incorporation and by-laws
of each Borrower (and the Guarantor) as in effect on the Effective Date;
(9) certified copies of all corporate action, including
stockholder approval, if necessary, taken by each Borrower (and the
Guarantor) to authorize the execution, delivery and performance of this
Agreement and the other Loan Documents and the borrowings under this
Agreement;
(10) certificates of incumbency and specimen signatures with
respect to each of the officers of each Borrower (and the Guarantor)
who is authorized to execute and deliver this Agreement or any other
Loan Document on behalf of each Borrower (and the Guarantor) or any
document, certificate or instrument to be delivered in connection with
this Agreement or the other
Loan Documents and to request borrowings under this Agreement;
(11) a certificate evidencing the good standing of each Borrower
(and the Guarantor) in the jurisdiction of its incorporation and in each
other jurisdiction in which it is qualified as a foreign corporation to
transact business;
(12) the Financing Statements duly executed and delivered by each
Borrower, and evidence satisfactory to the Lender that the Financing
Statements have been filed in each jurisdiction where such filing may be
necessary or appropriate to perfect the Security Interest;
(13) a Schedule of Premium Finance Agreements prepared as of a
recent date;
(14) certificates or binders of insurance relating to each of the
policies of insurance covering any of the Collateral together with loss
payable clauses which comply with the terms of Section 7.7(b);
(15) such Agency Account Agreements as shall be required by the
Lender duly executed by the applicable Clearing Bank and the Borrowers;
(16) a Borrowing Base Certificate prepared as of the Effective Date
duly executed and delivered by the chief financial officer of each
Borrower;
(17) letters from the Borrowers to the Lender requesting the
Initial Loan and specifying the method of disbursement;
(18) copies of all the financial statements referred to in Section
5.1(m) and meeting the requirements thereof;
(19) a balance sheet of the Borrowers as at November 30, 1995,
prepared by the Borrowers on a pro forma basis, giving effect to the
transactions contemplated by this Agreement and setting forth the
assumptions on which such balance sheet was prepared; forecasted
consolidated financial statements consisting of balance sheets, cash
flow statements and income statements of the Borrowers, giving effect to
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the transactions contemplated by this Agreement and reflecting projected
borrowings hereunder and setting forth the assumptions on which such
forecasted financial statements were prepared; and such other evidence
as the Lender shall require supporting the representation and warranty
of the Borrowers set forth in Section 5.1(r);
(20) a certificate of the President of each Borrower stating that,
to the best of his knowledge and based on an examination sufficient to
enable him to make an informed statement, (a) all of the representations
and warranties made or deemed to be made under this Agreement are
true and correct as of the Effective Date, both with and without giving
effect to the Loans to be made at such time and the application of the
proceeds thereof, and (b) no Default or Event of Default exists;
(21) a signed opinion of Ullman & Ullman, counsel for the
Borrowers, and such local counsel as the Lender shall deem necessary or
desirable, opining as to such matters in connection with this Agreement
as the Lender or its counsel may reasonably request;
(22) the originally executed copy of all promissory notes,
appropriately endorsed to the Lender, evidencing the loans and advances
referred to in clause (c) of the definition of Permitted Investments; and
(23) copies of each of the other Loan Documents duly executed by
the parties thereto with evidence satisfactory to the Lender and its
counsel of the due authorization, binding effect and enforceability of
each such Loan Document on each such party and such other documents and
instruments as the Lender may reasonably request.
(b) Availability. The Lender shall be provided with evidence
satisfactory to it that, as of the Effective Date, after giving effect to the
Initial Loan, Availability will be not less than $400,000.
(c) No Injunctions, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain
or prohibit or to obtain substantial damages in respect of or which is
related to or arises out of this Agreement or the consummation of the
transactions contemplated hereby or which, in the Lender's sole discretion,
would make it inadvisable to consummate the transactions contemplated by this
Agreement.
(d) Material Adverse Change. As of the Effective Date, there shall not
have occurred any change which, in the Lender's sole discretion, has had or
may have a Materially Adverse Effect as compared to the condition of any
Borrower presented by the most recent unaudited financial statements of the
Borrowers described in Section 5.1(m).
(e) Solvency. The Lender shall have received evidence satisfactory to
it that, after giving effect to the Initial Loan (i) each Borrower has assets
(excluding goodwill and other intangible assets not capable of valuation)
having value, both at fair value and at present fair saleable value, greater
than the amount of its liabilities, and (ii) each Borrower's assets are
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sufficient in value to provide such Borrower with sufficient working capital
to enable it profitably to operate its business and to meet its obligations
as they become due, and (iii) each Borrower has adequate capital to conduct
the business in which it is and proposes to be engaged.
(f) Release of Security Interests. The Lender shall have received
evidence satisfactory to it of the release and termination of all Liens other
than Permitted Liens.
Section 4.2 All Loans. At the time of making of each Loan,
including the Initial Loan:
(a) all of the representations and warranties made or deemed to be made
under this Agreement shall be true and correct at such time both with and
without giving effect to the Loans to be made at such time and the application
of the proceeds thereof, except that representations and warranties which,
by their terms, are applicable only to the Effective Date shall be required
to be true and correct only as of the Effective Date,
(b) the corporate actions of each Borrower referred to in Section
4.1(a)(4) shall remain in full force and effect and the incumbency of officers
shall be as stated in the certificates of incumbency delivered pursuant to
Section 4.1(a)(5) or as subsequently modified and reflected in a certificate
of incumbency delivered to the Lender, and
(c) the Lender may, without waiving either condition, consider the
conditions specified in Sections 4.2(a) and (b) fulfilled and a representation
by each Borrower to such effect made if no written notice to the contrary is
received by the Lender from the Borrowers prior to the making of the Loans then
to be made.
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF EACH BORROWER
Section 5.1 Representations and Warranties. Each Borrower represents
and warrants to the Lender as follows:
(a) Organization; Power; Qualification. Each Borrower is a corporation,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its properties and to carry on its business as now being and hereafter
proposed to be conducted and is duly qualified and authorized to do business
in each jurisdiction in which failure to be so qualified and authorized would
have a Materially Adverse Effect. The jurisdictions in which each Borrower
is qualified to do business as a foreign corporation are listed on Schedule
5.1(a).
(b) Subsidiaries and Ownership of the Borrowers. Except as set forth
on Schedule 5.1(b), the Borrowers have no Subsidiaries. The outstanding
stock of each Borrower has been duly and validly issued and is fully paid and
nonassessable by each Borrower and the number and owners of such shares of
capital stock of each Borrower are set forth on Schedule 5.1(b).
(c) Authorization of Agreement, Note, Loan Documents and Borrowing.
Each Borrower has the right and power and has taken all necessary action to
authorize it to execute, deliver and perform this Agreement and each of the
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other Loan Documents to which it is a party in accordance with their
respective terms and to borrow hereunder. This Agreement and each of the
other Loan Documents to which it is a party have been duly executed and
delivered by the duly authorized officers of each Borrower and each is, or
when executed and delivered in accordance with this Agreement will be, a
legal, valid and binding obligation of each Borrower, enforceable in
accordance with its terms.
(d) Compliance of Agreement, Note, Loan Documents and Borrowing with
Laws, Etc. The execution, delivery and performance of this Agreement and
each of the other Loan Documents to which each Borrower is a party in
accordance with their respective terms and the borrowings hereunder do not
and will not, by the passage of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any applicable
law relating to any Borrower or any of its Affiliates,
(ii) conflict with, result in a breach of or constitute a default
under (A) the articles or certificate of incorporation or by-laws of any
Borrower, (B) any indenture, agreement or other instrument to which any
Borrower is a party or by which any of its property may be bound or (C)
any Governmental Approval relating to any Borrower, or,
(iii) result in or require the creation or imposition of any Lien
upon or with respect to any property now owned or hereafter acquired by
any Borrower other than the Security Interest.
(e) Business. Each Borrower is engaged principally in the business
described on Schedule 5.1(e).
(f) Compliance with Law; Governmental Approvals. Except as set forth
in Schedule 5.1(f), each Borrower (i) has all Governmental Approvals,
including permits relating to federal, state and local Environmental Laws,
ordinances and regulations required by any applicable law for it to conduct
its business, each of which is in full force and effect, is final and not
subject to review on appeal and is not the subject of any pending or, to the
knowledge of any Borrower, threatened attack by direct or collateral
proceeding, and (ii) is in compliance with each Governmental Approval
applicable to it and in compliance with all other applicable laws relating
to it, including, without being limited to, all Environmental Laws and all
occupational health and safety laws applicable to any Borrower or its
properties, except for instances of noncompliance which would not, singly or
in the aggregate, cause a Default or Event of Default or have a Materially
Adverse Effect and in respect of which adequate reserves have been
established on the books of such Borrower.
(g) Titles to Properties. Except as set forth in Schedule 5.1(g), each
Borrower has good and marketable title to or a valid leasehold interest in
all its Real Estate and valid and legal title to or a valid leasehold
interest in all personal property and assets used in or necessary to the
conduct of each Borrower's business, including, but not limited to, those
reflected on the balance sheet of the Borrowers delivered pursuant to
Section 5.1(m)(ii).
(h) Liens. Except as set forth in Schedule 5.1(h), none of the
properties and assets of any Borrower is subject to any Lien, except
Permitted Liens. Other than the Financing Statements, no financing
statement under the Uniform Commercial Code of any state which names any
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Borrower as debtor and which has not been terminated has been filed in any
state or other jurisdiction, and no Borrower has signed any such financing
statement or any security agreement authorizing any secured party thereunder
to file any such financing statement, except to perfect those Liens listed in
Schedule 5.1(h) and Permitted Liens.
(i) Indebtedness and Guaranties. Set forth on Schedule 5.1(i) is a
complete and correct listing of all of each Borrower's (i) Indebtedness for
Money Borrowed and (ii) Guaranties. No Borrower is in default of any material
provision of any agreement evidencing or relating to such any such
Indebtedness or Guaranty.
(j) Litigation. Except as set forth on Schedule 5.1(j), there are no
actions, suits or proceedings pending (nor, to the knowledge of any Borrower,
are there any actions, suits or proceedings threatened, nor is there any
basis therefor) against or in any other way relating adversely to or affecting
any Borrower or any of its property in any court or before any arbitrator of
any kind or before or by any governmental body.
(k) Tax Returns and Payments. Except as set forth on Schedule 5.1(k),
all United States federal, state and local and foreign national, provincial
and local and all other tax returns of each Borrower required by applicable
law to be filed have been duly filed, and all United States federal, state
and local and foreign national, provincial and local and all other taxes,
assessments and other governmental charges or levies upon each Borrower and
its property, income, profits and assets which are due and payable have been
paid, except any such nonpayment which is at the time permitted under
Section 8.4. The charges, accruals and reserves on the books of each
Borrower in respect of United States federal, state and local taxes and
foreign national, provincial and local taxes for all fiscal years and
portions thereof since the organization of such Borrower are in the
judgment of such Borrower adequate, and no Borrower knows of any reason to
anticipate any additional assessments for any of such years which, singly or
in the aggregate, might have a Materially Adverse Effect.
(l) Burdensome Provisions. No Borrower is a party to any indenture,
agreement, lease or other instrument, or subject to any charter or corporate
restriction, Governmental Approval or applicable law, compliance with the t
erms of which might have a Materially Adverse Effect.
(m) Financial Statements. Each Borrower has furnished to the Lender a
copy of (i) its consolidated and consolidating audited balance sheet as at
February 28, 1995, and the related statements of income, cash flow and
retained earnings for the twelve-month period then ended and (ii) its
unaudited consolidated and consolidating balance sheet as at November 30,
1995 and the related statement of income for the 9-month period then ended.
Such financial statements are complete and correct and present fairly and in
all material respects in accordance with GAAP, the financial position of each
Borrower as at the dates thereof and the results of operations of each
Borrower for the periods then ended. Except as disclosed or reflected in
such financial statements, no Borrower had material liabilities, contingent or
otherwise, and there were no material unrealized or anticipated losses of any
Borrower.
(n) Adverse Change. Since the date of the financial statements
described in clause (i) of Section 5.1(m), (i) no change in the business,
assets, liabilities, condition (financial or otherwise), results of
operations or business prospects of any Borrower has occurred that has had,
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or may have, a Materially Adverse Effect, and (ii) no event has occurred or
failed to occur which has had, or may have, a Materially Adverse Effect.
(o) ERISA. No Borrower nor any Related Company maintains or contributes
to any Benefit Plan other than those listed on Schedule 5.1(o). Each Benefit
Plan is in substantial compliance with ERISA, and neither the Borrower nor any
Related Company has received any notice asserting that a Benefit Plan is not
in compliance with ERISA. No material liability to the PBGC or to a
Multiemployer Plan has been, or is expected by any Borrower to be, incurred
by any Borrower or any Related Company.
(p) Absence of Defaults. No Borrower is in default under its articles
or certificate of incorporation or by-laws, and no event has occurred which
has not been remedied, cured or waived (i) that constitutes a Default or an
Event of Default or (ii) that constitutes or that, with the passage of time
or giving of notice, or both, would constitute a default or event of default
by any Borrower under any material agreement (other than this Agreement) or
judgment, decree or order to which any Borrower is a party or by which any
Borrower or any of its properties may be bound or which would require any
Borrower to make any payment thereunder prior to the scheduled maturity date
therefor.
(q) Accuracy and Completeness of Information. All written information,
reports and other papers and data produced by or on behalf of any Borrower
and furnished to the Lender were, at the time the same were so furnished,
complete and correct in all material respects to the extent necessary to give
the recipient a true and accurate knowledge of the subject matter, no fact is
known to any Borrower which has had, or may in the future have (so far as any
Borrower can foresee), a Materially Adverse Effect which has not been set
forth in the financial statements or disclosure delivered prior to the
Effective Date, in each case referred to in Section 5.1(m), or in such written
information, reports or other papers or data or otherwise disclosed in writing
to the Lender prior to the Effective Date. No document furnished or written
statement made to the Lender by any Borrower in connection with the
negotiation, preparation or execution of this Agreement or any of the Loan
Documents contains or will contain any untrue statement of a fact material to
the creditworthiness of any Borrower or omits or will omit to state a
material fact necessary in order to make the statements contained therein not
misleading.
(r) Solvency. In each case after giving effect to the Indebtedness
represented by the Loans outstanding and to be incurred and the transactions
contemplated by this Agreement, each Borrower is solvent, having assets of a
fair value which exceeds the amount required to pay its debts (including
contingent, subordinated, unmatured and unliquidated liabilities) as they
become absolute and matured, and each Borrower is able to and anticipates
that it will be able to meet its debts as they mature and has adequate capital
to conduct the business in which it is or proposes to be engaged.
(s) Premium Finance Agreements. Each Premium Finance Agreement
reflected in the computations included in any Borrowing Base Certificate meets
the criteria enumerated in clauses (a) through (h) of the definition of
Eligible Premium Finance Agreements, except as disclosed in such Borrowing
Base Certificate or as disclosed in a timely manner in a subsequent Borrowing
Base Certificate or otherwise in writing to the Lender. The Borrowers further
represent and warrant the following with regard to each Premium Finance
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Agreement as it is delivered to the Lender: (i) the applicable Borrower
will have delivered to the Lender the only original of the Premium Finance
Agreement; (ii) the applicable Borrower will have a perfected first priority
Lien in all unearned insurance premiums and dividends with respect to such
Premium Finance Agreement; (iii) the Account Debtor will have made a down
payment of at least seventeen percent (17%) of the premium if the Premium
Finance Agreement involves a Florida Account Debtor, at least twelve percent
(12%) of the premium if the Premium Finance Agreement involves a South
Carolina Account Debtor, at least ten percent (10%) of the premium if the
Premium Finance Agreement involves a Maryland Account Debtor, and at least
fifteen percent (15%) of the premium if the Premium Finance Agreement involves
a Tennessee Account Debtor; and (iv) the premium will have been paid and the
Insurer will be obligated to rebate any unearned premiums. Attached hereto
as Exhibit C is the form of Premium Finance Agreement used by the Borrowers.
(t) Chief Executive Office. The chief executive office of each Borrower
and the books and records relating to the Premium Finance Agreements and other
Receivables are located at the address or addresses set forth on Schedule
5.1(t); except as set forth Schedule 5.1(t), no Borrower has maintained
its chief executive office or the books and records relating to any
Receivables at any other address at any time during the four months
immediately preceding the Agreement Date.
(u) Equipment. All Equipment is in good order and repair in all
material respects. Set forth on Schedule 5.1(u) is the (i) address
(including street, city, county and state) of each facility at which Equipment
(other than motor vehicles) is located, (ii) the approximate value of
Equipment located at such facility; and (iii) if such facility is leased, the
name of the landlord. Except as set forth on Section 5.1(u), within the past
four months no Equipment has been located at any other location.
(v) Corporate and Fictitious Names; Trade Names. Except as otherwise
disclosed on Schedule 5.1(v), during the one-year period preceding the
Agreement Date, no Borrower has been known as or used any corporate or
fictitious name other than the corporate name of such Borrower on the
Effective Date. All trade names or styles under which any Borrower creates
Premium Finance Agreements and other Receivables, or to which instruments in
payment of Receivables are made payable, are listed on Schedule 5.1(v).
(w) Federal Regulations. No Borrower is engaged, principally or as one
of its important activities, in the business of extending credit for the
purpose of "purchasing" or "carrying" any "margin stock" (as each of the
quoted terms is defined or used in Regulations G and U of the Board of
Governors of the Federal Reserve System).
(x) Investment Company Act. No Borrower is an "investment company" or
a company "controlled" by an "investment company" (as each of the quoted t
erms is defined or used in the Investment Company Act of 1940, as amended).
(y) Employee Relations. No Borrower is, except as set forth on Schedule
5.1(y), party to any collective bargaining agreement nor has any labor union
been recognized as the representative of any Borrower's employees; no
Borrower knows of any pending, threatened or contemplated strikes, work
stoppage or other labor disputes involving its employees or those of its
Subsidiaries.
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(z) Intellectual Property. Each Borrower owns or possesses all
Intellectual Property required to conduct its business as now and presently
planned to be conducted without, to its knowledge, conflict with the rights
of others, and Schedule 5.1(z) lists all Intellectual Property owned by each
Borrower.
Section 5.2 Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this Article 5 and all statements
contained in any certificate, financial statement or other instrument
delivered by or on behalf of any Borrower pursuant to or in connection with
this Agreement or any of the Loan Documents (including, but not limited to,
any such representation, warranty or statement made in or in connection with
any amendment thereto) shall constitute representations and warranties made
under this Agreement. All representations and warranties made under this
Agreement shall be made or deemed to be made at and as of the Agreement Date,
at and as of the Effective Date and at and as of the date of each Loan,
except that representations and warranties which, by their terms are
applicable only to one such date shall be deemed to be made only at and as of
such date. All representations and warranties made or deemed to be made
under this Agreement shall survive and not be waived by the execution and
delivery of this Agreement, any investigation made by or on behalf of the
Lender or any borrowing hereunder.
ARTICLE 6 - SECURITY INTEREST
Section 6.1 Security Interest. (a) To secure the payment,
observance and performance of the Secured Obligations, each Borrower hereby
mortgages, pledges and assigns all of the Collateral to the Lender for itself
and as agent for any Affiliate of the Lender and grants to the Lender for
itself and as agent for any Affiliate of the Lender a continuing security
interest in, and a continuing Lien upon, all of the Collateral.
(b) As additional security for all of the Secured Obligations, each
Borrower grants to the Lender for itself and as agent for any Affiliate of
the Lender a security interest in, and assigns to the Lender for itself and
as agent for any Affiliate of the Lender all of each Borrower's right, title
and interest in and to, any deposits or other sums at any time credited by or
due from the Lender and each Affiliate of the Lender to each Borrower, with
the same rights therein as if the deposits or other sums were credited
by or due from the Lender.
Section 6.2 Continued Priority of Security Interest. (a) The
Security Interest granted by each Borrower shall at all times be valid,
perfected and enforceable against such Borrower and all third parties in
accordance with the terms of this Agreement, as security for the Secured
Obligations, and the Collateral shall not at any time be subject to any
Liens that are prior to, on a parity with or junior to the Security Interest,
other than Permitted Liens.
(b) Each Borrower shall, at its sole cost and expense, take all action
that may be necessary or desirable, or that the Lender may request, so as at
all times to maintain the validity, perfection, enforceability and rank of
the Security Interest in the Collateral in conformity with the requirements
of Section 6.2(a) or to enable the Lender to exercise or enforce its rights
hereunder, including, but not limited to: (i) paying all taxes, assessments
and other claims lawfully levied or assessed on any of the Collateral, except
to the extent that such taxes, assessments and other claims constitute
Permitted Liens, (ii) diligently seeking to obtain, after the Agreement Date,
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landlords', mortgagees' or mechanics' releases, subordinations or waivers,
(iii) delivering to the Lender, endorsed or accompanied by such instruments
of assignment as the Lender may specify, and stamping or marking in such
manner as the Lender may specify, any and all chattel paper, instruments,
letters and advices of guaranty and documents evidencing or forming a part of
the Collateral, and (iv) executing and delivering financing statements,
pledges, designations, hypothecations, notices and assignments, in each case
in form and substance satisfactory to the Lender, relating to the creation,
validity, perfection, maintenance or continuation of the Security Interest
under the UCC or other applicable law.
(c) The Lender is hereby authorized to file one or more financing or
continuation statements or amendments thereto without the signature of or in
the name of any Borrower for any purpose described in Section 6.2(b). A
carbon, photographic or other reproduction of this Agreement or of any of the
Security Documents or of any financing statement filed in connection with
this Agreement is sufficient as a financing statement, to the extent
permitted by applicable law.
(d) Each Borrower shall mark its books and records as may be necessary
or appropriate to evidence, protect and perfect the Security Interest and
shall cause its financial statements to reflect the Security Interest.
ARTICLE 7 - COLLATERAL COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless the Lender
shall otherwise consent in the manner provided in Section 12.11:
Section 7.1 Collection of Premium Finance Agreements. (a) Each
Borrower will cause all moneys, checks, notes, drafts and other payments
relating to or constituting proceeds of Premium Finance Agreements, or of
any other Collateral, to be deposited in an Agency Account maintained with
the Lender or an Affiliate of the Lender on the day of receipt thereof;
provided, if the Lender (or its Affiliate) establishes a per check deposit
charge with respect to checks deposited in an Agency Account, the Borrowers
may move such Agency Account to another financial institution with which an
Agency Account acceptable to the Lender is established. Upon the Lender's
request after the occurrence of a Default or Event of Default, each Borrower
will cause all moneys, checks, notes, drafts and other payments relating to
or constituting proceeds of Premium Finance Agreements, or of any other
Collateral, to be forwarded to a Lockbox for deposit in an Agency Account in
accordance with the procedures set out in the corresponding Agency Account
Agreement, and in such event each Borrower will (i) advise each Account
Debtor to address all remittances with respect to amounts payable on account
of any Premium Finance Agreements to a specified Lockbox, and (ii) stamp all
invoices relating to any such amounts with a legend satisfactory to the
Lender indicating that payment is to be made to such Borrower via a specified
Lockbox.
(b) Each Borrower and the Lender shall cause all collected balances in
each Agency Account to be transmitted daily by wire transfer or depository
transfer check or Automated Clearing House transfer in accordance with the
procedures set forth in the corresponding Agency Account Agreement to the
Lender at the Lender's Office (i) for application, on account of the Secured
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Obligations, as provided in Section 2.3(c), 11.2 and 11.3, such credits to be
entered on the one Business Day following receipt and to be conditioned upon
final payment in cash or solvent credits of the items giving rise to them,
and (ii) with respect to any balance remaining after such application, so
long as no Default or Event of Default has occurred and is continuing, for
transfer to the Disbursement Account or such other account of any Borrower
as any Borrower and the Lender may agree.
Section 7.2 Verification and Notification. The Lender shall have
the right (a) at any time and from time to time, in the name of the Lender or
in the name of any Borrower, to verify the validity, amount or any other
matter relating to any Premium Finance Agreements by mail, telephone,
telegraph or otherwise, and (b) after an Event of Default, to notify the
Account Debtors or obligors under any Premium Finance Agreements of the
assignment of such Premium Finance Agreements to the Lender and to direct
such Account Debtor or obligors to make payment of all amounts due or to
become due thereunder directly to the Lender and, upon such notification and
at the expense of the Borrowers, to enforce collection of any such Premium
Finance Agreements and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as the Borrowers might
have done.
Section 7.3 Adjustments. Any Borrower may, in the ordinary course
of business and prior to a Default or an Event of Default, compromise,
compound or settle the same for less than the full amount thereof or release
wholly or partly any Person liable for the payment thereof or allow any
credit or discount whatsoever thereon; provided that (i) no such action
results in the reduction of more than $100,000 (exclusive of write-offs and
waivers of late charges) with respect to all Premium Finance Agreements in
any fiscal year of Borrowers, and (ii) the Lender is promptly notified of the
amount of such adjustments and the Premium Finance Agreements affected
thereby.
Section 7.4 Invoices. (a) No Borrower will use any invoices except
invoices in the forms delivered to the Lender prior to the Agreement Date,
unless the Borrowers shall have given the Lender 45 days prior notice of the
intended use of a different form of invoice together with a copy of such
different form.
(b) Upon the request of the Lender, each Borrower shall deliver to the
Lender, at the Borrowers expense, copies of customers' invoices or the
equivalent, customers' statements, the original copy of all documents,
including, without limitation, repayment histories and present status reports,
relating to the Premium Finance Agreements and such other documents and
information relating to the Premium Finance Agreements as the Lender shall
specify.
Section 7.5 Delivery of Premium Finance Agreements, Promissory Notes.
The Borrowers shall deliver to the Lender, together with each Schedule of
Premium Finance Agreements referred to in Section 7.12, the original of all
Premium Finance Agreements. The Borrowers will mark all copies of Premium
Finance Agreements as copies. The Borrowers shall promptly notify the Lender
of any change in the form of Premium Finance Agreements. The Borrowers
shall, upon the Lender's request, deliver to the Lender (a) all promissory
notes, appropriately endorsed to the Lender, and all security documents
relating thereto (appropriately assigned to the Lender), evidencing all loans
and advances made by IDG and/or the Guarantor pursuant to clauses (c) and (d)
of the definition of Permitted Investments, and (b) all premium finance
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agreements (and related promissory notes and security documents) financed
and/or factored by IDG or its Affiliate pursuant to clause (e) of the
definition of Permitted Investments.
Section 7.6 Ownership and Defense of Title. (a) Except for
Permitted Liens, the Borrowers shall at all times be the sole owner of each
and every item of Collateral and shall not create any Lien on, or sell, lease,
exchange, assign, transfer, pledge, hypothecate, grant a security interest or
security title in or otherwise dispose of, any of the Collateral or any
interest therein. The inclusion of "proceeds" of the Collateral under the
Security Interest shall not be deemed a consent by the Lender to any other
sale or other disposition of any part or all of the Collateral.
(b) Each Borrower shall defend its title in and to the Collateral and
shall defend the Security Interest in the Collateral against the claims and
demands of all Persons.
(c) In addition to, and not in derogation of, the foregoing and the
requirements of any of the Security Documents, each Borrower shall (i)
protect and preserve all properties material to its business, including
Intellectual Property and maintain all tangible property in good and workable
condition in all material respects, with reasonable allowance for wear and
tear, and (ii) from time to time make or cause to be made all needed and
appropriate repairs, renewals, replacements and additions to such properties
necessary for the conduct of its business, so that the business carried on in
connection therewith may be properly and advantageously conducted at all
times.
Section 7.7 Insurance. (a) Each Borrower shall at all times
maintain insurance on the Equipment against loss or damage by fire, theft,
burglary, pilferage, loss in transit and such other hazards as the Lender
shall reasonably specify, in amounts and under policies issued by insurers
acceptable to the Lender. All premiums on such insurance shall be paid by
the Borrower and copies of the policies delivered to the Lender. The
Borrower will not use or permit the Equipment to be used in violation of any
applicable law or in any manner which might render inapplicable any insurance
coverage.
(b) All insurance policies required under Section 7.7(a) shall name the
Lender as an additional named insured and shall contain "New York standard"
loss payable clauses in the form submitted to the Borrower by the Lender, or
otherwise in form and substance satisfactory to the Lender, naming the Lender
as loss payee as its interests may appear, and providing that (i) all
proceeds thereunder shall be payable to the Lender, (ii) no such insurance
shall be affected by any act or neglect of the insured or owner of the
property described in such policy, and (iii) such policy and loss payable
clauses may not be cancelled, amended or terminated unless at least 30 days
prior written notice is given to the Lender.
(c) Any proceeds of insurance referred to in this Section 7.7 which are
paid to the Lender shall be, at the option of the Lender in its sole
discretion, either (i) applied to rebuild, restore or replace the damaged or
destroyed property, or (ii) applied to the payment or prepayment of the
Secured Obligations.
(d) Each Borrower shall at all times maintain, in addition to the
insurance required by Section 7.7(a) or any of the Security Documents,
insurance with responsible insurance companies against such risks and in such
amounts as is customarily maintained by similar businesses or as may be
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required by applicable law, including such public liability, products
liability, third party property damage and business interruption insurance as
is consistent with reasonable business practices, and from time to time
deliver to the Lender upon its request a detailed list of the insurance then
in effect, stating the names of the insurance companies, the amounts and rates
of the insurance, the dates of the expiration thereof and the properties and
risks covered thereby.
Section 7.8 Location of Offices and Collateral. No Borrower will
change the location of its chief executive office or the place where it keeps
its books and records relating to the Collateral or change its name, identity
or corporate structure without giving the Lender 30 days prior written notice
thereof.
Section 7.9 Records Relating to Collateral. Each Borrower will at
all times keep complete and accurate records of all Collateral.
Section 7.10 Inspection. The Lender (by any of its officers,
employees or agents) shall have the right, to the extent that the exercise of
such right shall be within the control of any Borrower, at any time or times
to (a) visit the properties of any Borrower, inspect the Collateral and the
other assets of any Borrower and inspect and make extracts from the books and
records of any Borrower, including, but not limited to, management letters
prepared by independent accountants, all during customary business hours
at such premises, (b) discuss any Borrower's business, assets, liabilities,
financial condition, results of operations and business prospects, insofar as
the same are reasonably related to the rights of the Lender hereunder or
under any of the Loan Documents, with any Borrower's (i) principal officers,
(ii) independent accountants and other professionals providing services to
such Borrower, and (iii) any other Person (except that any such discussion
with any third parties shall be conducted only in accordance with the Lender's
standard operating procedures relating to the maintenance of confidentiality
of confidential information of borrowers), and (c) verify the amount,
quantity, value and condition of, or any other matter relating to, any of the
Collateral and in this connection to review, audit and make extracts from all
records and files related to any of the Collateral. Each Borrower will
deliver to the Lender any instrument necessary to authorize an independent
accountant or other professional to have discussions of the type outlined
above with the Lender or for the Lender to obtain records from any service
bureau maintaining records on behalf of any Borrower.
Section 7.11 Maintenance of Equipment. Each Borrower shall maintain
all physical property that constitutes Equipment in good and workable
condition in all material respects, with reasonable allowance for wear and
tear, and shall exercise proper custody over all such property.
Section 7.12 Information and Reports.
------------------------
(a) Schedule of Premium Finance Agreements/Cancellation Report. Each
Borrower shall deliver to the Lender (i) on or before the Effective Date, a
Schedule of Premium Finance Agreements as of a date not more than three
Business Days prior to the Effective Date, setting forth a detailed aged
trial balance of all of its then existing Premium Finance Agreements,
specifying the name of and the balance due from each Account Debtor obligated
on a Premium Finance Agreement so listed, and the net receivable for each
Account Debtor obligated on a Premium Finance Agreement, and (ii) no later
than 15 days after the end of each accounting month of such Borrower, a
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Schedule of Premium Finance Agreements as of the last Business Day of such
accounting month, setting forth a detailed aged trial balance of all such
Borrower's then existing Premium Finance Agreements, specifying the name of
and the balance due from each Account Debtor obligated on a Premium Finance
Agreement so listed, and the net receivable for each Account Debtor obligated
on a Premium Finance Agreement. Each Borrower shall deliver to the Lender no
later than 15 days after the end of each accounting month of such Borrower, a
cancellation report as of the last day of such accounting month, setting
forth a detailed report of cancelled Premium Finance Agreements with aged
balances.
(b) Borrowing Base Certificate. Each Borrower shall deliver to the
Lender, not later than three Business Days after the last day of each
accounting week of such Borrower, a Borrowing Base Certificate for such
Borrower prepared as of the close of business on the last Business Day of
such accounting week, together with a reconciliation of the Premium Finance
Agreements from the last weekly report. The Borrowers shall deliver to the
Lender, not later than three Business Days after the last day of each
accounting week of the Borrowers, a consolidated Borrowing Base Certificate
for all Borrowers prepared as of the close of business on the last Business
Day of such accounting week.
(c) Notice of Diminution of Value. Each Borrower shall give prompt
notice to the Lender of any matter or event which has resulted in, or may
result in, the actual or potential diminution in excess of $50,000 in the
value of any of its Collateral, except for any diminution in the value of
any Receivables in the ordinary course of business which has been
appropriately reserved against, as reflected in the financial statements
previously delivered to the Lender pursuant to Article 9.
(d) Certification. Each of the schedules delivered to the Lender
pursuant to this Section 7.12 shall be certified by the Chief Financial
Officer of each Borrower to be true, correct and complete as of the date
indicated thereon.
(e) Other Information. The Lender may, in its discretion, from time to
time require the Borrower to deliver the schedules and reports described in
Section 7.12(a) and (b) more or less often and on different schedules and
reports than specified in such Section, and the Borrowers will comply with
such requests. Each Borrower shall also furnish to the Lender such other
information with respect to the Collateral as the Lender may from time to
time reasonably request.
Section 7.13 Power of Attorney. Each Borrower hereby appoints the
Lender as its attorney, with power (a) to endorse the name of any Borrower on
any checks, notes, acceptances, money orders, drafts or other forms of
payment or security that may come into the Lender's possession, and (b) to
sign the name of any Borrower on any invoice relating to any Receivables or
other Collateral, on any drafts against customers related to letters of
credit, on schedules and assignments of Receivables furnished to the Lender
by any Borrower, on notices of assignment, financing statements and other
public records relating to the perfection or priority of the Security
Interest or verifications of account and on notices to or from customers.
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ARTICLE 8 - AFFIRMATIVE COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless the Lender
shall otherwise consent in the manner provided for in Section 12.11, each
Borrower will:
Section 8.1 Preservation of Corporate Existence and Similar Matters.
Preserve and maintain its corporate existence, rights, franchises, licenses
and privileges in the jurisdiction of its incorporation and qualify and
remain qualified as a foreign corporation and authorized to do business in
each jurisdictionin which the character of its properties or the nature of
its business requires such qualification or authorization.
Section 8.2 Compliance with Applicable Law. Comply with all
applicable laws relating to such Borrower.
Section 8.3 Conduct of Business. Engage only in businesses in
substantially the same fields as the businesses conducted on the Effective
Date.
Section 8.4 Payment of Taxes and Claims. Pay or discharge when due
(a) all taxes, assessments and governmental charges or levies imposed upon it
or upon its income or profits or upon any properties belonging to it, and (b)
all lawful claims of materialmen, mechanics, carriers, warehousemen and
landlords for labor, materials, supplies and rentals which, if unpaid, might
become a Lien on any properties of any Borrower, except that this Section 8.4
shall not require the payment or discharge of any such tax, assessment,
charge, levy or claim which is being contested in good faith by appropriate
proceedings and for which adequate reserves have been established on the
appropriate books.
Section 8.5 Accounting Methods and Financial Records. Maintain a
system of accounting, and keep such books, records and accounts (which shall
be true and complete), as may be required or as may be necessary to permit
the preparation of financial statements in accordance with GAAP consistently
applied.
Section 8.6 Use of Proceeds. (a) Use the proceeds of (i) the
Initial Loans to pay in full the Borrower's secured Indebtedness and to pay
the amounts indicated in Schedule 8.6 to the Persons indicated therein, and
(ii) all subsequent Revolving Credit Loans only for working capital and
general business purposes, and
(b) not use any part of such proceeds to purchase or carry, or to
reduce or retire or refinance any credit incurred to purchase or carry, any
margin stock (within the meaning of Regulation G or U of the Board of
Governors of the Federal Reserve System) or for any other purpose which
would involve a violation of such Regulation G or U or Regulation T or X of
such Board of Governors or for any other purpose prohibited by law or by the
terms and conditions of this Agreement.
Section 8.7 Hazardous Waste and Substances; Environmental
Requirements. (a) In addition to, and not in derogation of, the requirements
of Section 8.2 and of the Security Documents, comply with all laws,
governmental standards and regulations applicable to any Borrower or to any
of its assets in respect of occupational health and safety laws, rules and
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regulations and Environmental Laws, promptly notify the Lender of its receipt
of any notice of a violation of any such law, rule, standard or regulation
and indemnify and hold the Lender harmless from all loss, cost, damage,
liability, claim and expense incurred by or imposed upon the Lender on
account of any Borrower's failure to perform its obligations under this
Section 8.7.
(b) Whenever a Borrower gives notice to the Lender pursuant to this
Section 8.7 with respect to a matter that reasonably could be expected to
result in liability to such Borrower in excess of $25,000 in the aggregate,
such Borrower shall, at the Lender's request and such Borrower's expense, (i)
cause an independent environmental engineer acceptable to the Lender to
conduct such tests of the site where the noncompliance or alleged
noncompliance with Environmental Laws has occurred and prepare and deliver
to the Lender a report setting forth the results of such tests, a proposed
plan to bring such Borrower into compliance with such Environmental Laws and
an estimate of the costs thereof, and (ii) provide to the Lender a
supplemental report of such engineer whenever the scope of the noncompliance
or the response thereto or the estimated costs thereof shall materially
change.
Section 8.8 Accuracy of Information. All written information,
reports, statements and other papers and data furnished to the Lender, whether
pursuant to Article 9 or any other provision of this Agreement or any of the
other Loan Documents, shall be, at the time the same is so furnished,
complete and correct in all material respects to the extent necessary to give
the Lender true and accurate knowledge of the subject matter.
Section 8.9 Revisions or Updates to Schedules. Should any of the
information or disclosures provided on any of the Schedules originally
attached hereto become outdated or incorrect in any material respect, the
Borrowers shall provide promptly to the Lender such revisions or updates to
such Schedule(s) as may be necessary or appropriate to update or correct such
Schedule(s); provided that no such revisions or updates to any Schedule(s)
shall be deemed to have cured any breach of warranty or representation
resulting from the inaccuracy or incompleteness of any such Schedule(s)
unless and until the Lender, in its sole discretion, shall have accepted
in writing such revisions or updates to such Schedule(s).
Section 8.10 Cancellation of Insurance. The Borrowers shall promptly
notify the applicable Insurers of the cancellation of any insurance contracts
or the related Premium Finance Agreements.
Section 8.11 New Credit Insurance Policies. The Borrowers shall,
within 5 days after the effectiveness of any new Credit Insurance Policy,
deliver a copy of such policy to the Lender and an originally executed
Assignment of Credit Insurance Policy with respect thereto (in form
acceptable to the Lender and acknowledged by the insurer).
ARTICLE 9 - INFORMATION
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless the Lender
shall otherwise consent in the manner set forth in Section 12.11, each
Borrower will furnish to the Lender at the Lender's Office:
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Section 9.1 Financial Statements.
---------------------
(a) Audited Year-End Statements. As soon as available, but in any
event within 105 days after the end of each fiscal year of the Borrowers,
copies of the consolidated balance sheets of the Borrowers as at the end of
such fiscal year and the related consolidated statements of income,
shareholders' equity and cash flow for such fiscal year, in each case
setting forth in comparative form the figures for the previous year of the
Borrowers and reported on, without qualification, by BDO Seidman or other
independent certified public accountants selected by such Borrower and
acceptable to the Lender.
(b) Monthly Financial Statements. As soon as available, but in any
event within 40 days after the end of each accounting month of the Borrowers,
copies of the unaudited consolidated balance sheets of the Borrowers as at
the end of such month and the related unaudited consolidated income
statements for the Borrowers for such month and for the portion of the
fiscal year of the Borrowers through such month, certified by the chief
financial officer of the Borrowers to the best of his knowledge as presenting
fairly the financial condition and results of operations of the Borrowers as
at the date thereof and for the periods ended on such date, subject to normal
year end adjustments.
(c) Projected Financial Statements. As soon as available, but in any
event within 30 days prior to the end of each fiscal year of the Borrowers,
forecasted financial statements, prepared by the Borrowers, consisting of
balance sheets, cash flow statements and income statements of the Borrowers,
all on a consolidated basis, reflecting projected borrowings hereunder and
setting forth the assumptions on which such forecasted financial statements
were prepared, covering the one-year period until the next fiscal year end.
All such financial statements shall be complete and correct in all material
respects and prepared in accordance with GAAP (except, with respect to
interim financial statements, for the omission of footnotes) applied
consistently throughout the periods reflected therein.
Section 9.2 Accountants' Certificate. Together with each delivery of
financial statements required by Section 9.1(a), a certificate of the
accountants who performed the audit in connection with such statements (a)
stating that they have reviewed this Agreement and that, in making the audit
necessary to the issuance of a report on such financial statements, they have
obtained no knowledge of any Default or Event of Default or, if such
accountants have obtained knowledge of a Default or Event of Default,
specifying the nature and period of existence thereof, and (b) setting forth
the calculations necessary to establish whether or not the Borrowers were in
compliance with the covenants contained in Sections 10.1, 10.2, and 10.5 as
of the date of such statements.
Each Borrower authorizes the Lender to discuss the financial condition of any
Borrower with any Borrower's independent certified public accountants and
agrees that such discussion or communication shall be without liability to
either the Lender or any Borrower's independent certified public accountants.
Each Borrower shall deliver a letter addressed to such accountants
authorizing them to comply with the provisions of this Section 9.2.
Section 9.3 Officer's Certificate. Together with each delivery of
financial statements required by Section 9.1(a) and (b), a certificate of
each Borrower's President or chief financial officer (a) stating that, based
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on an examination sufficient to enable him to make an informed statement, no
Default or Event of Default exists or, if such is not the case, specifying
such Default or Event of Default and its nature, when it occurred, whether
it is continuing and the steps being taken by such Borrower with respect
to such Default or Event of Default, and (b) setting forth the calculations
necessary to establish whether or not each Borrower was in compliance with
the covenants contained in Sections 10.1, 10.2, and 10.5 as of the date of
such statements.
Section 9.4 Copies of Other Reports. (a) Promptly upon receipt
thereof, copies of all reports, if any, submitted to any Borrower or its
Board of Directors by its independent public accountants, including, without
limitation, all management reports .
(b) From time to time and promptly upon each request, such forecasts,
data, certificates, reports, statements, opinions of counsel, documents or
further information regarding the business, assets, liabilities, financial
condition, results of operations or business prospects of any Borrower as
the Lender may reasonably request. The rights of the Lender under this
Section 9.4(b) are in addition to and not in derogation of its rights under
any other provision of this Agreement or any Loan Document.
(c) If requested by the Lender, statements in conformity with the
requirements of Federal Reserve Form G-1 or U-1 referred to in Regulations
G and U, respectively, of the Board of Governors of the Federal Reserve
System.
Section 9.5 Notice of Litigation and Other Matters. Prompt notice of:
(a) the commencement, to the extent any Borrower is aware of the same,
of all proceedings and investigations by or before any governmental or
nongovernmental body and all actions and proceedings in any court or before
any arbitrator against or in any other way relating adversely to, or
adversely affecting, any Borrower or any Affiliate of any Borrower or any of
their respective property, assets or businesses which might, singly or in the
aggregate, cause a Default or an Event of Default or have a Materially
Adverse Effect,
(b) any amendment of the articles of incorporation or by-laws of any
Borrower,
(c) any change in the business, assets, liabilities, financial condition,
results of operations or business prospects of any Borrower or any Affiliate
of any Borrower which has had or may have any Materially Adverse Effect and
any change in the executive officers of any Borrower, and
(d) any (i) Default or Event of Default, or (ii) event that constitutes
or that, with the passage of time or giving of notice or both, would
constitute a default or event of default by any Borrower under any material
agreement (other than this Agreement) to which any Borrower is a party or by
which any Borrower or any of its property may be bound if the exercise of
remedies thereunder by the other party to such agreement would have, either
individually or in the aggregate, a Materially Adverse Effect.
Section 9.6 ERISA. As soon as possible and in any event within 30
days after any Borrower knows, or has reason to know, that:
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(a) any Termination Event with respect to a Benefit Plan has occurred
or will occur,
(b) the aggregate present value of the Unfunded Vested Accrued Benefits
under all Plans has increased to an amount in excess of $0, or
(c) any Borrower is in "default" (as defined in Section 4219(c)(5) of
ERISA) with respect to payments to a Multiemployer Plan required by reason of
its complete or partial withdrawal (as described in Section 4203 or 4205 of
ERISA) from such Multiemployer Plan,
a certificate of the President or the chief financial officer of any Borrower
setting forth the details of such of the events described in clauses (a)
through (c) as applicable and the action which is proposed to be taken with
respect thereto and, simultaneously with the filing thereof, copies of any
notice or filing which may be required by the PBGC or other agency of the
United States government with respect to such of the events described in
clauses (a) through (c) as applicable.
ARTICLE 10 - NEGATIVE COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless the Lender
shall otherwise consent in the manner set forth in Section 12.11, no Borrower
will directly or indirectly:
Section 10.1 Financial Ratios.
(a) Maximum Liabilities to Tangible Net Worth. Permit the ratio of the
Borrowers' total Liabilities to their Tangible Net Worth (plus Subordinated
Indebtedness), all measured on a consolidated basis, at any time to be
greater than 3.5 to 1.
(b) Minimum Current Ratio. Permit the ratio of the Borrowers' current
assets to the Borrowers' current Liabilities (in each case measured on a
consolidated basis and determined in accordance with GAAP) at any time,
commencing with the fiscal quarter ending on May 31, 1996, to be less than 1
to 1.
(c) Minimum Tangible Net Worth. Permit the Tangible Net Worth of the
Borrowers, measured on a consolidated basis, at any time:
(i) from the Effective Date to and including February 29, 1997, to
be less than $2,500,000;
(ii) from March 1, 1997 to and including February 28, 1998, to be
less than $2,600,000;
(iii) from March 1, 1998 to and including February 28, 1999, to be
less than $2,700,000; and
(iv) from and after March 1, 1999, to be less than $2,800,000;
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provided, however, such minimum Tangible Net Worth levels shall, upon any
redemption or repurchase of up to $500,000 worth of capital stock in
accordance with Section 10.6(b)(i), be reduced by the corresponding
reduction in shareholders' equity, as determined in accordance with GAAP.
(d) Minimum Fixed Charge Coverage Ratio. Permit the ratio of (i) the
Borrowers' Net Income, plus depreciation, plus Interest Expense, plus
amortization and other non-cash charges, less Unfunded Capital Expenditures
and dividends, to (ii) the Borrowers' Fixed Charges, as of the end of each
fiscal quarter of the Borrowers, measured for the immediately preceding four
fiscal quarters on a consolidated basis, commencing with the fiscal quarter
ending on May 31, 1996, to be less than 1.2 to 1.
Section 10.2 Indebtedness. Create, assume, or otherwise become or
remain obligated in respect of, or permit or suffer to exist or to be created,
assumed or incurred or to be outstanding any Indebtedness for Money Borrowed,
except for Permitted Indebtedness for Money Borrowed.
Section 10.3 Guaranties. Become or remain liable with respect to any
Guaranty of any obligation of any other Person, except for Permitted
Guaranties.
Section 10.4 Investments. Acquire, after the Agreement Date, any
Business Unit or Investment or, after such date, permit any Investment to be
outstanding, other than Permitted Investments.
Section 10.5 Capital Expenditures. Make or incur any Capital
Expenditures, except that the Borrowers may make or incur Capital Expenditures
in any fiscal year in an amount not to exceed, in the aggregate, $100,000,
plus, in calendar year 1996, the purchase of an IBM AS400 computer system not
to exceed $100,000.
Section 10.6 Restricted Distributions and Payments, Etc. Declare or
make any Restricted Distribution or Restricted Payment, except that so long
as no Default or Event of Default shall have occurred and be continuing or
would result therefrom, the Borrowers may make interest payments on the
Subordinated Indebtedness and, with the Lender's written consent (which may
be given or withheld in the Lender's sole discretion), (a) the Borrowers may
make principal payments on Subordinated Indebtedness owing to Affiliates if
Availability equals or exceeds $750,000 before and after such payments, and
(b) IDG may (i) redeem or repurchase up to $500,000 worth of capital stock
from shareholders outside the Control Group, (ii) redeem or repurchase up to
$75,000 of preferred stock from Marilyn Gardner and/or (iii) convert from a
publicly-held company to a company privately owned by members of the Control
Group.
Section 10.7 Merger, Consolidation and Sale of Assets. Merge or
consolidate with any other Person or sell, lease or transfer or otherwise
dispose of all or a substantial portion of its assets to any Person.
Section 10.8 Transactions with Affiliates. Effect any transaction
with any Affiliate on a basis less favorable to any Borrower than would be
the case if such transaction had been effected with a Person not an Affiliate.
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Section 10.9 Liens. Create, assume or permit or suffer to exist or to
be created or assumed any Lien on any of the property or assets of any
Borrower, real, personal or mixed, tangible or intangible, except for
Permitted Liens.
Section 10.10 Operating Leases. Enter into any lease other than a
Capitalized Lease which would cause the annual payment obligations of any
Borrower under all leases (other than leases of real property existing on the
Effective Date (and replacements thereof), the lease of the IBM AS400 computer
system referred to in Section 10.5, and Capitalized Leases) to exceed $50,000
in the aggregate.
Section 10.11 Benefit Plans. Permit, or take any action which would
result in, the aggregate present value of the Unfunded Vested Accrued
Benefits under all Benefit Plans of any Borrower to exceed $0.
Section 10.12 Sales and Leasebacks. Enter into any arrangement with
any Person providing for the leasing from such Person of real or personal
property which has been or is to be sold or transferred, directly or
indirectly, by any Borrower to such Person.
Section 10.13 Amendments of Other Agreements. Amend in any way the
interest rate or principal amount or schedule of payments of principal and
interest with respect to any Indebtedness (other than the Secured Obligations)
other than to reduce the interest rate or extend the schedule of payments
with respect thereto.
Section 10.14 Minimum Availability. Permit Availability to be less
than $400,000 at any time.
ARTICLE 11 - DEFAULT
Section 11.1 Events of Default. Each of the following shall
constitute an Event of Default, whatever the reason for such event and
whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment or order of any court or any order, rule or
regulation of any governmental or nongovernmental body:
(a) Default in Payment of Loans. Any Borrower shall default in any
payment of principal of, or interest on, any Loan or the Note when and as due
(whether at maturity, by reason of acceleration or otherwise).
(b) Other Payment Default. Any Borrower shall default in the payment,
as and when due, of principal of or interest on, any other Secured Obligation,
and such default shall continue for five days after written notice thereof
has been given to any Borrower by the Lender.
(c) Misrepresentation. Any representation or warranty made or deemed to
be made by any Borrower under this Agreement or any other Loan Document or
any amendment hereto or thereto shall at any time prove to have been
incorrect or misleading in any material respect when made.
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(d) Default in Performance. Any Borrower shall default in the
performance or observance of any term, covenant, condition or agreement
contained in (i) Articles 6, 7, 8, 9 or 10 of this Agreement and such default
shall continue for a period of 3 Business Days after written notice thereof
has been given to the Borrowers by the Lender, or (ii) any other provision of
this Agreement (other than as specifically provided for otherwise in this
Section 11.1) and such default shall continue for a period of 10 days after
written notice thereof has been given to the Borrowers by the Lender.
(e) Indebtedness Cross-Default. (i) Any Borrower shall fail to pay when
due and payable the principal of or interest on any Indebtedness (other than
the Loans or Note) where the principal amount of such Indebtedness is in
excess of $25,000, or (ii) the maturity of any such Indebtedness shall have
(A) been accelerated in accordance with the provisions of any indenture,
contract or instrument providing for the creation of or concerning such
Indebtedness, or (B) been required to be prepaid prior to the stated
maturity thereof, or (iii) any event shall have occurred and be continuing
which, with or without the passage of time or the giving of notice, or both,
would permit any holder or holders of such Indebtedness, any trustee or agent
acting on behalf of such holder or holders or any other Person so to
accelerate such maturity.
(f) Other Cross-Defaults. Any Borrower shall default in the payment
when due or in the performance or observance of any material obligation or
condition of any agreement, contract or lease (other than the Loan Documents)
or any such agreement, contract or lease relating to Indebtedness, if the
exercise of remedies thereunder by the other party to such agreement could
have a Materially Adverse Effect.
(g) Voluntary Bankruptcy Proceeding. Any Borrower shall (i) commence a
voluntary case under the federal bankruptcy laws (as now or hereafter in
effect), (ii) commence a proceeding seeking to take advantage of any other
laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization,
winding up or composition for adjustment of debts, (iii) consent to or fail
to contest in a timely and appropriate manner any petition filed against it
in an involuntary case under such bankruptcy laws or other laws, (iv) apply
for or consent to, or fail to contest in a timely and appropriate manner, the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of a substantial part of its property,
domestic or foreign, (v) admit in writing its inability to pay its debts as
they become due, (vi) make a general assignment for the benefit of creditors,
or (vii) take any corporate action for the purpose of authorizing any of the
foregoing.
(h) Involuntary Bankruptcy Proceeding. A case or other proceeding shall
be commenced against any Borrower in any court of competent jurisdiction
seeking (i) relief under the federal bankruptcy laws (as now or hereafter in
effect) or under any other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding up or adjustment of debts, or (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of any
Borrower or of all or any substantial part of the assets, domestic or foreign,
of such Borrower, and such case or proceeding shall continue undismissed or
unstayed for a period of 60 consecutive calendar days, or an order granting
the relief requested in such case or proceeding against any Borrower
(including, but not limited to, an order for relief under such federal
bankruptcy laws) shall be entered.
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(i) Loan Documents. Any event of default or Event of Default under any
other Loan Document shall occur or any Borrower shall default in the
performance or observance of any material term, covenant, condition or
agreement contained in, or the payment of any other sum covenanted to be
paid by any Borrower under, any such Loan Document, or any provision of
this Agreement or of any other Loan Document after delivery thereof
hereunder shall for any reason cease to be valid and binding, other
than a nonmaterial provision rendered unenforceable by operation of law, or
any Borrower or other party thereto (other than the Lender) shall so state in
writing, or this Agreement or any other Loan Document, after delivery thereof
hereunder, shall for any reason (other than any action taken independently by
the Lender and except to the extent permitted by the terms thereof) cease to
create a valid, perfected and, except as otherwise expressly permitted herein,
first priority Lien on, or security interest in, any of the Collateral
purported to be covered thereby.
(j) Judgment. A judgment or order for the payment of money which
exceeds $50,000 in amount shall be entered against any Borrower by any court
and such judgment or order shall continue undischarged or unstayed for 30
days.
(k) Attachment. A warrant or writ of attachment or execution or
similar process which exceeds $50,000 in value shall be issued against any
property of any Borrower and such warrant or process shall continue
undischarged or unstayed for 30 days.
(l) ERISA. (i) Any Termination Event with respect to a Benefit Plan
shall occur that, after taking into account the excess, if any, of (A) the
fair market value of the assets of any other Benefit Plan with respect to
which a Termination Event occurs on the same day (but only to the extent
that such excess is the property of such Borrower) over (B) the present
value on such day of all vested nonforfeitable benefits under such other
Benefit Plan, results in an Unfunded Vested Accrued Benefit in excess of $0,
(ii) any Benefit Plan shall incur an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA) for which a
waiver has not been obtained in accordance with the applicable provisions
of the Code and ERISA, or (iii) any Borrower is in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan
resulting from such Borrower's complete or partial withdrawal (as described
in Section 4203 or 4205 of ERISA) from such Multiemployer Plan.
(m) Qualified Audits. The independent certified public accountants
retained by any Borrower shall refuse to deliver an opinion in accordance
with Section 9.1(a) with respect to the annual financial statements of any
Borrower.
(n) Change of Control. Gardner and Raymond shall cease to own,
beneficially and of record, 51% of the outstanding capital stock of IDG or
such ownership shall cease to vest in Gardner and Raymond voting control of
IDG, or IDG shall cease to own, beneficially and of record, 100% of the
outstanding capital stock of Eagle and Finco or such ownership shall cease
to vest in IDG voting control of Eagle and Finco.
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(o) Material Adverse Change. There occurs any act, omission, event,
undertaking or circumstance or series of acts, omissions, events, undertakings
or circumstances which have, or in the sole judgment of the Lender would have,
either individually or in the aggregate, a Materially Adverse Effect.
(p) Change in Management. Raymond shall for any reason cease to be the
President of IDG and 30 days shall have elapsed during which time no
replacement satisfactory to the Lender shall have been appointed, or Gardner
shall for any reason cease to be the Chief Executive Officer of IDG and 30
days shall have elapsed during which time no replacement satisfactory to the
Lender shall have been appointed.
Section 11.2 Remedies.
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(a) Automatic Acceleration and Termination of Facilities. Upon the
occurrence of an Event of Default specified in Section 11.1(g) or (h), (i)
the principal of and the interest on the Loans and the Note at the time
outstanding, and all other amounts owed to the Lender under this Agreement
or any of the Loan Documents and all other Secured Obligations, shall
thereupon become due and payable without presentment, demand, protest or
other notice of any kind, all of which are expressly waived, anything in
this Agreement or any of the Loan Documents to the contrary notwithstanding,
and (ii) the Revolving Credit Facility and the commitment of the Lender to
make advances thereunder or under this Agreement shall immediately terminate.
(b) Other Remedies. If any Event of Default (other than as specified in
Section 11.1(g) or (h)) shall have occurred and be continuing, the Lender, in
its sole and absolute discretion, may do any of the following:
(i) declare the principal of and interest on the Loans and the
Note at the time outstanding, and all other amounts owed to the Lender
under this Agreement or any of the Loan Documents and all other Secured
Obligations, to be forthwith due and payable, whereupon the same shall
immediately become due and payable without presentment, demand, protest
or other notice of any kind, all of which are expressly waived, anything
in this Agreement or the Loan Documents to the contrary notwithstanding;
and
(ii) terminate the Revolving Credit Facility and any commitment of
the Lender to make advances hereunder.
(c) Further Remedies. If any Event of Default shall have occurred and
be continuing, the Lender, in its sole and absolute discretion, may do any of
the following:
(i) notify, or request any Borrower to notify, in writing or
otherwise, any Account Debtor or obligor with respect to any one or more
of the Receivables to make payment to the Lender or any agent or
designee of the Lender, at such address as may be specified by the
Lender, and, if, notwithstanding the giving of any notice, any Account
Debtor or other such obligor shall make payments to any Borrower, each
Borrower shall hold all such payments it receives in trust for the
Lender, without commingling the same with other funds or property of,
or held by, such Borrower and shall deliver the same to the Lender or any
such agent or designee immediately upon receipt by such Borrower in the
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identical form received, together with any necessary endorsements;
(ii) settle or adjust disputes and claims directly with Account
Debtors and other obligors on Receivables for amounts and on terms which
the Lender considers advisable and in all such cases only the net amounts
received by the Lender in payment of such amounts, after deductions of
costs and attorneys' fees, shall constitute Collateral, and no Borrower
shall have further right to make any such settlements or adjustments or
to accept any returns of merchandise;
(iii) enter upon any premises on which Inventory or Equipment may be
located and, without resistance or interference by any Borrower, take
physical possession of any or all thereof and maintain such possession
on such premises or move the same or any part thereof to such other
place or places as the Lender shall choose, without being liable to any
Borrower on account of any loss, damage or depreciation that may occur
as a result thereof, so long as the Lender shall act reasonably and in
good faith;
(iv) require each Borrower to and each Borrower shall, without
charge to the Lender, assemble the Inventory and Equipment and maintain
or deliver it into the possession of the Lender or any agent or
representative of the Lender at such place or places as the Lender may
designate;
(v) at the expense of the Borrowers, cause any of the Inventory and
Equipment to be placed in a public or field warehouse, and the Lender
shall not be liable to any Borrower on account of any loss, damage or
depreciation that may occur as a result thereof, so long as the Lender
shall act reasonably and in good faith;
(vi) without notice, demand or other process, and without payment
of any rent or any other charge, enter any of the Borrowers' premises
and, without breach of the peace, until the Lender completes the
enforcement of its rights in the Collateral, take possession of such
premises or place custodians in exclusive control thereof, remain on
such premises and use the same and any of any Borrower's equipment, for
the purpose of (A) completing any work in process, preparing any
Inventory for disposition and disposing thereof, and (B) collecting any
Receivable, and the Lender is hereby granted a license or sublicense and
all other rights as may be necessary, appropriate or desirable to use
the Intellectual Property in connection with the foregoing, and the
rights of each Borrower under all licenses and franchise agreements shall
inure to the Lender's benefit (provided, however, that any use of any
federally registered trademarks as to any goods shall be subject to the
control as to the quality of such goods of the owner of such trademarks
and the goodwill of the business symbolized thereby);
(vii) exercise any and all of its rights under any and all of the
Security Documents;
(viii) apply any cash Collateral to the payment of the Secured
Obligations in any order in which the Lender may elect or use such cash
in connection with the exercise of any of its other rights hereunder or
under any of the Security Documents;
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(ix) establish or cause to be established one or more Lockboxes
or other arrangement for the deposit of proceeds of Receivables, and, in
such case, each Borrower shall cause to be forwarded to the Lender at
the Lender's Office, on a daily basis, copies of all checks and other
items of payment and deposit slips related thereto deposited in such
Lockboxes, together with collection reports in form and substance
satisfactory to the Lender; and
(x) exercise all of the rights and remedies of a secured party
under the UCC (whether or not the UCC is applicable) and under any other
applicable law, including, without limitation, the right, without notice
except as specified below and with or without taking the possession
thereof, to sell the Collateral or any part thereof in one or more
parcels at public or private sale, at any location chosen by the Lender,
for cash, on credit or for future delivery and at such price or prices
and upon such other terms as the Lender may deem commercially reasonable.
Each Borrower agrees that, to the extent notice of sale shall be required
by law, at least 10 days notice to any Borrower of the time and place of
any public sale or the time after which any private sale is to be made
shall constitute reasonable notice, but notice given in any other
reasonable manner or at any other reasonable time shall also constitute
reasonable notification. The Lender shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. The
Lender may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was
so adjourned.
Section 11.3 Application of Proceeds. All proceeds from each sale of,
or other realization upon, all or any part of the Collateral following an
Event of Default shall be applied or paid over as follows:
(a) First: to the payment of all costs and expenses incurred in
connection with such sale or other realization, including attorneys' fees,
(b) Second: to the payment of the Secured Obligations (with each
Borrower remaining liable for any deficiency) in any order which the Lender
may elect,
(c) Third: to the creation of a fund in an amount equal to the Letter
of Credit Reserve, which fund shall be held by the Lender as security for and
applied to the payment of any amounts which may thereafter become due under
the Letter of Credit Facility, and
(d) Fourth: the balance (if any) of such proceeds shall be paid to any
Borrower or, subject to any duty imposed by law or otherwise, to whomsoever is
entitled thereto.
Each Borrower shall remain liable and will pay, on demand, any deficiency
remaining in respect of the Secured Obligations, together with interest
thereon at a rate per annum equal to the highest rate then payable hereunder
on such Secured Obligations, which interest shall constitute part of the
Secured Obligations.
Section 11.4 Power of Attorney. In addition to the authorizations
granted to the Lender under Section 7.13 or under any other provision of this
Agreement or any of the Loan Documents, upon and after an Event of Default,
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each Borrower hereby irrevocably designates, makes, constitutes and appoints
the Lender (and all Persons designated by the Lender from time to time) as
such Borrower's true and lawful attorney and agent in fact, and the Lender
or any agent of the Lender may, without notice to any Borrower, and at such
time or times as the Lender or any such agent in its sole discretion may
determine, in the name of any Borrower or the Lender,
(a) demand payment of the Receivables, enforce payment thereof by legal
proceedings or otherwise, settle, adjust, compromise, extend or renew any or
all of the Receivables or any legal proceedings brought to collect the
Receivables, discharge and release the Receivables or any of them and
exercise all of any Borrower's rights and remedies with respect to the
collection of Receivables,
(b) prepare, file and sign the name of any Borrower on any proof of
claim in bankruptcy or any similar document against any Account Debtor or
any notice of Lien, assignment or satisfaction of Lien or similar document
in connection with any of the Collateral,
(c) endorse the name of any Borrower upon any chattel paper, document,
instrument, notice, freight bill, bill of lading or similar document or
agreement relating to the Receivables, the Inventory or any other Collateral,
(d) use the stationery of any Borrower, open any Borrower's mail,
notify the post office authorities to change the address for delivery of any
Borrower's mail to an address designated by the Lender and sign the name of
any Borrower to verifications of the Receivables and on any notice to the
Account Debtors,
(e) use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to the Receivables,
Inventory or other Collateral to which any Borrower or any Subsidiary of the
Borrower has access.
Section 11.5 Miscellaneous Provisions Concerning Remedies .
(a) Rights Cumulative. The rights and remedies of the Lender under this
Agreement, the Note and each of the Loan Documents shall be cumulative and not
exclusive of any rights or remedies which it or they would otherwise have. In
exercising such rights and remedies, the Lender may be selective and no
failure or delay by the Lender in exercising any right shall operate as a
waiver of such right nor shall any single or partial exercise of any power or
right preclude its other or further exercise or the exercise of any other
power or right.
(b) Waiver of Marshalling. Each Borrower hereby waives any right to
require any marshalling of assets and any similar right.
(c) Limitation of Liability. Nothing contained in this Article 11 or
elsewhere in this Agreement or in any of the Loan Documents shall be construed
as requiring or obligating the Lender or any agent or designee of the Lender
to make any demand or to make any inquiry as to the nature or sufficiency of
any payment received by it or to present or file any claim or notice or take
any action with respect to any Receivable or any other Collateral or the
moneys due or to become due thereunder or in connection therewith or to take
any steps necessary to preserve any rights against prior parties, and neither
the Lender nor any of its agents or designees shall have any liability to any
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Borrower for actions taken pursuant to this Article 11, any other provision
of this Agreement or any of the Loan Documents, so long as the Lender or such
agent or designee shall act reasonably and in good faith.
(d) Appointment of Receiver. In any action under this Article 11, the
Lender shall be entitled to the appointment of a receiver, without notice of
any kind whatsoever, to take possession of all or any portion of the
Collateral and to exercise such power as the court shall confer upon such
receiver.
Section 11.6 Trademark License. Each Borrower hereby grants to the
Lender the nonexclusive right and license to use any trademark then used by
such Borrower, for the purposes set forth in Section 11.2(c)(vi) and for the
purpose of enabling the Lender to realize on the Collateral and to permit
any purchaser of any portion of the Collateral through a foreclosure sale or
any other exercise of the Lender's rights and remedies under the Loan
Documents to use, sell or otherwise dispose of the Collateral bearing any
such trademark. Such right and license is granted free of charge, without
the requirement that any monetary payment whatsoever be made to any Borrower
or any other Person by the Lender. Each Borrower hereby represents, warrants,
covenants and agrees that it presently has, and shall continue to have, the
right, without the approval or consent of others, to grant the license set
forth in this Section 11.6.
ARTICLE 12 - MISCELLANEOUS
Section 12.1 Notices.
--------
(a) Method of Communication. Except as specifically provided in this
Agreement or in any of the Loan Documents, all notices and the communications
hereunder and thereunder shall be in writing or by telephone subsequently
confirmed in writing. Notices in writing shall be delivered personally or
sent by overnight courier service, by certified or registered mail, postage
pre-paid, or by facsimile transmission and shall be deemed received, in the
case of personal delivery, when delivered, in the case of overnight courier
service, on the next Business Day after delivery to such service, in the case
of mailing, on the third day after mailing (or, if such day is a day on which
deliveries of mail are not made, on the next succeeding day on which
deliveries of mail are made) and, in the case of facsimile transmission,
upon transmittal; provided that in the case of notices to the Lender, the
Lender shall be charged with knowledge of the contents thereof only when
such notice is actually received by the Lender. A telephonic notice to the
Lender as understood by the Lender will be deemed to be the controlling and
proper notice in the event of a discrepancy with or failure to receive a
confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to it at
the following addresses, or any other address of which all the other parties
are notified in writing.
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If to the Borrowers: International Design Group, Inc.
1815 Griffin Road
Suite 402
Dania, Florida 33004
Attention: David Raymond
Facsimile No.: (305) 927-9110
If to the Lender: NationsBank, N.A. (South)
c/o NationsBank Business Credit
600 Peachtree Street, 13th Floor
Atlanta, Georgia 30308
Attention: Stuart Hall
Facsimile No.: (404) 607-6439
(c) Lender's Office. The Lender hereby designates its office located
at 600 Peachtree Street, 13th Floor, Atlanta, Georgia 30308, or any
subsequent office which shall have been specified for such purpose by written
notice to any Borrower, as the office to which payments due are to be made
and at which Loans will be disbursed.
Section 12.2 Expenses. Each Borrower agrees to pay or reimburse on
demand all costs and expenses incurred by the Lender, including, without
limitation, the reasonable fees and disbursements of counsel, in connection
with (a) the negotiation, preparation, execution, delivery, administration,
enforcement and termination of this Agreement and each of the other Loan
Documents, whenever the same shall be executed and delivered, including,
without limitation, (i) the out-of-pocket costs and expenses incurred in
connection with the administration and interpretation of this Agreement and
the other Loan Documents, (ii) the costs and expenses of appraisals of the
Collateral, (iii) the costs and expenses of lien searches, and (iv) taxes,
fees and other charges of filing the Financing Statements and continuations
and the costs and expenses of taking other actions to perfect, protect, and
continue the Security Interest; (b) the preparation, execution and delivery
of any waiver, amendment, supplement or consent by the Lender relating to this
Agreement or any of the Loan Documents; (c) sums paid or obligations incurred
in connection with the payment of any amount or taking any action required of
any Borrower under the Loan Documents that such Borrower fails to pay or
take; (d) costs of inspections and verifications of the Collateral, including,
without limitation, standard per diem fees charged by the Lender for travel,
lodging, and meals for inspections of the Collateral and any Borrower's
operations and books and records by the Lender's agents up to four times per
year and whenever an Event of Default exists; (e) costs and expenses of
forwarding loan proceeds, collecting checks and other items of payment, and
establishing and maintaining each Disbursement Account, Agency Account and
Lockbox; (f) costs and expenses of preserving and protecting the Collateral;
(g) after the occurrence of a Default, consulting with and obtaining opinions
and appraisals from one or more Persons, including personal property
appraisers, accountants and lawyers, concerning the value of any Collateral
for the Secured Obligations or related to the nature, scope or value of any
right or remedy of the Lender hereunder or under any of the Loan Documents,
including any review of factual matters in connection therewith, which
expenses shall include the fees and disbursements of such Persons; and (h)
costs and expenses paid or incurred to obtain payment of the Secured
Obligations, enforce the Security Interest, sell or otherwise realize upon
the Collateral, and otherwise enforce the provisions of the Loan Documents,
or to prosecute or defend any claim in any way arising out of, related to or
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connected with, this Agreement or any of the Loan Documents, which expenses
shall include the reasonable fees and disbursements of counsel and of experts
and other consultants retained by the Lender.
The foregoing shall not be construed to limit any other provisions of the
Loan Documents regarding costs and expenses to be paid by any Borrower.
Each Borrower hereby authorizes the Lender to debit such Borrower's loan
accounts (by increasing the principal amount of the Revolving Credit Loan)
in the amount of any such costs and expenses owed by any Borrower when due.
Section 12.3 Stamp and Other Taxes. Each Borrower will pay any and
all stamp, registration, recordation and similar taxes, fees or charges and
shall indemnify the Lender against any and all liabilities with respect to or
resulting from any delay in the payment or omission to pay any such taxes,
fees or charges, which may be payable or determined to be payable in
connection with the execution, delivery, performance or enforcement of this
Agreement and any of the Loan Documents or the perfection of any rights or
security interest thereunder.
Section 12.4 Setoff. In addition to any rights now or hereafter
granted under applicable law, and not by way of limitation of any such rights,
upon and after the occurrence of any Default or Event of Default, the Lender
and any participant with the Lender in the Loans are hereby authorized by
each Borrower at any time or from time to time, without notice to any
Borrower or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and to apply any and all deposits
(general or special, time or demand, including, but not limited to,
indebtedness evidenced by certificates of deposit, whether matured or
unmatured) and any other indebtedness at any time held or owing by the
Lender or any participant to or for the credit or the account of any
Borrower against and on account of the Secured Obligations irrespective or
whether or not (a) the Lender shall have made any demand under this
Agreement or any of the Loan Documents, or (b) the Lender shall have declared
any or all of the Secured Obligations to be due and payable as permitted by
Section 11.2 and although such Secured Obligations shall be contingent or
unmatured.
Section 12.5 Litigation. EACH OF THE LENDER AND EACH BORROWER HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY
ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN
ACTION MAY BE COMMENCED BY OR AGAINST ANY BORROWER OR THE LENDER
ARISING OUT OF THIS AGREEMENT, THE COLLATERAL OR ANY ASSIGNMENT THEREOF
OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN ANY
BORROWER AND THE LENDER OF ANY KIND OR NATURE. EACH BORROWER AND THE
LENDER HEREBY AGREE THAT THE FEDERAL COURT OF THE NORTHERN DISTRICT OF
GEORGIA OR, AT THE OPTION OF THE LENDER, ANY COURT IN WHICH THE LENDER
SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY AND WHICH SITS IN A
JURISDICTION IN WHICH ANY BORROWER TRANSACTS BUSINESS SHALL HAVE NON-
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN ANY BORROWER AND THE LENDER, PERTAINING DIRECTLY OR INDIRECTLY
TO THIS AGREEMENT OR THE LOAN DOCUMENTS OR TO ANY MATTER ARISING
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THEREFROM. EACH BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS,
HEREBY WAIVING PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT OR OTHER
PROCESS OR PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE OF SUCH
SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO ANY BORROWER AND ITS COUNSEL
AT THE RESPECTIVE ADDRESSES SET FORTH IN SECTION 12.1(b), WHICH SERVICE
SHALL BE DEEMED MADE UPON RECEIPT THEREOF. THE NON-EXCLUSIVE CHOICE OF
FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF
ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN ANY APPROPRIATE
JURISDICTION.
Section 12.6 Waiver of Rights. EACH BORROWER HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY WAIVES ALL RIGHTS WHICH ANY BORROWER
HAS UNDER CHAPTER 14 OF TITLE 44 OF THE OFFICIAL CODE OF GEORGIA OR UNDER
ANY SIMILAR PROVISION OF APPLICABLE LAW TO NOTICE AND TO A JUDICIAL
HEARING PRIOR TO THE ISSUANCE OF A WRIT OF POSSESSION ENTITLING THE LENDER,
ITS SUCCESSORS AND ASSIGNS TO POSSESSION OF THE COLLATERAL UPON DEFAULT
OR EVENT OF DEFAULT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING
AND WITHOUT LIMITING ANY OTHER RIGHT WHICH THE LENDER MAY HAVE, EACH
BORROWER CONSENTS THAT, IF THE LENDER FILES A PETITION FOR AN IMMEDIATE
WRIT OF POSSESSION IN COMPLIANCE WITH SECTIONS 44-14-261 AND 44-14-262 OF THE
OFFICIAL CODE OF GEORGIA OR UNDER ANY SIMILAR PROVISION OF APPLICABLE LAW
AND THIS WAIVER OR A COPY HEREOF IS ALLEGED IN SUCH PETITION AND ATTACHED
THERETO, THE COURT BEFORE WHICH SUCH PETITION IS FILED MAY DISPENSE WITH
ALL RIGHTS AND PROCEDURES HEREIN WAIVED AND MAY ISSUE FORTHWITH AN
IMMEDIATE WRIT OF POSSESSION IN ACCORDANCE WITH CHAPTER 14 OF TITLE 44 OF
THE OFFICIAL CODE OF GEORGIA OR IN ACCORDANCE WITH ANY SIMILAR PROVISION
OF APPLICABLE LAW, WITHOUT THE NECESSITY OF AN ACCOMPANYING BOND AS
OTHERWISE REQUIRED BY SECTION 44-14-263 OF THE OFFICIAL CODE OF GEORGIA OR
IN ACCORDANCE WITH ANY SIMILAR PROVISION OF APPLICABLE LAW. EACH
BORROWER HEREBY ACKNOWLEDGES THAT IT HAS READ AND FULLY UNDERSTANDS
THE TERMS OF THIS WAIVER AND THE EFFECT HEREOF.
Section 12.7 Reversal of Payments. To the extent any Borrower makes
a payment or payments to the Lender or the Lender receives any payment or
proceeds of the Collateral for any Borrower's benefit, which payment(s) or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable cause, then, the Lender shall have the
continuing and exclusive right to apply, reverse and re-apply any and all
payments to any portion of the Secured Obligations, and, to the extent of
such payment or proceeds received, the Secured Obligations or part thereof
intended to be satisfied shall be revived and continued in full force and
effect, as if such payment or proceeds had not been received by the Lender.
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Section 12.8 Injunctive Relief. Each Borrower recognizes that, in
the event any Borrower fails to perform, observe or discharge any of its
obligations or liabilities under this Agreement, any remedy of law may prove
to be inadequate relief to the Lender; therefore, each Borrower agrees that
the Lender, at the Lender's option, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
Section 12.9 Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by
any Borrower to determine whether it is in compliance with any covenant
contained herein, shall, unless there is an express written direction or
consent by the Lender to thecontrary, be performed in accordance with GAAP.
Section 12.10 Assignment; Participation. All the provisions of this
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that no Borrower
may assign or transfer any of its rights under this Agreement. The Lender
may assign to one or more Persons, or sell participations to one or more
Persons in, all or a portion of its rights and obligations hereunder and
under the Note and, in connection with any such assignment or sale of a
participation, may assign its rights and obligations under the Security
Documents. The Lender may, in connection with any assignment or proposed
assignment or sale or proposed sale of a participation, disclose to the
assignee or proposed assignee or participant or proposed participant any
information relating to any Borrower furnished to the Lender by or on behalf
of any Borrower.
Section 12.11 Amendments. Any term, covenant, agreement or condition
of this Agreement or any of the other Loan Documents may be amended or waived
and any departure therefrom may be consented to if, but only if, such
amendment, waiver or consent is in writing signed by the Lender and, in
the case of an amendment, by any Borrower. Unless otherwise specified in
such waiver or consent, a waiver or consent given hereunder shall be effective
only in the specific instance and for the specific purpose for which given.
Section 12.12 Performance of Borrowers' Duties. Each Borrower's
obligations under this Agreement and each of the Loan Documents shall be
performed by the Borrowers at their sole cost and expense. If any Borrower
shall fail to do any act or thing which it has covenanted to do under this
Agreement or any of the Loan Documents, the Lender may (but shall not be
obligated to) do the same or cause it to be done either in the name of the
Lender or in the name and on behalf of any Borrower, and each Borrower hereby
irrevocably authorizes the Lender so to act.
Section 12.13 Indemnification. Each Borrower agrees to reimburse the
Lender for all reasonable costs and expenses, including counsel fees and
disbursements, incurred and to indemnify and hold the Lender harmless from
and against all losses suffered by the Lender, other than losses resulting
from the Lender's gross negligence or willful misconduct, in connection with
(a) the exercise by the Lender of any right or remedy granted to it under
this Agreement or any of the Loan Documents, (b) any claim, and the
prosecution or defense thereof, arising out of or in any way connected with
this Agreement or any of the Loan Documents, except in the case of a dispute
between any Borrower and the Lender in which such Borrower prevails in a
final unappealed or unappealable judgment, and (c) the collection or
enforcement of the Secured Obligations or any of them.
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Section 12.14 All Powers Coupled with Interest. All powers of
attorney and other authorizations granted to the Lender and any Persons
designated by the Lender pursuant to any provisions of this Agreement or any
of the Loan Documents shall be deemed coupled with an interest and shall be
irrevocable so long as any of the Secured Obligations remain unpaid or
unsatisfied or the Revolving Credit Facility has not been terminated.
Section 12.15 Survival. Notwithstanding any termination of this
Agreement, (a) until all Secured Obligations have been paid in full and the
Revolving Credit Facility terminated, the Lender shall retain its Security
Interest and shall retain all rights under this Agreement and each of the
Security Documents with respect to the Collateral as fully as though this
Agreement had not been terminated, and (b) the indemnities to which the
Lender is entitled under the provisions of this Article 12 and any other
provision of this Agreement and the Loan Documents shall continue in full
force and effect and shall protect the Lender against events arising after
such termination as well as before.
Section 12.16 Severability of Provisions. Any provision of this
Agreement or any other Loan Document which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remainder of such provision or the remaining provisions hereof or thereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 12.17 Governing Law. This Agreement and the Note shall be
construed in accordance with and governed by the law of the State of Georgia.
Section 12.18 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and shall be binding upon all parties, their successors and assigns,
and all of which taken together shall constitute one and the same agreement.
Section 12.19 Reproduction of Documents. This Agreement, each of the
Loan Documents and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by the Lender, and (c) financial statements,
certificates and other information previously or hereafter furnished to the
Lender, may be reproduced by the Lender by any photographic, photostatic,
microcard, microfilm, miniature photographic or other similar process, and
the Lender may destroy any original document so reproduced. Each party
hereto stipulates that, to the extent permitted by applicable laws any such
reproduction shall be as admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original shall be
in existence and whether or not such reproduction was made by such Lender in
the regular course of business), and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
Section 12.20 Funds Transfer Services.
------------------------
(a) Each Borrower acknowledges that the Lender has made available to it
a description or security procedures regarding funds transfers executed by
the Lender or an affiliate bank at the request of such Borrower (the
"Security Procedures"). Each Borrower and the Lender agree that the Security
Procedures are commercially reasonable. Each Borrower further acknowledges
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that the full scope of the Security Procedures which the Lender or such
affiliate bank offers and strongly recommends for funds transfers is
available only if such Borrower communicates directly with the Lender or such
affiliate bank as applicable in accordance with said procedures. If any
Borrower attempts to communicate by any other method or otherwise not in
accordance with the Security Procedures, the Lender or such affiliate bank,
as applicable, shall not be required to execute such instructions, but if
the Lender or such affiliate bank, as applicable, does so, such Borrower
will be deemed to have refused the Security Procedures that the Lender or
such affiliate bank, as applicable, offers and strongly recommends, and such
Borrower will be bound by any funds transfer, whether or not authorized,
which is issued in such Borrower's name and accepted by the Lender or such
affiliate bank, as applicable, in good faith. The Lender or such affiliate
bank, as applicable, may modify the Security Procedures at such time or times
and in such manner as the Lender or such affiliate bank, as applicable, in
its sole discretion, deems appropriate to meet prevailing standards of good
banking practice. By continuing to use the Lender's or such affiliate bank's,
as applicable, wire transfer services after receipt of any modification of the
Security Procedures, each Borrower agrees that the Security Procedures, as
modified, are likewise commercially reasonable. Each Borrower further agrees
to establish and maintain procedures to safeguard the Security Procedures and
any information related thereto.
(b) The Lender or such affiliate bank, as applicable, will generally
use the Fedwire funds transfer system for domestic funds transfers, and the
funds transfer system operated by the Society for Worldwide International
Financial Telecommunication (SWIFT) for international funds transfers.
International funds transfers may also be initiated through the Clearing
House InterBank Payment System (CHIPs) or international cable. However, the
Lender or such affiliate bank, as applicable, may use any means and routes
that the Lender or such affiliate bank, as applicable, in its sole discretion,
may consider suitable for the transmission of funds. Each payment order, or
cancellation thereof, carried out through a funds transfer system or a
clearing house will be governed by all applicable funds transfer system rules
and clearing house rules and clearing arrangements, whether or not the Lender
or such affiliate bank, as applicable, is a member of the system, clearing
house or arrangement and each Borrower acknowledges that the Lender's or such
affiliate bank's, as applicable, right to reverse, adjust, stop payment or
delay posting of an executed payment order is subject to the laws,
regulations, rules, circulars and arrangements described herein.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers in several counterparts all as of
the day and year first written above.
BORROWERS:
INTERNATIONAL DESIGN GROUP, INC.
[CORPORATE SEAL]
Attest: By:
Name:
By: Title:
Name:
Title:
EAGLE PREMIUM FINANCE, INC.
[CORPORATE SEAL]
Attest: By:
Name:
By: Title:
Name:
Title:
FINCO FINANCIAL CORPORATION
[CORPORATE SEAL]
Attest: By:
Name:
By: Title:
Name:
Title:
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LENDER:
NATIONSBANK, N.A. (SOUTH)
By:
Name:
Title:
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EXHIBIT 21
Listing of the Subsidiaries of the Registrant
International Design Group, Inc.
Entity State of Incorporation
QRS Acquisition Corporation New York
Finco Financial Corporation Florida
VoiceSoft Corporation Florida
Reserve Funding Corporation Florida
Federal Funding Corporation Florida
Eagle Premium Finance, Inc. Florida
____________________________
None do business under any other name.
